<PAGE>
SC 14F1
(Rule 14f-1)
INFORMATION REGARDING CHANGE IN MAJORITY OF DIRECTORS
CERTAIN SECTION 14(A) INFORMATION
Pursuant to Section 14(f) of the Securities Exchange Act of 1934
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
CHOICES ENTERTAINMENT CORPORATION
(Name of Registrant as Specified in its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/x/ No fee required.
/ / $500 per each party to the controversy pursuant to the Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(1).
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
<PAGE>
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration No.:
- -------------------------------------------------------------------------------
(3) Filing party:
- -------------------------------------------------------------------------------
(4) Date filed:
- -------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
10770 WILES ROAD
CORAL SPRINGS, FLORIDA 33076-2009
TELEPHONE: (954) 752-4289
FACSIMILE: (954) 752-4681
------------------------
TO OUR STOCKHOLDERS:
This NOTICE AND STATEMENT to the stockholders of the common and preferred stock
(the "Stockholders") of Choices Entertainment Corporation (the "Company") is
being made to provide certain information regarding the resignation of Mr. John
Boylan and Mr. Fred Portner from the Board of Directors of the Company effective
June 2, 1998, and the appointment of Mr. Thomas Renna and Mr. George Pursglove
as directors of the Company effective June 2, 1998. The resignations of Messrs.
Boylan and Portner and the appointment of Messrs. Renna and Pursglove may
constitute a change in the majority of directors of the Company.
This NOTICE AND STATEMENT is being distributed to persons or entities known by
the Committee to be Stockholders as of the date hereof.
CHOICES ENTERTAINMENT CORPORATION
BY: THE BOARD OF DIRECTORS
/s/James Sink, Chairman
/s/Thomas Renna
/s/George D. Pursglove
Coral Springs, Florida
June 19, 1998
---------------------------------------------------------
YOUR ARE NOT BEING ASKED OR OTHERWISE SOLICITED FOR A PROXY OR WRITTEN CONSENT.
THIS NOTICE AND STATEMENT IS FOR INFORMATIONAL PURPOSES ONLY.
---------------------------------------------------------
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
10770 WILES ROAD
CORAL SPRINGS, FLORIDA 33076-2009
TELEPHONE: (954) 752-4289
FACSIMILE: (954) 752-4681
NOTICE AND STATEMENT
INFORMATION CONCERNING CHANGE OF MAJORITY OF THE DIRECTORS
GENERAL
This Notice and Statement contains certain information regarding
what may constitute a change in the majority of the directors of Choices
Entertainment Corporation (the "Company"). Mr. John Boylan and Mr. Fred
Portner have resigned as directors and Mr. Thomas Renna and Mr. George
Pursglove have been appointed by James Sink, Chairman, to replace them. The
Company's new address is 10770 Wiles Road, Coral Springs, Florida. Copies of
this Notice and Statement were first mailed to Stockholders on or about June
19, 1998.
OUTSTANDING SHARES
This Notice and Statement is being provided to persons that are
holders of shares of the Company's common stock, par value $.01 (the "Common
Stock") and Series C Preferred Stock, par value $.01 (the "Preferred Stock")
(together the Common Stock and Preferred Stock are referred to herein as the
"Voting Stock"). As of March 5, 1998 22,004,395 shares of Common Stock and
109 shares of Preferred Stock were issued and outstanding. Each share of
Preferred stock is entitled to vote the equivalent of 40,000 shares of Common
Stock. The Common and Preferred Stock vote as a single class and therefore
represent total votes of 26,364,395. There are no other voting securities of
the Company outstanding.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY
The following table sets forth certain information regarding
ownership of the Company's Common Stock, as of April 17, 1998, as contained
in a Form 10KSB/A filed by the Company with the SEC on or about May 5, 1998,
by:(i) each person who is known by the Company to own beneficially more than
five percent of the combined number of votes attributable to all shares of
Common and Preferred Stock outstanding on that date, (ii) each director
(Messrs. Sink, Martignoni and Portner) and appointed directors (Messrs.
