<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section Exchange Act Rule 14a-11(c) or
14a-012
FOOD COURT ENTERTAINMENT NETWORK, INC.
-----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to 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:
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset 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 Statement No.:__________________________
3) Filing Party:_________________________________________________________
4) Date Filed:___________________________________________________________
----------------------------------------------------------------------
Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
(LOGO)
FOOD COURT ENTERTAINMENT NETWORK, INC.
1996
PROXY STATEMENT
TO
STOCKHOLDERS
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
34-12 36th Street
Astoria, New York 11106
June 5, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of Food Court Entertainment Network, Inc. which will be held on
June 26, 1996 at 9:00 A.M., at the Sky Club, 56th Floor, Met Life Building,
200 Park Avenue, New York, New York. The official notice of the meeting
together with a proxy statement and form of proxy are enclosed. Please give
this information your careful attention.
Stockholders of the Company are being asked to elect 10 directors of
the Company to serve until the 1997 Annual Meeting of Stockholders, to approve
amendments to the Company's Employee Stock Option Plan and to approve a
Director Stock Option Plan. Whether or not you expect to attend the meeting in
person, it is important that your shares be voted at the meeting. I urge you
to specify your choices by marking the enclosed proxy and returning it
promptly.
Sincerely,
STEPHEN G. BOWEN
President and Chief Executive Officer
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
34-12 36th Street
Astoria, New York 11106
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held June 26, 1996
---------------------------
TO OUR STOCKHOLDERS:
Notice is hereby given that the annual meeting of stockholders of
FOOD COURT ENTERTAINMENT NETWORK, INC. (the "Company") will be held on June
26, 1996, at 9:00 A.M. (prevailing time), at the Sky Club, 56th Floor, Met
Life Building, 200 Park Avenue, New York, New York for the following purposes:
1. To elect the Directors named herein, as more fully described
in the accompanying Proxy Statement;
2. To consider and act on amendments to the Company's 1995
Employee Stock Option Plan which (a) increase the number of
shares issuable under the Employee Stock Option Plan from
400,000 to 2,000,000 (with the current intention to award
options to purchase 600,000 shares to each of the Company's
Chairman and the Company's Chief Executive Officer) and (b)
provide that members of the Compensation Committee may be
removed only with cause;
3. To approve a Director Stock Option Plan; and
4. To transact such other business as may properly come before
this meeting or any postponement or adjournment thereof.
The Board of Directors has fixed May 20, 1996 as the record date for
the determination of stockholders entitled to vote at the annual meeting. Only
stockholders of record at the close of business on that date will be entitled
to notice of, and to vote at, the annual meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
June 5, 1996 By Order of the Board of Directors,
Robert H. Lenz
Chairman
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
34-12 36th Street
Astoria, New York 11106
----------------------------
PROXY STATEMENT
----------------------------
The accompanying proxy is solicited by and on behalf of FOOD COURT
ENTERTAINMENT NETWORK, INC. (the "Company") for use at the annual meeting
("Annual Meeting") of stockholders to be held on June 26, 1996, at 9:00 A.M.
(prevailing time) at the Sky Club, 56th Floor, Met Life Building, 200 Park
Avenue, New York, New York and at any postponement or adjournment thereof. The
approximate date on which this Proxy Statement and the accompanying form of
proxy will first be sent or given to stockholders is June 5, 1996.
Sending in a signed proxy will not affect the stockholders's right to
attend the annual meeting and vote in person since the proxy is revocable. Any
stockholders giving a proxy has the power to revoke it by, among other
methods, giving written notice to the Secretary of the Company or delivering a
later dated proxy at any time before the proxy is exercised.
The expense of the proxy solicitation will be borne by the Company.
In addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or teletype by directors, officers or employees of the
Company without additional compensation. Upon request by record holders of the
Company's Series A Common Stock, par value $.01 per share (the "Series A
Common Stock"), who are brokers, dealers, banks or voting trustees, or their
nominees, the Company will pay the reasonable expenses incurred by such record
holders for mailing proxy material and annual stockholders reports to any
beneficial owners of Series A Common Stock.
A form of proxy is enclosed. If properly executed and received in
time for voting, and not revoked, the enclosed proxy will be voted as
indicated in accordance with the instructions thereon. If no directions to the
contrary are indicated, the persons named in the enclosed proxy will vote all
shares of the Company's Series A Common Stock and Series B Common Stock, par
value $.01 per share ("Series B Common Stock") for election of all nominees
for directorships hereinafter named and in favor of Proposals Two (to approve
amendments to the Employee Stock Option Plan, including an increase in the
number of shares issuable under the plan, with the current intention to grant
options to purchase 600,000 shares to each of the Company's Chairman and the
Company's Chief Executive Officer), and Three (to approve a Director Stock
Option Plan).
The enclosed proxy confers discretionary authority to vote with
respect to any and all of the matters that may come before the meeting. In
connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
The Company is not currently aware of any matters which will be
brought before the annual meeting (other than procedural matters) which are
not referred to in the enclosed notice of the annual meeting.
<PAGE>
The Company had 3,918,125 shares of Series A Common Stock and
1,146,250 shares of Series B Common Stock outstanding (including treasury
shares) at the close of business on May 20, 1996, the record date (the "Record
Date"). The presence, in person or by proxy, of stockholders entitled to cast
at least a majority of the votes which all stockholders are entitled to cast
on a particular matter constitutes a quorum for the purpose of considering
such matter. All such shares that are present in person or represented by
proxy at the meeting will be counted in determining whether a quorum is
present, no matter how the shares are voted or whether they abstain from
voting or are broker non-votes. Each share of Series A Common Stock
outstanding is entitled to one vote and each share of Series B Common Stock is
entitled to five votes on each matter which may be brought before the annual
meeting. Except as otherwise indicated, Series A and Series B stockholders
vote as a single class. Management of the Company holds 937,329 shares of
Series B Common Stock and approximately 48% of the combined voting power in
the Company.
The election of directors will be determined by a plurality vote.
Adoption of Proposals Two and Three requires the affirmative vote of a
majority of the votes present in person or represented by proxy at the meeting
and entitled to vote on the matter.
Under the Delaware General Corporation Law, an abstention,
withholding of authority to vote or broker non-vote on any proposal other than
the election of directors will have the same legal effect as an "against"
vote.
Proposal Two is being submitted for stockholder approval to satisfy
the requirement of the Internal Revenue Code of 1986 (the "Code") and Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") and
Proposal Three is being submitted to satisfy Rule 16b-3. Rule 16b-3 requires
that the Plan (or certain amendments thereto) be approved "by the affirmative
vote of the holders of a majority of the securities of the issuer present, or
represented, and entitled to vote at a meeting. . . ." The staff of the SEC
has expressed the view that abstentions (but not broker non-votes) have the
legal effect of an "against" vote and are counted in determining whether a
proposal has received the required shareholder vote under Rule 16b-3.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 20, 1996, the ownership of
the Company's Common Stock by (i) each person who is known by the Company to
own, of record or beneficially, more than five percent of the Company's Series
A Common Stock or Series B Common Stock, (ii) each of the Company's Directors,
Nominees for Director, and Executive Officers, and (iii) all Directors,
Nominees for Directors, and Executive Officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and
investment powers with respect to the shares indicated. The following table
does not reflect shares which may be acquired pursuant to options to be
granted under the Company's proposed Director Stock Option Plan. See "Proposal
Three".
<TABLE>
<CAPTION>
Number of
Number of Shares of Percentage
Shares of Series B of Series B
Series A Common Common
Common Stock Percentage of Series Stock Stock
Beneficially A Common Stock Beneficially Beneficially Voting
Name(1) Owned(2) Beneficially Owned Owned(2)(3))4) Owned(5) Control
- ----------------------------- ----------------- ---------------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Robert H. Lenz.............. 958,598(6) 19.75% 440,748(7) 39.14 27.10%
Stephen G. Bowen............ 294,045(8) 7.00 206,545(9) 18.34 11.64
Jeffrey Steinberg........... 188,786(10) 4.59 188,786(9) 16.76 9.88
Joseph Mercaldo............. 188,786(10) 4.59 188,786(9) 16.76 9.88
Harvey S. Wilson............ 104,026(11) 2.58 90,000(12) 7.99 4.85
Gary Penisten............... 30,000(13) * -0- -0- *
Howard W. Phillips.......... 63,488(14) 1.59 -0- -0- *
Robert S. Wussler........... 30,000(13) * -0- -0- *
Benjamin Frank.............. 15,000(15) * -0- -0- *
E. Donald Shapiro........... 23,000(16) * -0- -0- *
John J. McMenamin........... -0-(17) * -0- -0- *
Steven J. Heyer............. -0-(17) * -0- -0- *
Darren M. Sardoff........... 50,000(18) 1.26 -0- -0- *
James Perkins............... 25,000(19) * -0- -0- *
All Officers and Directors
as a Group (12 persons)..... 1,970,729(20) 33.69% 1,114,865 99.00% 62.03%
</TABLE>
* Denotes less than 1%
(1) Except as otherwise indicated, the address of all of the named individuals
is c/o Food Court Entertainment Network, Inc. 34-12 36th Street, Astoria,
New York.