Pursglove and Renna), (iii) the former Chief Executive Officer (Ronald W.
Martignoni) and (iv) all current executive officers and directors as a group.
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED,
INCLUDING PERCENTAGE(1)
------------------
NAME AND ADDRESS
<S> <C>
Attel & Cie, S.A ...........................................2,601,112...(11.8%)
Via Nassa 58
6901 Lugano, Switzerland
John Maioriello.............................................1,826,000(2)..(7.8%)
3416 The Strand
Manhattan Beach, CA 90266
John A. Boylan(7)...........................................1,442,000(3)..(6.2%)
509 Kinsale Road
Timonium, MD 21093
Ronald W. Martignoni(8).....................................1,425,000(4)..(6.1%)
6 Chadwick Court
Voorhees, NJ 08043
James D. Sink...............................................1,041,650.....(4.7%)
800 Federal Boulevard
Carteret, NJ 07008
Fred E. Portner (7)...........................................190,000(5)....*
121 Montgomery Place
Alexandria, VA 22314
Thomas Renna .................................................165,000(6)....*
c/o 10770 Wiles Road
Coral Springs, Florida 33076
George D. Pursglove ...........................................none.........*
c/o 10770 Wiles Road
Coral Springs, Florida 33076
All current officers and directors as a Group
(three persons).............................................1,206,650.....(5.5%)
</TABLE>
- ------------------------
* Less than 1%.
<PAGE>
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities Exchange Commission and generally includes voting or investment power
with respect to securities. Shares of Common Stock or Preferred Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for purposes of computing the percentage ownership of the
person holding such option or warrant but are not deemed outstanding for
purposes of computing the percentage ownership of any other person. Except as
may be indicated otherwise, and subject to community property laws where
applicable, the persons named in the table above have sole voting and investment
power with respect to all shares of Common and Preferred Stock shown as
beneficially owned by them.
(1) Includes 1,500,000 shares of Common Stock issuable upon exercise of
fully-vested nonqualified stock options.
(3) Includes 1,000,000 shares of Common Stock issuable upon exercise of
fully-vested 1991 Management Options and 375,000 shares of Common Stock issuable
upon exercise of fully-vested 1994 Management Options.
(4) Includes 1,050,000 shares of Common Stock issuable upon exercise of
fully-vested 1991 Management Options and 375,000 shares of Common Stock issuable
upon exercise of fully-vested 1994 Management Options.
(5) Represents 100,000 shares of Common Stock issuable upon exercise of
fully-vested nonqualified stock options and 90,000 shares of Common Stock
issuable upon exercise of fully-vested 1994 Management Options.
(6)See "SECURITY OWNERSHIP OF THE COMMITTEE" for information regarding shares
held by Mr. Renna.
(7) Messrs. Boylan and Portner resigned on June 2, 1998 in accordance with a
Separation Agreement dated on or about June 2, 1998. See "RESIGNATION AND
APPOINTMENT OF DIRECTORS."
(8) Mr. Martignoni resigned on or about April 16, 1998 after appointment to the
Board of Directors of Mr. Boylan on the same day.
SECURITY OWNERSHIP OF THE COMMITTEE
The Committee for Change at Choices (the "Shareholder Committee")
may be deemed to constitute a group under the rules of the Securities and
Exchange Commission. The following table sets forth certain information
regarding the ownership of shares of the voting stock owned beneficially by
the members of the Shareholder Committee, as contained in the Schedule 14-A
filed by the Committee on April 17, 1998, as well as the percentage Stock
owned by each, and together as a group, on April 17, 1998.
<PAGE>
The Company assumes no responsibility for the accuracy of the information
contained in the table below at the date of this report.(See Certain
Relationships and Related Transactions.)
<TABLE>
<CAPTION>
NAME AMOUNT
AND ADDRESS(1) AND NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT
OWNER OWNERSHIP(2) OF CLASS(3)
- ------------------------------------------------------------ ---------------- -------------
<S> <C> <C>
Thomas Renna (co-Chair)................................................165,500(4).................... *
George Pursglove (co-Chair)..................................... none
Cary Palulis...........................................................268,000(5)....................1.0%
Harold Hamburg.........................................................490,000(6)....................1.8
William M. Goatley...................................................1,073,500(7)....................4.4
Mark and Barbara Raifman.............................................1,154,900(8)....................4.6
Carl Shaifer.........................................................2,037,000(9)....................8.2
Frank H. Harvey........................................................401,000(10)...................1.6
P.L. Anderson, Jr......................................................405,000(11)...................1.6
Gail A. Ramey..........................................................644,000(12)...................2.5
Kenneth Hiniker......................................................1,064,500(13)...................4.0
Leon Barnard...........................................................108,300....................... *
Alberta Tabony..........................................................44,000....................... *
Margaret Stone.........................................................134,000....................... *
Franklin A. Stone......................................................399,450.......................1.5
Maurice and Susan Matson...............................................250,000....................... *
Gary Welchman..........................................................193,000....................... *
Max Scheuerer..........................................................362,000.......................1.4
David Beckman..........................................................245,100....................... *
Coleman Goldberg........................................................77,200....................... *
D.J. Stone.............................................................111,250....................... *
Philip Mumford.........................................................159,872....................... *
Jerome Neidfelt........................................................400,000.......................1.5
Beverly L. Fader.......................................................202,000....................... *
Gerald Bing.............................................................80,000....................... *
Wendell and Grazina Standridge..........................................90,000....................... *
Fred and Sandy Borke....................................................39,500....................... *
Robert E. Lapides.......................................................84,200....................... *
Peter Renna.............................................................20,000....................... *
Gail Raifman...........................................................166,800....................... *
Thomas Povinelli and Anna Saras........................................106,123....................... *
Al Riccardi............................................................655,170.......................2.5
Madeline Esposito.......................................................57,534....................... *
Kenneth Stilger........................................................506,500.......................1.9
George Cannan..........................................................350,000.......................1.3
<PAGE>
Anna Tolson.............................................................20,000....................... *
Carmen Malagisi.........................................................41,000....................... *
George Cannan, Jr.......................................................85,000....................... *
Carlos Diaz.............................................................11,000....................... *
Nancy Renna..............................................................6,000....................... *
R. Neil and Gale F. Lively..............................................47,500....................... *
Kathy Travis.............................................................1,833....................... *
Michael Desaye..........................................................86,000....................... *
Stacy Cannan............................................................54,100....................... *
Caroline P. Costante....................................................33,287....................... *
Rudy and Carlene Kreutzjans.............................................99,000....................... *
Joseph and Karen Fullenkamp.............................................40,000....................... *
H. Bryan Lewis..........................................................60,000....................... *
Jonathan Votel..........................................................70,000....................... *
Larry Feeney...........................................................200,000....................... *
Richard P. Hollingsworth................................................15,000....................... *
Marc R. Van Ness........................................................90,000....................... *
------------------ -----
Totals 13,861,119 51.58%
------------------ ------
------------------ ------
</TABLE>
- ----------------------
* Represents beneficial ownership of less than 1% of the outstanding
shares of the Voting Stock.
(1) Unless otherwise indicated, the address of the beneficial owner is c/o the
Committee, 10770 Wiles Road, Coral Springs, Florida 33076-2009.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Voting Stock subject to stock
options and warrants currently exercisable or exercisable within 60 days are
deemed to be outstanding for calculating the percentage ownership of the person
holding such options and the percentage ownership of any group of which the
holder is a member, but are not deemed outstanding for calculating the
percentage of any other person. Except as indicated by footnote, and except for
voting or investment power held jointly with a person's spouse, the persons
named in the table have sole voting and investment power with respect to all
shares of capital stock shown beneficially owned by them.