3
<PAGE>
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the wife and/or
minor children or the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options, warrants or convertible
securities within 60 days after the date of this table. Beneficial
ownership may be disclaimed as to certain of the securities.
(3) Certain holders of Series B Common Stock have placed a portion of their
shares of Series B Common Stock in escrow and may vote such shares but
not transfer them as of this time ("Escrow Shares").
(4) Each share of Series B Common Stock is entitled to five votes per share,
is convertible into one share of Series A Common Stock at the option of
the holder, and will automatically convert into an equivalent number of
shares of Series A Common Stock upon the sale or transfer by the record
holder to any person other than another holder of Series B Common Shares.
(5) Excludes 20,135 shares of Series B Common Stock held in treasury.
(6) Includes warrants to purchase 492,850 shares of Series A Common Stock and
440,748 shares of Series A Common Stock which may be acquired upon the
conversion of Series B Common Stock.
(7) Includes 241,180 Escrow Shares.
(8) Includes warrants to purchase 75,000 shares of Series A Common Stock and
206,545 shares of Series A Common Stock which may be acquired upon the
conversion of Series B Common Stock.
(9) Includes 106,545 Escrow Shares.
(10) Represents 188,786 shares of Series A Common Stock which may be
acquired upon the conversion of Series B Common Stock.
(11) Includes warrants to purchase 14,026 shares of Series A Common Stock
and 90,000 shares of Series A Common Stock which may be acquired upon
the conversion of Series B Common Stock.
(12) Includes 75,300 Escrow Shares.
(13) Represents 30,000 shares of Series A Common Stock which may be
acquired upon the exercise of currently exercisable options.
(14) Represents 63,488 shares of Series A Common Stock which may be
acquired upon the exercise of currently exercisable options and
warrants. Does not include 154,560 shares of Series A Common Stock
which may be acquired upon exercise of a unit purchase option not
exercisable until October, 1998.
4
<PAGE>
(15) Represents 15,000 shares of Series A Common Stock which may be
acquired upon the exercise of currently exercisable options.
(16) Includes 21,000 shares of Series A Common Stock which may be acquired
upon the exercise of currently exercisable options and warrants.
(17) Does not include 125,000 shares of Series A Common Stock owned by
Turner Private Network, Inc. or 125,000 additional shares of Series A
Common Stock which the Company has agreed to issue to Turner Private
Network, Inc.
(18) Represents 50,000 shares of Series A Common Stock which may be
acquired upon the exercise of currently exercisable options. Does not
include 50,000 shares of Series A Common Stock underlying unvested
stock options.
(19) Represents 25,000 shares of Series A Common Stock which may be
acquired upon the exercise of currently exercisable options. Does not
include 175,000 shares of Series A Common Stock underlying unvested
stock options.
(20) Includes 816,364 shares of Series A Common Stock which may be acquired
upon the exercise of currently exercisable options and warrants and
1,114,865 shares of Series A Common Stock which may be acquired upon
conversion of Series B Common Stock.
Pursuant to an agreement dated April 16, 1996, the Company agreed to
issue 250,000 shares of Series A Common Stock to Turner Private Network, Inc.
("Turner"), of which 125,000 shares are owned by Turner as of the date of this
Proxy Statement. The remaining 125,000 shares will be issued to Turner upon
completion of production and delivery of six months of programming to Food
Court by Turner.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's by-laws provide that the Board of Directors shall
consist of such number as determined by the Board of Directors. The Board of
Directors has by resolution set the number of directors to be elected at 10.
The Board of Directors has designated the persons listed below to be
nominees for election as Directors. Pursuant to an agreement with Turner
entered into on April 16, 1996, the Company has agreed to nominate an
individual designated by Turner for election as a Director. John J. McMenamin
has been so designated. The Company has additionally determined to nominate
another member of Turner management to its Board. The Company does not have a
nominating committee. The nominees are being nominated to serve for a one year
term and until their successors are elected and qualified. The Company has no
reason to believe that any of the nominees will be unavailable for election;
however, should any nominee become unavailable for any reason the Board of
Directors may designate a substitute nominee. The proxy agents intend (unless
authority has been withheld) to vote for the election of the Company's
nominees.
5
<PAGE>
Information as to Directors and Nominees
The following information regarding the Company's nominees is based,
in part, upon information furnished by these individuals.
Name Age Position
---- --- --------
Robert H. Lenz 56 Chairman of the Board of Directors
Stephen G. Bowen 52 President, Chief Executive Officer and Director
Gary D. Penisten 64 Director
Howard W. Phillips 64 Director
Jeffrey Steinberg 34 Director
Robert J. Wussler 57 Director
Benjamin Frank 61 Director
E. Donald Shapiro 64 Director
John J. McMenamin 42 Director Nominee
Steven J. Heyer 43 Director Nominee
Robert H. Lenz
Chairman of the Board of Directors
Mr. Lenz has served as the Company's Chairman since May, 1993. From
1979 to 1991, Mr. Lenz was a principal, Creative Director and co-founder with
five partners of the advertising firm of Backer & Spielvogel Inc. After the
merger of Backer & Spielvogel with Ted Bates, Inc. in 1988, Mr. Lenz was
Chairman and Creative Director of Backer Spielvogel Bates U.S. until 1991.
Subsequent to his departure from Backer Spielvogel Bates U.S. in 1991, Mr.
Lenz has been pursuing personal interests including the development of Cafe
USA.
Stephen G. Bowen
President, Chief Executive Officer and Director
Mr. Bowen has served as the Company's President and Chief Executive
Officer, and as a Director since May, 1993. From 1969 to 1991, Mr. Bowen was
employed at the advertising firm of J. Walter Thompson, including as a member
of the Worldwide Board of Directors from 1982 to 1991 and from 1987 to 1991 as
President and COO of J. Walter Thompson USA. In March 1992, Mr. Bowen was
engaged by the New York advertising agency Geer & DuBois as its President and
held such position until February, 1993. Geer & DuBois made a general
assignment for the benefit of creditors in February 1993 by filing a formal
petition with the United States Bankruptcy Court for the Southern District of
New York.
6
<PAGE>
Gary D. Penisten,
Director
Mr. Penisten has been a director of the Company since October, 1993.
Mr. Penisten was employed with General Electric from 1953 to 1974, including
as Manager of Finance for General Electric's Power Generation Group from 1972
to 1974. From 1974 to 1977 Mr. Penisten served as Assistant Secretary of the
Navy, Financial Management. In 1977 he joined Sterling Drug, Inc. where he was
Senior Vice President, CFO, and member of the Board of Directors of Sterling
until 1988. After Sterling Drug was acquired by Eastman Kodak in 1988, Mr.
Penisten remained with Kodak for two years as CFO of the Health Group until he
took early retirement to pursue personal business interests in 1990. Mr.
Penisten was a minority owner and director of Network Communications, Inc.
which in December, 1990 filed a petition pursuant to Chapter 11 of the Federal
Bankruptcy laws. Currently, Mr. Penisten is Chairman of the Board and a
director of Acme United Corporation and a Director of D.E. Foster Partners,
Inc.
Howard W. Phillips,
Director
Mr. Phillips has been a director of the Company since October, 1993.
From 1983 until August, 1995, Mr. Phillips was Director of Corporate Finance
at D.H. Blair Investment Banking Corp. Mr. Phillips was a partner and Director
of Corporate Finance of Oppenheimer & Co., Inc., an investment banking firm
from 1970 to 1980. Mr. Phillips is currently a financial consultant and
private investor and is a director of Monaco Finance and Telechips
Corporation.