(3) Percentage is calculated based upon 26,364,395 shares of Voting Stock
outstanding on November 12, 1997.
(4) Includes warrants to acquire 1.8 shares of Series C Preferred Stock
("Preferred Stock").
<PAGE>
(5) Includes 3.2 shares of Preferred Stock and warrants to acquire .3 shares of
Preferred Stock.
(6) Includes 9.6 shares of Preferred Stock and warrants to acquire .9 shares of
Preferred Stock.
(7) Includes 24 shares of Preferred Stock and warrants to acquire 2.25 shares of
Preferred Stock.
(8) Includes 16 shares of Preferred Stock and warrants to acquire 1.5 shares of
Preferred Stock.
(9) Includes 36.8 shares of Preferred Stock and warrants to acquire 3.45 shares
of Preferred Stock.
(10) Includes 6.4 shares of Preferred Stock and warrants to acquire .6 shares of
Preferred Stock.
(11) Includes 4.8 shares of Preferred Stock and warrants to acquire .45 shares
of Preferred Stock.
(12) Includes 6.4 shares of Preferred Stock and warrants to acquire .6 shares of
Preferred Stock.
RESIGNATION AND APPOINTMENT OF DIRECTORS
On June 2, 1998 John Boylan and Fred Portner resigned as directors of the
Company, and Lorraine Cannon resigned as Chief Financial Officer. The
resignations of these persons were effective upon the agreement by James Sink,
to enter into a separation agreement ( the "Separation Agreement") prepared and
tendered by the resigning directors and officer. Pursuant to the terms of the
Separation Agreement effective June 2, 1998, the Company and each of Messrs.
Boylan, Portner and Ms. Cannon agreed to a mutual release from any damage,
action, cause of action or claim whatsoever, known or unknown, liquidated or
unliquidated, and whether otherwise enforceable, up to and including the date of
the Separation Agreement. The Separation Agreement also provides for the
indemnification of Messrs. Boylan, Portner and Ms. Cannon from and against any
loss, damage, liability, judgment or claim ( and related expenses including
attorneys fees) based on the fact that such persons were directors or an officer
of the Company. Additionally, the Separation Agreement contained an affirmation
of the validity of certain stock options granted to Messrs. Boylan, Martignoni,
Portner, and Ms. Cannon.
<PAGE>
Also on June 2, 1998 the sole remaining director, Mr. James Sink, was
appointed Chairman of the Board by the outgoing directors and he in turn
appointed Mr. Thomas Renna and Mr. George Pursglove to the Board of Directors.
The new Board of Directors passed a resolution indemnifying and holding harmless
James Sink from any liability resulting from signing the Separation Agreement.
Mr. Renna and Mr. Pursglove are the Co-Chairman of the Committee for
Change at Choices, a committee of shareholders (the "Shareholders Committee")
who organized and filed a nonmanagement written consent solicitation
statement on or about December 10, 1997. Mr. Pursglove did not join the
Committee for Change at Choices until on or about January 26, 1998. The
Shareholders Committee has withdrawn its solicitation statement and has
ceased to exist.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Year First Year First Became an
Became a Executive
Name Age Position Director Officer
---- --- -------- ---------- ---------
<S> <C> <C> <C> <C>
James D. Sink 47 Director 1997 --
Thomas Renna 33 Director 1998 --
George D.
Pursglove 47 Director 1998 --
</TABLE>
JAMES D. SINK, M.D., has served as a director since February 1997. Since
March 1996, Dr. Sink has been affiliated with Allegheny University Hospitals in
Philadelphia, Pennsylvania, where he is Professor of Cardiothoracic Surgery.
Prior to joining Allegheny University Hospitals, Dr. Sink was, for more than
five years, affiliated with Presbyterian Medical Center, in Philadelphia,
Pennsylvania, where he was Chief of Cardiothoracic Surgery at the Philadelphia
Heart Institute of Presbyterian Medical Center.
THOMAS RENNA, is employed by Consolidated Merchandising Services, Inc.
("CMSI") as a Vice President of Sales and has occupied that position since
February 1, 1998. Mr. Renna's responsibilities in the position include
initiating sales calls to secure new accounts for CMSI as well as advising CMSI
as to its capital raising activities. CMSI is a company which provides
"in-store" merchandising and product assembly and sales services primarily on
behalf of branded product manufacturers or retail companies. CMSI is a company
controlled by George D. Pursglove. Prior to that, Mr. Renna was Vice President
of Sales of SSNN, Inc., ("SSNN") and held that position since October 28, 1997.
SSNN, is a start-up company providing an Internet website which offers
<PAGE>
company and stock information on small and micro-cap companies. Mr. Renna's
responsibilities included securing new subscribers for the SSNN service and
advising SSNN as to its capital raising activities. Mr. Renna was employed as a
Vice President, Investments at Texas Capital Securities from February 1995 to
October 1997. From February 1992 to January 1995, Mr. Renna was a Vice President
of Investments at Berkeley Securities. In his positions with Texas Capital
Securities and Berkeley Securities Mr. Renna was a stockbroker serving the
investment needs of his customers including the buying and selling of
securities.
GEORGE D. PURSGLOVE, has served as the Chairman, President and Chief
Executive Officer of Consolidated Merchandising Services, Inc. ("CMSI") since
the Company's incorporation in January 1997. Prior to that, Mr. Pursglove was
President of Consolidated Business Group, Inc., a business management company
offering consulting services for closely held consumer product companies. From
March 1993 through November of 1995, Mr. Pursglove served in the position of
Director of Merchandising for Office Depot's contract/commercial division and as
Senior Divisional Merchandise Manager. From April of 1992 through March of 1993,
Mr. Pursglove held the position of Divisional Merchandise Manager for the Price
Company. From August of 1991 through April of 1992, Mr. Pursglove was a business
consultant functioning in the role of merchandising/marketing liaison reporting
directly to the Presidents/CEO or owner. From August of 1988 through August of
1991, Mr. Pursglove was Senior Vice President General Merchandise Manager and
co-founder of HQ Office Supply Warehouse, Inc. From August of 1983 through
August of 1988, Mr. Pursglove held the position of merchandise manager and was
one of the original group of key management personnel who were instrumental in
the start-up of Home Club (now called Home Base), a chain of home improvement
warehouse stores. Prior to 1983, Mr. Pursglove held various positions of
increasing responsibilities with NAVRESO, FedMart and the Two Guys
organizations. Mr. Pursglove serves as a company director and adviser for
Achiever Shredders and Office Product Company, Inc. and Sims Communications,
Inc.
Directors of the Company hold their offices until the next annual meeting
of the Company's stockholders, until their successors have been duly elected and
qualified or until their earlier resignation, removal from office or death.
Officers of the Company serve at the pleasure of the Board of Directors and
until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified or until their earlier resignation, removal from office or
death.
There are no family relationships among the present executive officers and
directors of the Company.
<PAGE>
The Board of Directors currently has no standing committees and has not yet
met as duly constituted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than 10% of the Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission ("SEC"). Executive Officers, directors and beneficial
owners of more than 10% of the Common Stock are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms received by the Company and on
written representations from certain reporting persons that they have complied
with the relevant filing requirements, the Company believes that all filing
requirements applicable to its current executive officers and directors were
complied with during the most recent fiscal.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICER
The following table sets forth certain information relating to the
compensation awarded to, earned by or paid to the former Chief Executive Officer
(the "Named Executive Officer") for services in all capacities during 1997, 1996
and 1995 (there being no other executive officer of the Company whose total
annual salary and bonus exceeded $100,000 during 1997).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------- ------------
Securities
Underlying All Other
Name and Principal Options Compensation
Position Year Salary($) (#) ($)(2)
- ------------------------- ---- --------- ------------ ------------
<S> <C> <C> <C> <C>
Ronald W. Martignoni 1997 $ 92,884 (1) -0- $ 353
Chairman, Chief 1996 98,557 -0- 529
Executive Officer 1995 115,914 -0- 529
and President
- - -------------
</TABLE>
(1) Includes $15,000 received under the terms of a consulting agreement.(See
below).