Robert J. Wussler,
Director
Mr. Wussler has been a director of the Company since October, 1993.
Mr. Wussler was President of CBS Sports and CBS Television, Senior Executive
Vice President with Turner Broadcasting Systems (1980-1989), and CEO with
Comsat Video Enterprises (1989-1992). Since leaving Comsat Video in 1992, Mr.
Wussler has remained active in the industry serving as Treasurer to the Board
of Governors of the National Cable Television Association (NCTA), the Board of
Governors of the National Academy of Cable Programming (NACP) and the Board of
Advisors of the Cable Television Public Affairs Association (CTPAA). Mr.
Wussler is currently the President and Chief Executive Officer of New Venco,
Inc., a private corporation owned by ABC affiliated television stations
organized to explore new media ventures and is also a Director of the
Nostalgia Channel, a publicly held corporation.
Jeffrey Steinberg,
Director
Mr. Steinberg is a co-founder of the Company. He served as
co-Chairman from the Company's inception until October, 1993. From October,
1993 until March, 1995 Mr. Steinberg served as Director of Mall Distribution
Development of the Company. In July, 1994 Mr. Steinberg was appointed as a
Director. Currently Mr. Steinberg is a consultant to the Company for network
program development and is involved in other media and entertainment ventures
not in competition with the Company. In 1981 and 1986 he founded Classic Car
Service and Landscape Concepts Tree Care, Inc., respectively.
7
<PAGE>
Benjamin Frank,
Director
Mr. Frank has been a Director of the Company since October, 1995.
Currently, Mr. Frank, an Attorney, is the Chairman of a Benjamin Frank &
Associates, a business engaged in real estate development, international trade
and mergers and acquisitions. Prior thereto, Mr. Frank had served as a Senior
Vice President of Allied Stores Corporation and on President Reagan's Advisory
Committee for Trade Negotiations.
E. Donald Shapiro,
Director
Mr. Shapiro has been a Director of the Company since October, 1995.
Mr. Shapiro is currently a Joseph Solomon Distinguished Professor of Law at
New York Law School and a Supernumerary Fellow at St. Cross College at Oxford
University. Mr. Shapiro is a member of the Board of Directors of Loral Space &
Communications, a NYSE company, Bank Leumi, Eyecare Products PLC, a London
Stock Exchange company, Kranzco Realty Trust, a NYSE company, Vion, Inc., a
NASDAQ company, Vascomedical Products, Inc., a NASDAQ company, Telepad, Inc.,
a NASDAQ company, Premier Laser Systems, Inc., a NASDAQ company and United
Industrial Corporation, a NYSE company.
John J. McMenamin,
Director Nominee
Mr. McMenamin has agreed to be nominated for election as a director
of the Company at the Company's 1996 annual meeting. Mr. McMenamin is
currently Executive Vice President of Turner Broadcasting Sales, Inc. ("TBSI")
and President of Turner Private Networks, Inc. Mr. McMenamin joined TBSI in
June, 1991.
Steven J. Heyer,
Director Nominee
Mr. Heyer has agreed to be nominated for election as a director of
the Company at the Company's 1996 annual meeting. Mr. Heyer is President of
TBSI and a member of the Executive, Finance and Planning Committees of Turner
Broadcasting System, Inc. Prior to joining Turner in May, 1994, Mr. Heyer was
President of Young and Rubicam Advertising World Wide.
Board Meetings and Committees of the Board
During 1995, there were 8 meetings of the Board of Directors. Each
Director attended more than 75% of the meetings of the Board.
The Company became subject to the reporting requirements of the
Exchange Act as a result of its initial public offering in October, 1995.
Subsequent to its initial public offering, the Board of Directors established
an Audit Committee and a Compensation Committee.
The Audit Committee is responsible for reviewing the Company's
accounting and financial practices and policies and the scope and results of
the Company's audit. The Audit Committee is also responsible for recommending
8
<PAGE>
the selection of the Company's independent public accountants. The Audit
Committee is comprised of Robert Wussler and E. Donald Shapiro. The Audit
Committee did not meet in 1995.
The Compensation Committee reviews the compensation of executive
officers, makes recommendations to the Board regarding executive compensation
and administers the Company's Employee Stock Option Plan. The Compensation
Committee is comprised of Benjamin Frank and Gary Penisten. The Compensation
Committee did not meet in 1995.
The Company does not have a Nominating Committee.
EXECUTIVE OFFICERS
The executive officers of the Company as of May 20, 1996 are set
forth below.
Name Age Position
---- --- --------
Robert H. Lenz 56 Chairman of the Board of Directors
Stephen G. Bowen 52 President, Chief Executive Officer and Director
James N. Perkins 62 Executive Vice President and Chief Operating
Officer
Darren M. Sardoff 30 Senior Vice President, Business Affairs, Chief
Financial Officer and Secretary
Robert H. Lenz has served as the Company's Chairman since May 1993.
From 1979 to 1991, Mr. Lenz was a principal, Creative Director and co-founder
with five partners of the advertising firm of Backer & Spielvogel Inc. After
the merger of Backer & Spielvogel with Ted Bates, Inc. in 1988, Mr. Lenz was
Chairman and Creative Director of Backer Spielvogel Bates U.S. until 1991.
Subsequent to his departure from Backer Spielvogel Bates U.S. in 1991, Mr.
Lenz has been pursuing personal interests including the development of Cafe
USA.
Stephen G. Bowen has served as the Company's President and Chief
Executive Officer, and as a Director since May 1993. From 1969 to 1991, Mr.
Bowen was employed at the advertising firm of J. Walter Thompson, including as
a member of the Worldwide Board of Directors from 1982 to 1991 and from 1987
to 1991 as President and COO of J. Walter Thompson USA. In March 1992, Mr.
Bowen was engaged by the New York advertising agency Geer & DuBois as its
President and held such position until February, 1993. Geer & DuBois made a
general assignment for the benefit of creditors in February 1993 by filing a
formal petition with the United States Bankruptcy Court for the Southern
District of New York.
James N. Perkins has served as Executive Vice President and Chief
Operating Officer of the Company since February, 1996. From 1988 to 1996, Mr.
Perkins was President of US Tel, Inc., a telecommunications development
company specializing in new media. From 1981 to 1985, Mr. Perkins organized
9
<PAGE>
and managed the cable television programming venture of Hearst Corporation and
ABC that led to the development of the Arts & Entertainment and Lifetime
Networks. From 1980 to 1981, Mr. Perkins created and produced "The Home
Shopping Show," the forerunner of The Home Shopping Network. Mr. Perkins is a
graduate of Dartmouth College and a former Captain in the U.S. Air Force.
Darren M. Sardoff has served as Senior Vice President, Business
Affairs and Chief Financial Officer, since September 1995. From 1993 to 1995,
Mr. Sardoff was a Manager of Strategic Planning and Business Development with
the Warner Music Group (a division of Time Warner Inc.) involved in the
evaluation and start-up of new media ventures. Prior to Time Warner, Mr.
Sardoff was an Associate with the investment banking firm of Alpine Capital
Group Inc. from 1990 to 1993. Prior thereto, he held positions with the
international accounting firm of Ernst & Young. Mr. Sardoff is a certified
public accountant and holds a Master of Business Administration degree from
the Wharton School of the University of Pennsylvania.
Beneficial Ownership Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other securities of the Company. Such
persons are required by the SEC to furnish the Company with copies of all
Section 16(a) forms that they file.
To the Company's knowledge, during the year ended December 31, 1995,
based solely on a review of the copies of the Section 16(a) reports furnished
to the Company, all of the Company's directors, officers and ten percent
stockholders have complied with Section 16(a) of the Exchange Act, except that
each of Messrs. Bowen, Lenz, Penisten, Phillips, Wussler, Sardoff, Steinberg,
Frank and Shapiro were late in filing initial statements of beneficial
ownership on Form 3 in connection with the Company's initial public offering
and Mr. Shapiro was late in filing a Form 4 for one transaction.
10
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid by the Company to its Chief Executive Officer and each other
executive officer whose salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company during the fiscal years ended
December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
- ----------------------------- ---------- -------------------------------- ---------------------
<S> <C> <C> <C> <C>
Stephen G. Bowen 1995 $165,208 -0- 3,548(2)
Chief Executive 1994 $167,187(1) -0- 3,960(2)
Officer and President 1993 $97,920(1) -0- -0-
Robert H. Lenz 1995 $82,083 -0- -0-
Chairman 1994 $118,749(3) -0- -0-
1993 $91,720(3) -0- -0-
</TABLE>
(1) Includes salary received in each year and paid in the following year
(2) Represents car allowance
(3) Includes salary accrued in each fiscal year and paid in the
following year except for $20,312 and $45,680 for 1994 and 1993,
respectively which will be paid only if Escrow Shares are released.
Stock Option Grants in Last Fiscal Year
No stock options were granted to any of the executive officers named
in the Summary Compensation Table in fiscal 1995. Messrs. Bowen and Lenz
received warrants during fiscal 1995 in consideration of certain loans to the
Company and guarantees of indebtedness. See "Certain Transactions". Such
warrants were not "in-the-money" at the end of fiscal 1995. For information as
to stock options granted under the Company's Employee Stock Option Plan, see
"Proposal Two Stock Option Grants". None of the options granted under the
Company Employee Stock Option Plan in 1995 were "in-the-money" at the end of
fiscal 1995.
Compensation Committee Report in Option Repricing
Prior to the consummation of the Company's initial public offering
(the "Offering") in October, 1995, the Company granted options to purchase
100,000 shares of Series A Common Stock at an exercise price of $5.00 per
share to Darren M. Sardoff, the Company's Chief Financial Officer. The
exercise price of $5.00 per share was based upon the parties best estimate as
to the fair market value of the Series A Common Stock on the date of the
grant. Subsequent to the Offering, the Company's Series A Common Stock traded
at prices ranging from $5.00 per share to $2.75 per share.
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The Compensation Committee believes that Mr. Sardoff has made valuable
contributions to the Company and accordingly determined in February, 1996 to
cancel the previously granted option to purchase 100,000 shares of Series A
Common Stock at an exercise price of $5.00 per share and issued a new option
to purchase 100,000 shares of Series A Common Stock at an exercise price of
$2.81 per share, the last reported sale price of the Series A Common Stock on
the Nasdaq SmallCap Market at the time of the Committee's determination.
Employment Agreements
Effective October 1, 1993 the Company entered into employment
agreements (the "Employment Agreements") with Robert H. Lenz, Chairman, and
Stephen G. Bowen, President and Chief Executive Officer (the "Executives") for
terms of three years. Pursuant to the terms of Mr. Lenz's employment
agreement, Mr. Lenz is entitled to receive (i) an annual salary of $100,000;
(ii) bonus compensation determined from time to time by the Board of Directors
based upon the growth and success of the Company's business; and (iii) other
benefits equivalent to those provided to the Company's other officers.
Pursuant to Mr. Bowen's employment agreement, Mr. Bowen is entitled to (i) an
annual salary of $175,000 per year; (ii) bonus compensation based upon the
growth and success of the Company's business as may be determined by the Board
of Directors and (iii) the same provisions for benefits provided for Mr. Lenz.
Under the Employment Agreements the Executives are entitled to an increase in
annual base salaries based upon the growth and success of the Company as
determined by the Board of Directors.
The Employment Agreements provide for severance pay ("Severance Pay")
in an amount equal to the highest annual compensation received during the term
in the event that at the end of the contract term a new contract or extension
is not entered into due solely to the failure of the Company to negotiate in
good faith. Each employment agreement may be terminated by the Company in the
event of death, disability or cause or by mutual agreement of the parties.
Cause is defined to include, among other things, the employee's material and
willful misconduct, fraud or dishonesty. In the event of disability, each
employee is entitled to receive salary and bonuses for one year less any
disability insurance payments to which he is entitled. In the event of
termination for cause, employee shall be entitled to salary and benefits
accrued prior to termination and stock released from escrow pursuant to the
Employment Agreement. If the Executives' employment is terminated other than
by reason of death, disability or cause, the Executive shall be entitled to
the balance of the compensation owed under the Employment Agreement, Severance
Pay for one year following termination and the release of stock from the
escrow and forfeiture provisions of the Employment Agreement.
The Employment Agreements further provide certain provisions for
forfeiture of the Series B Common Stock owned by each employee in the event
the employee terminates his employment prior to certain dates specified in
their Agreement. A portion of the Executive's Escrow Shares is forfeited if
they leave employment prior to the end of three years in the case of Mr. Lenz
and four years in the case of Mr. Bowen.
The Employment Agreements also contain restrictive covenants
regarding the employees' ability to compete with the Company during the term
of the Employment Agreement and for two years thereafter.
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The Company entered into an employment agreement with Darren M.
Sardoff as the Senior Vice President, Business Affairs and Chief Financial
Officer of the Company for a period of one year beginning October 9, 1995,
subject to termination by either party, at a salary of $150,000 per year, of
which $20,000 will be deferred until a long-term contract is negotiated. The
contract will continue thereafter from year to year unless terminated by
either party. In addition, the employment agreement provides for Mr. Sardoff
to receive 100,000 options at fair market value on the date of grant under the
Company's employee stock option plan which vest over a period from January 1,
1996 to April 1, 1997, and bonus and incentive compensation as determined by
the Board of Directors. Under his employment agreement, Mr. Sardoff is
entitled to severance payments of $150,000 and 100,000 options on a
fully-vested basis if his employment is terminated by the Company after the
Evaluatory Period other than for "Cause" (as defined in the agreement), and a
severance payment of the lesser of $50,000 or the balance of his year salary
and 50,000 options which vested as of January 1, 1996 if his employment is
terminated by him after the Evaluatory Period for other than "Cause." On
February 6, 1996, the Compensation Committee of the Board of Directors
determined to replace the options granted to Mr. Sardoff with an exercise
price of $5.00 per share with an option with an exercise price of $2.81 per
share, based upon the last reported trade price of the Series A Common Stock
at the time of such replacement.
The Company and Jim Perkins are parties to an employment agreement
pursuant to which Mr. Perkins is employed by the Company as Executive Vice
President, Chief Operating Officer of the Company for a three-year term
commencing February 1, 1996. Under the employment agreement, Mr. Perkins is
entitled to a minimum base salary of $170,000, subject to increases and
bonuses granted by the Board of Directors, and options to purchase 200,000
shares of Series A Common Stock at an exercise price of $2.81 per share
pursuant to the Company Employee Stock Option Plan. Such options vest over a
period ending May 31, 1999 with 25,000 vested as of the commencement of his
employment. If the employment is terminated by the Company other than for
"Cause" (as defined in the agreement) Mr. Perkins is entitled to options that
would have vested through the end of the year in which terminated and a cash
severance equal to the base salary which would have been earned had he
fulfilled his term. If Mr. Perkins terminates his employment for any reason he
is entitled only to options that have vested. Mr. Perkins is also entitled to
additional compensation, bonuses and options as determined by the Board of
Directors. The Company may terminate the agreement at any time for Cause.
Effective March 23, 1995, the Company entered into consulting
agreements (the "Consulting Agreements") with Jeffrey Steinberg and Joseph
Mercaldo, the co-founders of the Company. Under the Consulting Agreements,
Messrs. Mercaldo and Steinberg are to provide programming assistance and
programming services to the Company in return for which they will each receive
annual compensation of $75,000. Both agreements are for a term expiring
September 30, 1996. The Consulting Agreements supersede employment agreements
previously executed by the Company and Messrs. Mercaldo and Steinberg and
incorporate certain provisions from such employment agreements including
restrictive covenants regarding their ability to compete with the Company
during the term of the Consulting Agreements and for two years thereafter.
Directors' Compensation
In July 1994, the three non-employee directors of the Company were
each granted options to purchase 15,000 shares of Company Series A Common
Stock at a price of $2.00 per share.
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Non-employee directors of the Company who are not also holders of
Series B Common Stock and have not been nominated pursuant to a contractual
undertaking by the Company receive a fee of $1,000 per meeting, $500 for each
committee meeting attended in conjunction with a Board meeting and $1,000 per
committee meeting attended not in conjunction with a Board meeting. In
addition, in November 1995, the Company made a grant of options to purchase
15,000 shares of Series A Common Stock at an exercise price of $3.87 to
Messrs. Penisten, Phillips, Wussler, Frank and Shapiro.