<PAGE>
(2) Includes term life insurance premiums paid by the Company.
Mr. Martignoni resigned as Chairman of the Board, Chief Executive Officer
and President of the Company on April 16, 1998, after the appointment of Mr.
Boylan to the Board of Directors of the Company on that same day.(SEE DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT).
As previously reported, Mr. Martignoni had taken a position with an
unrelated company, effective October 6, 1997, and continued as the Company's
Chairman, President and Chief Executive Officer, under a consulting agreement
pursuant to which his compensation had been reduced accordingly. Under the
consulting agreement, Mr. Martignoni released the Company from all obligations
and liabilities, including any obligations under the severance agreement between
him and the Company referred to below. The consulting agreement provided for a
monthly consulting fee of $5,000 per month, which was payable through April
1998,unless extended by the Company, in exchange for services provided. Mr.
Martignoni received payments through March 1998 under this agreement; however he
has continued to provide services to the Company without compensation.
In April 1992, the Company entered into a severance agreement with Mr.
Martignoni which provided, under certain circumstances, that the Company would
pay him upon his severance an amount equal to one full year's base salary in the
event that his affiliation with the Company ceased within either one or two
years (depending upon the circumstances) following a "change in control" of the
Corporation, as that term is defined under the Company's Stock Option and
Appreciation Rights Plan of 1987. In November 1993, the Board of Directors
adopted an amendment to the severance agreement for Mr. Martignoni, which
principally increased the amount to be paid on severance from one full year's
base salary to two full years' base salary, as well as contained certain other
provisions, including a provision for the continued registration of option stock
following termination of his affiliation with the Company.
Stock Options Held At Fiscal Year-End
The following table sets forth the aggregate options to purchase shares of
Common Stock of the Company held by the Named Executive Officer at December
31,1997. No options were exercised during the year ended December 31, 1997 by
the Named Executive Officer, and there were no in-the-money unexercised options
held by the Named Executive Officer at December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options Held at
December 31, 1997(#)
--------------------------
Name Exercisable Unexercisable
---- ----------- -------------
<S> <C> <C>
Ronald W. Martignoni 1,425,000 -0-
Compensation of Directors
</TABLE>
The Company currently has no standard arrangements pursuant to which
non-employee directors are compensated for services provided as directors.
On February 13, 1997, three non-employee directors, Messrs. James D. Sink,
Joseph DeSaye and Fred E. Portner, were granted, respectively, nonqualified
options to purchase 200,000, 200,000 and 50,000 shares of the Company's Common
Stock, exercisable on or after August 13, 1997, at an exercise price of $.05 per
share, the price of the Company's Common Stock on the date of grant, which
options expire on February 13, 2002. Mr. DeSaye has since resigned as a
director, and no options have been exercised.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 25, 1997, a group of stockholders demanded that they be given
control of the Company and on December 10, 1997, this group filed preliminary
solicitation material with the Securities and Exchange Commission, seeking to
remove and replace two of three members of the Company's Board of Directors. On
February 11, 1998 and April 17, 1998, revised preliminary solicitation material
was filed by an expanded group of stockholders (the "Shareholder Committee") in
connection with the solicitation of written consents, also to remove and replace
two directors. As previously disclosed, Mr. Renna and Mr. Pursglove were the
co-chairmen of the Shareholders Committee. On June 5, 1998, the Shareholder
Committee formally withdrew its preliminary proxy material and the Shareholder
Committee has ceased to exist.
John E. Maioriello, a former Chairman of the Board and a principal
stockholder of JD Store Equipment, Inc. ("JD"), is deemed under rules of the
Securities and Exchange Commission to be the beneficial owner of more than five
percent of the Company's Common and Preferred Stock voting together. See
Securities Ownership of Certain Beneficial Owners and Management.
<PAGE>
On November 4, 1994, the Company and JD entered into a letter of intent
(the "JD Letter of Intent"), providing for a merger of the Company and JD (the
"JD Merger"). In connection with the JD Letter of Intent, JD arranged for the
issuance on its credit of a $100,000 letter of credit to a vendor of the
Company, which letter of credit expired in accordance with its terms on April
15, 1995. Upon expiration of the letter of credit, Mr. Maioriello personally
guaranteed a line of credit provided by said vendor to the Company in an amount
of approximately $250,000.
In accordance with the JD Letter of Intent and in contemplation of the JD
Merger, John Maioriello was appointed Chairman of the Board of the Company. Also
in contemplation of the JD Merger, the Company and JD incurred certain costs in
connection with the Company's plans to acquire certain retail video store
chains.
In connection with the JD Letter of Intent, the Company and JD also reached
an agreement for the payment of finder's fees, in the event the JD Merger was
not consummated, with respect to any completed merger or acquisition which Mr.
Maioriello was responsible for having introduced to the Company from the date of
the JD Letter of Intent until such time as it was publicly announced that the JD
Merger would not be consummated (September 11, 1995). Any finder's fees paid
are to consist of warrants to purchase shares of the Company's Common Stock in
an amount based upon 10% of the consideration issued or paid by the Company in
said merger or acquisition. The exercise price of the warrants is to be at a
20% discount to the bid price of the Company's Common Stock, generally
calculated on the date of the letter of intent for said merger or acquisition.
The warrants are to have a five-year term and are to include piggy-back
registration rights.
The Company and JD entered into an Agreement and Plan of Reorganization and
Merger (the "Merger Agreement"), dated as of July 19, 1995, as amended, which
provided, inter alia, for the JD Merger, through the merger of a newly formed
California corporation, formed as a wholly-owned subsidiary of the Company, with
and into JD, as a result of which, JD, as the surviving corporation in the
merger, would become a wholly-owned subsidiary of the Company. On September 8,
1995, JD notified the Company that it was terminating the Merger Agreement in
accordance with its terms and, in connection therewith, Mr. Maioriello resigned
as Chairman of the Board of the Company.
Previously, on December 6, 1994, JD agreed that in the event that the then
contemplated merger between JD Store Equipment and 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
<PAGE>
the Company that it was terminating the JD Merger in September 1995.
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. JD Store Equipment
has responded with a suggestion of a counter claim in an unspecified amount for
losses allegedly incurred in connection with the acquisition program. To avoid
the uncertainties associated with litigation and with collecting any judgment
that may be obtained, the Company has attempted to reach a settlement with JD
Store Equipment and the law firm, pursuant to which JD Store Equipment would pay
unpaid fees to the law firm, the Company would release JD Store Equipment from
any obligation to pay the $793,281 of legal fees billed to the Company and the
Company would be released by JD Store Equipment and the law firm. Although
discussions have taken place regarding such a settlement, there is no assurance
that any settlement will be concluded. Moreover, the law firm has notified the
Company that it intends to file a lawsuit against the Company in connection with
its outstanding invoices.
Mr. Maioriello has also requested indemnification for legal fees and
expenses incurred in the defense of the previously concluded stockholder
litigation in California, which are substantial and material in amount. The
Company has denied the former director's request as it does not believe that it
has any obligation for indemnification of such legal fees and expenses. However,
it is contemplated that any settlement reached with JD Store Equipment, as
described above, would include a release by the former director of any
indemnification claims that he may have against the Company. There is no
assurance, however, that any such settlement will be concluded or, if concluded,
as to what would be the terms of such a settlement.