In 1995, Messrs. Penisten, Phillips and Wussler each received
directors fees of $3,000 and Messrs. Frank and Shapiro each received directors
fees of $2,000.
Mr. Shapiro has agreed to serve as a consultant to the Company for
executive compensation matters pursuant to which he will be paid $18,000 per
year.
The Board has approved a Director Stock Option Plan pursuant to which
certain non-employee directors will receive options to purchase shares of the
Company's Series A Common Stock.See "Proposal Three - Approval of Director
Stock Option Plan."
Certain Transactions
In connection with the formation of the Company in February, 1992,
Messrs. Lenz, Mercaldo and Steinberg purchased 44, 22 and 22 shares of Company
common stock, respectively, at a price of $10.00 per share. In October, 1993,
Messrs. Lenz, Steinberg and Mercaldo exchanged their shares of Company common
stock for shares of Series B Common Stock and, additionally, purchased
479,424, 205,869 and 205,869 shares of Series B Common Stock, respectively, at
a price of $.01 per share. Also on such date, Messrs. Bowen and Wilson
purchased 223,650 and 51,083 shares of Series B Common Stock at a price of
$.01 per share. In April, 1995, the Company issued 43,950 shares of Series B
Common Stock to Mr. Wilson, all of which are Escrow Shares, at a price of $.01
per share.
In 1992 Mr. Lenz made an interest free loan of $190,000 to the
Company. In 1993, Mr. Lenz converted his prior loan of $190,000 to the capital
of the Company and contributed an additional $32,500 in cash to the capital of
the Company. In 1993, both Mr. Lenz and Mr. Bowen made interest free loans to
the Company of $100,000 and $50,000, respectively. In connection with the
Company's preferred stock unit offering, Messrs. Lenz and Bowen purchased a
unit and half-unit, respectively, in exchange for loans then outstanding in
the amount of $100,000 and $50,000, respectively, at a price of $100,000 per
unit. Each unit consisted of 50,000 shares of Series A Redeemable Preferred
Stock, which was redeemed at a price of $1.00 plus accrued and unpaid
dividends upon the closing of the Offering, and 25,000 shares of Series A
Common Stock. Accordingly, Mr. Lenz received $56,860 and Mr. Bowen received
$28,430 upon the closing of the Offering in redemption of their shares of
Series A Redeemable Preferred Stock.
D. H. Blair Investment Banking Corp. acted as placement agent in
connection with a preferred stock unit offering and bridge financing for which
it received commissions and a non-accountable expense allowance in the
aggregate amount of $252,922 and $292,500, respectively, and in connection
with the preferred stock unit offering, D.H. Blair Investment Banking Corp.
and certain designees received warrants to purchase an aggregate of 102,750
shares of Series A Common Stock at an exercise price of $2.00 per share. In
connection with the Offering for which D.H. Blair Investment Banking Corp.
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(the "Underwriter") acted as the underwriter, the Company paid underwriting
discounts and commissions of $1,175,300 and paid the Underwriter a
non-accountable expense allowance of $483,000 and an option to purchase
241,360 units (the "Option Units") exercisable for a period of two years
commencing three years from the date of the Offering at $6.50 per Option Unit,
together with certain registration rights. The Underwriter will also receive
commissions upon the exercise of the warrants issued in the offering and a
finders fee in connection with certain mergers or other transactions. The
Underwriter and certain of its officers currently hold an aggregate of 14,065
warrants and certain directors and employees of D.H. Blair & Co. hold warrants
to purchase an aggregate of 76,660 shares of Series A Common Stock. Howard
Phillips, a director of the Company, is a former Director of Corporate Finance
of D.H. Blair Investment Banking Corp. and received commissions and 33,488
warrants in the preferred stock unit offering and bridge financing and in
connection with the Offering received a finder's fee from the Underwriter of
$20,440 and received from the Company 38,646 Option Units.
During the past two years, the Company borrowed as much as
approximately $1,086,000 from U.S. Trust, all of which was repaid with a
portion of the proceeds of the Offering. Prior to the Offering, Mr. Lenz had
guaranteed all of these loans. Upon completion of the Offering and retirement
of all outstanding indebtedness thereunder, Mr. Lenz withdrew his guarantee.
Over the past two years, Messrs. Lenz, Bowen and Wilson guaranteed
certain other indebtedness and obligations of the Company, including amounts
owed to trade creditors, and former employees and consultants of the Company
in the amount of approximately $114,000, $83,000 and $28,052, respectively.
Approximately $113,052 of such indebtedness was outstanding and paid out of
the proceeds of the Offering. In consideration of these guarantees and the
guarantee of the U.S. Trust loan, the Company issued warrants to purchase
542,850 and 14,026 shares of Series A Common Stock to Messrs. Lenz and Wilson,
respectively, upon the same terms as the bridge warrants issued in the
Company's bridge financing.
In June 1995 Mr. Bowen made loans totalling $50,000 to the Company.
The loans bore interest at the rate of 10% per annum and were paid upon the
closing of the Offering. As part of the transaction, the Company issued to Mr.
Bowen warrants to purchase 25,000 shares of Series A Common Stock with the
same terms as the bridge warrants.
Commencing in March, 1995, Messrs. Bowen, Lenz and Wilson agreed to
defer payment of their salaries and to reduce their salaries for certain
periods. For the months of March, April, May and June, 1995, salaries were
accrued for such executives at the applicable rate provided in the Employment
Agreements, less any advances taken. From the period commencing July 1, 1995
through the completion of the Offering, the salaries of Messrs. Bowen, Lenz
and Wilson were accrued at the rates of 68%, 60% and 80%, respectively, of the
salaries provided for in their respective Employment Agreements. See
"Employment Agreements." The accrued salaries net of advances which were paid
to the Executives upon the closing of the Offering aggregated approximately
$130,167. Salaries to the Executives accrued after August 31, 1995 at the
above reduced rates and were paid to them upon closing. Any salaries accrued
during the fiscal years ended December 31, 1993 and 1994 on behalf of such
Executives but not paid (approximately $66,172) continue to be accrued until
the Escrow Shares are either released or canceled; in which event such accrued
salaries will either be paid or extinguished, respectively.
The Company believes that the transactions between the Company and
its stockholders have been on terms no less favorable to the Company than the
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terms that would have been available from unaffiliated parties under similar
circumstances. Actual comparisons with other transactions are not possible,
however. All future transactions between the Company and its officers,
directors and principal stockholders or affiliates thereof, will be subject to
the approval of the Board of Directors and the Company's independent
directors, and a factor in their consideration will be whether the terms of
such transactions will be no less favorable to the Company than could be
obtained from independent third parties.
PROPOSAL TWO
APPROVAL OF AMENDMENTS TO THE EMPLOYEE STOCK OPTION PLAN
In May, 1996, the Board of Directors of the Company approved
amendments to the Company's Employee Stock Option Plan (the "Employee Plan")
that, subject to approval by the stockholders of the Company, increase the
maximum number of shares of Series A Common Stock issuable under the Employee
Plan by 1,600,000 shares to a total of 2,000,000 shares and provide that
members of the Compensation Committee may be removed only for cause.
Increase in Authorized Shares
Currently, options for a total of 400,00 shares may be issued under
the Employee Plan. Of these shares, no shares are currently available for
future options. The amendment increases the maximum number of shares issuable
under the Employee Plan by 1,600,000 to a total of 2,000,000 shares.
The purposes of the proposed increase is to provide sufficient shares
for future option grants to officers and key employees of the Company. The
Board of Directors believes that the Company should have shares available
under the Employee Plan to provide options to certain of its officers and key
employees. The Board of Directors believes that the Company and its
stockholders significantly benefit from having the Company's key management
employees receive options to purchase the Company's Common Stock, and that the
opportunity thus afforded these employees to acquire Common Stock is an
essential element of an effective management incentive program. The Board of
Directors also believes that stock options, particularly incentive stock
options, are very valuable in attracting and retaining highly qualified
management personnel and in providing additional motivation to management to
use their best efforts on behalf of the Company and its stockholders. With
regard to the Compensation Committee's current intentions as to awarding
options, see "Option Grants".