The Company's 5% unsecured promissory notes (the "Notes"), in the principal
amount of $680,000, matured on September 11, 1997, leaving the holders thereof
with the sole remedy of converting such notes into shares of the Company's
Series C Preferred Stock (valued at $.25 per share of Common Stock). The Holders
of such Notes have, in accordance with the terms of the Notes, converted such
Notes into 68 shares of the Company's Series C Preferred Stock. In addition,
because of its severely distressed financial condition, the Company elected to
issue 3.6833 shares of its Series C Preferred Stock to the holders of the Notes,
in payment of $36,833 of accrued interest due such noteholders in September,
1997, in accordance with the terms of such Notes. Certain members of the
Shareholder Committee, named in the Beneficial Ownership Table, are the holders
of such Preferred Stock. See Securities Ownership of Certain Beneficial Owners
and Management.
John A. Boylan, a former officer and director, is deemed under the rules of
the Securities and Exchange Commission to be the beneficial owner of more than
five percent of the Company's Common and Preferred Stock voting
<PAGE>
together. See Securities Ownership of Certain Beneficial Owners and
Management. As previously reported, on August 15, 1996, the Company entered
into an eleven-month consulting agreement with Mr. Boylan, under which he
received $3,500 on a bi-weekly basis, had use of a car, already under lease
by the Company, and received health insurance benefits for a period of one
year. The Company entered into this agreement as part of a severance
agreement with Mr. Boylan, pursuant to which he resigned from employment and
from all positions with the Company, released the Company from all
obligations and liabilities, including any obligations under an existing
severance agreement between him and the Company, and agreed to the
cancellation of certain fully-vested options to purchase 291,667 shares of
Common Stock. Mr. Boylan was re-appointed to the Company's Board of Directors
and named President and Chief Executive Officer of the Company on April 16,
1998.
On July 12, 1994, Max Scheuerer, a member of the Shareholder Committee,
loaned the Company $50,000, and on December 7, 1994, loaned the Company
$100,000, which loans are evidenced by two 10% promissory notes. The
aggregate principal amount owing on the promissory notes was reduced to
$120,000 from $150,000 as a result of a $30,000 payment by the Company 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.
As previously reported, on September 18, 1996, a lawsuit was filed against
the Company in which Mr. Scheuerer sought to obtain a judgment against the
Company for amounts owing under the two aforementioned promissory notes. The
lawsuit was dismissed with prejudice on June 25, 1997, upon the payment by
the Company to Mr. Scheuerer of $145,230, in full settlement of all amounts
owed to Mr. Scheuerer.
In his capacity as a stockbroker and while employed by Texas Capital
Securities, Mr. Renna had some customers who were involved in a contested
election for control of the Company in 1996. Mr. Renna had no involvement in
this contested election other than as performing the usual and customary duties
associated with being a stockbroker and advising his clients as to the various
implications to them of the contested election. Prior to late 1997, Mr. Renna
was not acquainted with Mr. Pursglove and had not worked with him.
On October 29, 1997 Mr. Renna purchased 45,000 shares of Common Stock for
$2,688. On December 11, 1997 Mr. Renna purchased 45,000 shares of Common Stock
for $3,151. Each of these purchases was made in the open market.
<PAGE>
Mr. Pursglove has had no past involvement with any of the efforts to change
control of the Company. Prior to late 1997, Mr. Pursglove was not acquainted
with Mr. Renna and had not worked with him.
Mr. Kenneth Hiniker, a member of the Shareholder Committee, has advanced
$25,000 to the Shareholder Committee to pay legal fees. The loan is to be repaid
when, as, and if the Shareholder Committee has funds sufficient for that
purpose.
COSTS ASSOCIATED WITH THE CHANGE OF CONTROL
The costs of the election contest initiated by the Shareholder Committee
and which may be considered to be a cause or contributing cause to the change of
the majority of the board of directors as more fully disclosed herein was borne
by the Shareholder Committee without reimbursement by the Company. Such costs
are estimated to approximate $75,000. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Choices Entertainment Corporation
By the Board of Directors
/s/James Sink, Chairman
/s/Thomas Renna
/s/George D. Pursglove
Coral Springs, Florida
June 19, 1998