Change in Provision for Removal of Committee Members
Currently, the Employee Plan provides that members of the
Compensation Committee may be removed by the Board of Directors at any time,
with or without cause. The Board of Directors has determined that it is
appropriate to amend the provision regarding removal of Committee numbers to
permit removal only for cause (as determined in the sole discretion of the
Board). The Board believes that removal for cause only will enhance the
independence and stability of the Compensation Committee.
Set forth below is a summary of certain significant provisions of the
Employee Plan.
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General
Pursuant to the Employee Plan, stock options may be granted which
qualify under the Code as incentive stock options ("Incentive Stock Option"),
as well as stock options that do not qualify as Incentive Stock Options or are
designated as not intended to so qualify ("Non-Qualified Stock Options"). All
officers and key employees of the Company or any future subsidiary corporation
are eligible to receive options under the Employee Plan. The primary purpose
of the Employee Plan is to provide additional incentive to key employees and
officers of the Company by encouraging them to invest in the Company's Series
A Common Stock and thereby acquire a proprietary interest in the Company and
an increased personal interest in the Company's continued success and
progress. As of May 20, 1996, options to purchase 400,000 shares of Series A
Common Stock had been granted under this Plan.
Eligibility and Administration
All officers and key employees of the Company or any present or
future subsidiary (currently 14 people) are eligible to receive options under
the Employee Plan. The Employee Plan is administered by the Compensation
Committee ("Committee") which is appointed by the Board of Directors and
consists only of Directors who are not eligible to receive options under the
Employee Plan. The Committee determines, among other things, which officers
and key employees receive an option or options under the Employee Plan, the
type of option (Incentive Stock Options or Non-Qualified Stock Options, or
both) to be granted, the number of shares subject to each option, the rate of
option exercisability, and, subject to certain other provisions to be
discussed below, the option price and duration of the option.
The Committee may, in its discretion, amend or supplement any of the
option terms hereafter described, provided that if an Incentive Stock Option
is granted under the Plan, the option as amended or supplemented continues to
be an Incentive Stock Option.
Aggregate Number of Shares
The aggregate number of shares which may be issued upon the exercise
of options under the Employee Plan will be increased as a result of the
proposed amendment from 400,000 to 2,000,000 shares of Series A Common Stock.
In the event of any change in the capitalization of the Company, such as by
stock dividend, stock split, combination of shares, recapitalization, merger
or what the Compensation Committee deems in its sole discretion to be similar
circumstances, the aggregate number and kind of shares which may be issued
under the Employee Plan will be appropriately adjusted in a manner determined
in the sole discretion of the Board of Directors. Reacquired shares of the
Company's Common Stock, as well as unissued shares, may be used for the
purpose of the Employee Plan. Series A Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, will be
available for future options granted under the Employee Plan.
Option Exercise Price
The exercise price for Incentive Stock Options issued under the
Employee Plan must be at least equal to 100% of the fair market value of the
Series A Common Stock as of the date the option is granted except for the
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option exercise price of Incentive Stock Options granted to an individual
owning shares of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company (a "10% Shareholder") must
not be less than 110% of the fair market value as of the date of the grant of
the option. The option price for Non-Qualified Options may be, at the
discretion of the Compensation Committee, less than the fair market value of
the Series A Common Stock on the date of the grant.
On May 20, 1996 the last reported sale price for the Company's Series
A Common Stock was $3.38.
Payment
Payment of the option price on exercise of options granted under the
Plan may be made in (a) cash, (b) Company Series A Common Stock which will be
valued by the Secretary of the Company at its fair market value or (c) any
combination of cash and Series A Common Stock of the Company valued as
provided in clause (b).
Under the terms of the Plan, the Board has interpreted the provision
of the Plan which allows payment of the option price in Series A Common Stock
of the Company to permit the "pyramiding" of shares in successive exercises.
Thus, an optionee could initially exercise an option in part, acquiring a
small number of shares of Series A Common Stock, and immediately thereafter
effect further exercises of the option, using the Series A Common Stock
acquired upon earlier exercises to pay for an increasingly greater number of
shares received on each successive exercise. This procedure could permit an
optionee to pay the option price by using a single share of Series A Common
Stock or a small number of shares of Series A Common Stock and to acquire a
number of shares of Series A Common Stock having an aggregate fair market
value equal to the excess of (a) the fair market value (as determined above)
of all shares to which the option relates over (b) the aggregate exercise
price under the option.
Exercisability
The Committee has the authority to set the rate of option
exercisability for each optionee.
Option Expiration and Termination
Unless terminated earlier by the option's terms, Incentive Stock
Options expire ten years after the date they are granted (five years from the
date of grant for 10% Shareholders) and Non-Qualified Stock Options expire ten
years after the date they are granted.
Options terminate three months (but not later than the scheduled
termination date) after the date on which employment is terminated (whether
such termination be voluntary or involuntary) other than by reason of death or
disability. The option terminates one year from the date of termination due to
death or disability (but not later than the scheduled termination date).
Non-Transferability
Options granted pursuant to the Plan are not transferable, except by
will or the laws of descent and distribution in the event of death. During an
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optionee's lifetime, the option is exercisable only by the optionee,
including, for this purpose, the optionee's legal guardian or custodian in the
event of disability.
Amendment or Termination; Plan Expiration
The Company's Board of Directors has the right at any time, and from
time to time, to amend, supplement, suspend or terminate the Plan, without
stockholders approval, except to the extent that stockholders approval of the
Plan amendment or supplement is required by the Code to permit the granting of
incentive stock options under the Plan. Any such action will not affect
options previously granted. If the Board of Directors voluntarily submits a
proposed amendment, supplement, suspension or termination for stockholders
approval, such submission will not require any future amendments, supplements,
suspensions or terminations (whether or not relating to the same provision or
subject matter) to be similarly submitted for stockholders approval.
Federal Income Tax Consequences
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"), AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE
PROVISIONS OF THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY
AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW.
Incentive Stock Options
Generally, under the Code, an optionee will not realize taxable
income by reason of the grant or the exercise of an Incentive Stock Option
(see, however, discussion of Alternative Minimum Tax below). If an optionee
exercises an Incentive Stock Option and does not dispose of the shares until
the later of (i) two years from the date the option was granted and (ii) one
year from the date of exercise, the entire gain, if any, realized upon
disposition of such shares will be taxable to the optionee as long-term
capital gain, and the Company will not be entitled to any deduction. If an
optionee disposes of the shares within the period of two years from the date
of grant or one year from the date of exercise (a "disqualifying
disposition"), the optionee generally will realize ordinary income in the year
of disposition and the Company will receive a corresponding deduction, in an
amount equal to the excess of (1) the lesser of (a) the amount, if any,
realized on the disposition and (b) the fair market value of the shares on the
date the option was exercised (or such later date, if applicable, as described
below in "Non-Qualified Stock Options", if the optionee is a "16(b) Person"
who has not made an "83(b) Election," as such terms are defined in
"Non-Qualified Stock Options" below) over (2) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will
be considered to have disposed of a share if he sells, exchanges, makes a gift
of or transfers legal title to the share (except transfers, among others, by
pledge, on death or joint ownership with a spouse). If the disposition is by
sale or exchange, the optionee's tax basis will equal the amount paid for the
share plus any ordinary income realized as a result of the disqualifying
disposition.
The exercise of an Incentive Stock Option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
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shares purchased at the time of the exercise (or such later date, if
applicable, as described below in "Non-Qualified Stock Options", if the
optionee is a 16(b) Person who has not made an 83(b) Election) exceeds the
option exercise price is an adjustment for purposes of computing the so-called
alternative minimum tax. In the event of a disqualifying disposition of the
shares in the same taxable year as exercise of the Incentive Stock Option, no
adjustment is then required for purposes of the alternative minimum tax, but
regular income tax, as described above, may result from such disqualifying
disposition. Effective January 1, 1994, the Revenue Reconciliation Act of 1994
replaced the 24% alternative minimum tax rate on individuals with a two-tier
alternative minimum tax rate having an initial rate of 26% and a second-tier
rate of 28% on alternative minimum taxable income over $175,000.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have
not been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Code, all of the shares received by an optionee upon
exercise of an Incentive Stock Option by surrendering shares will be subject
to the incentive stock option holding period requirements. Of those shares, a
number of shares (the "Exchange Shares") equal to the number of shares
surrendered by the optionee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of any
disqualifying disposition of the surrendered shares if they were incentive
stock option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the Exchange Shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered.
The balance of the shares received by the optionee will have a tax basis (and
a deemed purchase price) of zero and a capital gains holding period beginning
on the date of exercise. The Incentive Stock Option holding period for all
shares will be the same as if the option had been exercised for cash.
Non-Qualified Stock Options
Generally, there will be no federal income tax consequences to either
the optionee or the Company on the grant of Non-Qualified Stock Options
granted pursuant to the Plan. On the exercise of a Non-Qualified Stock Option,
the optionee (except as described below) has taxable ordinary income equal to
the excess of the fair market value of the shares acquired on the exercise
date over the option price of the shares. The Company will be entitled to a
federal income tax deduction (subject to the limitations contained in Section
162) in an amount equal to such excess. However, special rules apply where
stock is registered under the Exchange Act and the optionee is an officer,
director or 10% or greater stockholders of the Company subject to potential
liability under Section 16(b) of the Securities Exchange Act of 1934
("Exchange Act") for so-called "short-swing" profits (a "16(b) Person") in
connection with certain purchases and sales, or sales and purchases, of the
Company's stock within a period of six months.
Under SEC rules promulgated under Section 16(b) of the Exchange Act,
the grant of an option, not its exercise, is treated as a "purchase" for
Section 16(b) purposes. If such grant is made pursuant to a plan qualifying
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under the SEC rules and six months elapse between the grant of the option and
the sale of the shares received upon the exercise thereof, such grant will be
exempt from Section 16(b). With respect to the exercise of a Non-Qualified
Stock Option, if a 16(b) Person has not purchased or acquired shares of Common
Stock within the six month period prior to the exercise date (other than
purchases or acquisitions exempt from Section 16(b)), the 16(b) Person will be
required to recognize ordinary income (i) six months after the date of grant
(in the event of exercise within six months of the date of grant) or (ii) the
date of exercise (in the event of exercise after six months from the date of
grant). The timing of income recognition with respect to a 16(b) Person who
exercises a Non-Qualified Stock Option within six months of a prior non-exempt
purchase or acquisition of Common Stock is uncertain. It is possible that the
Internal Revenue Service will take the position that, despite the prior
non-exempt purchase or acquisition, the 16(b) Person recognizes income on the
date of exercise rather than the date which is six months following the date
of such prior non-exempt purchase or acquisition. A 16(b) Person can be
certain of recognizing income on the exercise date by making an election not
later than 30 days following the exercise date to have the income determined
as of the date of exercise (an "83(b) Election"), in which case the Company's
deduction will also be determined as of the exercise date.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Under current law, net
capital gains (net long term capital gain less net short term capital loss) is
subject to a maximum rate of 28%. Capital losses are deductible only to the
extent of capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of
a Non-Qualified Stock Option will not recognize gain or loss with respect to
the shares so delivered unless such shares were acquired pursuant to the
exercise of an Incentive Stock Option and the delivery of such shares is a
disqualifying disposition. See "FEDERAL INCOME TAX CONSEQUENCES - Incentive
Stock Options". The optionee will recognize ordinary income on the exercise of
the Non-Qualified Stock Option as described above. Of the shares received in
such an exchange, that number of shares equal to the number of shares
surrendered will have the same tax basis and capital gains holding period as
the shares surrendered. The balance of the shares received will have a tax
basis equal to their fair market value on the date of exercise and the capital
gains holding period will begin on the date of exercise (or such later date,
as described above, if the optionee is a 16(b) Person who has not made an
83(b) Election, and such later date is applicable).
Section 162(m). Generally, Section 162(m), denies a deduction to any
publicly held corporation, such as the Company, for certain compensation
exceeding $1,000,000 paid to the chief executive officer and the other four
highest paid executive officers during any taxable year. Although ordinary
income that is realized upon the exercise of a Non-Qualified Option or the
disqualifying disposition of shares acquired pursuant to the exercise of an
Incentive Option is potentially subject to the limitation imposed under
Section 162(m), Section 162(m) and the regulations thereunder provide that
compensation attributable to the stock options granted under the Employee Plan
may qualify for the performance-based exclusion in Section 162(m). If the
stock options qualify for the performance-based exclusion, the compensation
received upon their exercise would not be subject to the deduction limit set
forth in Section 162(m). The Company intends that stock options granted under
the Employee Plan will meet the performance-based exclusion under Section
162(m) and therefore the deduction limitation will be inapplicable to options
to be issued under the Employee Plan.
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Option Grants
At May 20, 1996 options to purchase a total of 400,000 shares of
Series A Common Stock had been granted under the Company's Employee Plan at an
average exercise price of $2.81. It is currently contemplated by the
Compensation Committee that options for approximately 600,000 of the newly
authorized option shares will be granted to each of Messrs. Bowen and Lenz.
The specific provisions regarding exercise price, vesting and exercisability
have not yet been determined although it is currently intended that no options
will vest prior to November 14, 1996 and all options will have an exercise
price not less than the fair market value of the Series A Common Stock on the
date of grant.
The following table sets forth information concerning option issued
to date under the Employee Plan. None of these options have been exercised.
Total Options Exercise
Name and Position with the Company Granted Price
- ---------------------------------- ------------- --------
Darren M. Sardoff, Chief Financial Officer 100,000 $2.81
James N. Perkins, Chief Operating Officer 200,000 2.81
All Executive Officers as a Group 300,000 2.81
All Employees, other than Executive Officers,
as a group 100,000 2.81
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE AMENDMENT TO THE EMPLOYEE PLAN
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PROPOSAL THREE
TO APPROVE A DIRECTOR STOCK OPTION PLAN
In May, 1996, the Board of Directors adopted a Stock Option Plan for
Directors (the "Director Plan"). The Director Plan is subject to approval by
the stockholders of the Company.
The Board of Directors unanimously recommends that you vote FOR
approval of the Director Plan because it believes that the Director Plan will
advance the interests of the Company and its stockholders by strengthening the
ability of the Company to attract, retain and motivate members of their
respective Boards of Directors who are not also employees.
Set forth below is a summary of the provisions of the Director Plan.
This summary is qualified and amplified in its entirety by the detailed
provisions of the text of the actual Director Plan set forth as Exhibit "A" to
this Proxy Statement, all of which is incorporated herein.
Purpose of the Director Plan
The purpose of the Director Plan is to attract, retain and motivate
members of the Board of Directors and to provide additional incentive to
members of the Board of Directors of the Company and future subsidiary
corporations who are not also employees by encouraging them to invest in the
Company's Common Stock and thereby acquire a further proprietary interest in
the Company and an increased personal interest in the Company's continued
success and progress. The Board of Directors believes that stock options are
an important aid in attracting, retaining and compensating non-employee
directors of the Board of the Company.
Eligibility and Number of Options
Each person who (i) is, as of June 26, 1996, a director of the
Company or any subsidiary corporation, and (ii) has not been appointed or
nominated as a director pursuant to a contractual undertaking by the Company
and (iii) who is not as of such date an employee of the Company or any
subsidiary corporation, and (iv) does not beneficially own shares of the
Company's Series B Common Stock, shall, as of June 26, 1996, automatically be
granted an option to purchase 90,000 shares of the Company's Series A Common
Stock.
Each person who (i) is not a director of the Company or any
subsidiary corporation as of June 26, 1996, and (ii) has not been appointed or
nominated as a director pursuant to a contractual undertaking by the Company
and (iii) is not an employee of the Company or any subsidiary corporation and
(iv) does not beneficially own shares of the Company's Series B Common Stock,
and who on or after June 26, 1996 is first elected or appointed as a director
of the Company or any subsidiary corporation, shall, as of the date of such
election or appointment, automatically be granted an option to purchase 90,000
shares of the Company's Series A Common Stock or such lower number of shares
as shall be equal to the number of shares then available (if any) for grant
under the Director Plan divided by the number of persons who are to receive
options on such date.
Assuming that the Director Plan is approved by the stockholders of
the Company, and assuming that all of the non-employee nominees for director
are elected, Messrs. Frank, Penisten, Phillips, Wussler and Shapiro will each
receive, as of June 26, 1996, options under the Director Plan to purchase an
aggregate of 90,000 shares of the Company's Series A Common Stock. Mr. Heyer
has advised the Company in writing that he is declining such options. Messrs.
Steinberg and McMenamin are not eligible to receive options under the Director
Plan.
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Administration
The Director Plan will be administered by the Board of Directors of
the Company, including non-employee directors. Under the Director Plan, the
Board has the right to adopt such rules for the conduct of its business and
the administration of the Director Plan as it considers desirable. A majority
of the members of the Board will constitute a quorum for all purposes and the
vote or written consent of a majority of the members of the Board on a
particular matter will constitute the act of the Board on such matter. The
Board of Directors has the exclusive right to construe the Director Plan and
the options issued pursuant to it, to correct defects and omissions and to
reconcile inconsistencies to the extent necessary to effectuate the purpose of
the Director Plan and the options issued pursuant to it. No member of the
Board of Directors of the Company will be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the exercise
of any authority or discretion granted in connection with the Director Plan to
the Board of Directors, or for the acts or omissions of any other members of
the Board of Directors.
Aggregate Number of Shares
The aggregate number of shares which may be issued upon the exercise
of options under the Director Plan is 550,000 shares of the Company Series A
Common Stock. In the event of any change in the capitalization of the Company,
such as by stock dividend, stock split combination of shares,
recapitalization, merger, consolidation or what the Board of Directors deems
in its sole discretion to be similar circumstances, the aggregate number and
kind of shares which may be issued under the Director Plan will be
appropriately adjusted in a manner determined in the sole discretion of the
Board of Directors. Reacquired shares of the Company's Common Stock, as well
as unissued shares, may be used for the purpose of the Director Plan. Common
Stock of the Company subject to options which have terminated unexercised,
either in whole or in part, will be available for future options granted under
the Director Plan.
Option Price
The option price for options issued under the Director Plan will be
equal to the fair market value of the Company Series A Common Stock on the
date of grant. Fair market value of the Company Series A Common Stock will be
determined by the Board. The fair market value of the Company's Series A
Common Stock on any particular date shall mean the last reported sale price of
a share of the Company's Series A Common Stock on any stock exchange on which
such stock is then listed or admitted to trading, or on the NASDAQ National
Market System or SmallCap Market, on such date, or if no sale took place on
such day, the last such date on which a sale took place, or if the Common
Stock is not then quoted on the NASDAQ National Market System or SmallCap
Market, or listed or admitted to trading on any stock exchange, the average of
the bid and asked prices in the over-the-counter market on such date, or if
none of the foregoing, a price determined by the Board of Directors.
Payment
Payment of the option price on exercise of options granted under the
Director Plan may be made in (a) cash, (b) (unless prohibited by the Board of
Directors) Company Series A Common Stock which will be valued by the Secretary
of the Company at its fair market value or (c) (unless prohibited by the Board
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of Directors) any combination of cash and Series A Common Stock of the Company
valued as provided in clause (b).
Under the terms of the Director Plan, the Board has interpreted the
provision of the Director Plan which allows payment of the option price in
Series A Common Stock of the Company to permit the "pyramiding" of shares in
successive exercises. Thus, an optionee could initially exercise an option in
part, acquiring a small number of shares of Series A Common Stock, and
immediately thereafter effect further exercises of the option, using the
Series A Common Stock acquired upon earlier exercises to pay for an
increasingly greater number of shares received on each successive exercise.
This procedure could permit an optionee to pay the option price by using a
single share of Series A Common Stock or a small number of shares of Series A
Common Stock and to acquire a number of shares of Series A Common Stock having
an aggregate fair market value equal to the excess of (a) the fair market
value (as determined above) of all shares to which the option relates over (b)
the aggregate exercise price under the option. A vote in favor of Proposal
Three is also a vote in favor of this interpretation.
Exercisability
Options granted pursuant to the Director Plan become vested and may
be exercised at the following rates, whichever is higher (i) 33% commencing on
the date of grant, 66% commencing one year after the date of grant (provided
such person is re-elected or continues as a director) and 100% after two years
(provided such person is re-elected or continues as a director) or (ii) upon a
"change in control" of the Company, as such term is defined in the Director
Plan. Consequently, the approval of the Director Plan may be viewed as
"anti-takeover" in nature.
Option Expiration and Termination
Unless terminated earlier by the option's terms, options granted
under the Director Plan will expire ten years after the date they are granted.
Options terminate three months after the optionee ceases to be a
director of the Company or a subsidiary corporation (whether by death,
disability, resignation, removal, failure to be reelected or otherwise, and
regardless of whether the failure to continue as a director was for cause or
otherwise), but not later than ten years after the date of option grant.
Non-Transferability
Options granted pursuant to the Director Plan are not transferable,
except by the will or the laws of descent and distribution in the event of
death. During an optionee's lifetime, the option is exercisable only by the
optionee, including, for this purpose, the optionee's legal guardian or
custodian in the event of disability.
Amendment or Termination; Director Plan Expiration
Under the Director Plan, the Board of Directors of the Company has
the right, without stockholders approval, at any time, and from time to time,
to amend or supplement the Director Plan in any way, or to suspend or
terminate it, effective as of such date, which date may be either before or
after the taking of such action, as may be specified by the Board; however,
25
<PAGE>
such action will not affect options granted under the Director Plan prior to
the actual date on which such action occurred. However, certain important
provisions of the Director Plan (e.g., the option amount, option price and
eligibility) may not be amended more than once every six months, except as
permitted by Rule 16b-3(C)(ii)(B) under the Securities Exchange Act of 1934.
If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination of the Director Plan for stockholders
approval, such submission will not require any future amendments or
supplements (whether or not relating to the same provision or subject matter),
suspensions or terminations to be similarly submitted for stockholders
approval, unless otherwise required by law.
Options may not be granted pursuant to the Director Plan after the
expiration of five years from and after the adoption of the Director Plan by
the Company's stockholders at the 1996 Annual Meeting.
Federal Income Tax Consequences
Options granted pursuant to the Director Plan will be non-qualified
stock options. See "Proposal Two--Federal Income Tax Consequences -
Non-Qualified Options" for a description of the federal income tax effect of
non-qualified stock options, provided that options granted to non-employee
directors are not subject to Section 162(m) of the Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
PROPOSAL THREE.
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SHAREHOLDER PROPOSALS
Shareholder Proposals regarding the 1997 Annual meeting must be
submitted to the Company by February 4, 1997 to receive consideration for
inclusion in the Company's 1997 proxy material.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountant for the fiscal year ended
December 31, 1995 and for the current fiscal year is the firm of Richard A.
Eisner & Company, LLP, New York, NY.
A representative of Richard A. Eisner is expected to be present at
the Meeting and to be available to respond to appropriate questions. The
representative will have the opportunity to make a statement if he so desires.
OTHER MATTERS
As of the date hereof, the Company knows of no other business that
will be presented for consideration at the Annual Meeting. However, the
enclosed proxy confers discretionary authority to vote with respect to any and
all of the following matters that may come before the meeting: (i) matters
that the Company's Board of Directors does not know, a reasonable time before
proxy solicitation, are to be presented for approval at the meeting; (ii)
approval of the minutes of a prior meeting of shareholders, if such approval
does not constitute ratification of the action at the meeting; (iii) the
election of any person to any office for which a bona fide nominee is unable
to serve or for good cause will not serve; (iv) any proposal omitted from this
Proxy Statement and the form of proxy pursuant to Rule 14a-8 under the
Exchange Act, as amended; and (v) matters incidental to the conduct of the
meeting. If any such matters come before the meeting, the proxy agents named
in the accompanying proxy card will vote in accordance with their judgment.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-KSB
This Proxy Statement is accompanied by the Company's Annual Report to
Shareholders for the year ended December 31, 1995.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE EXCEPT FOR
EXHIBITS TO THE REPORT, BY SENDING A WRITTEN REQUEST THEREFOR TO FOOD COURT
ENTERTAINMENT NETWORK, INC., 34-12 36TH STREET, ASTORIA, NY 11106, ATTENTION:
DARREN M. SARDOFF, CHIEF FINANCIAL OFFICER.
By Order of the Board of Directors
Robert H. Lenz
Chairman
27
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EXHIBIT A
FOOD COURT ENTERTAINMENT NETWORK, INC.
1996 STOCK OPTION PLAN
FOR DIRECTORS
1. Purpose of Plan
The purpose of the 1996 Stock Option Plan for Directors (the
"Plan") contained herein is to enhance the ability of Food Court Entertainment
Network, Inc. (the "Company") to attract, retain and motivate members of the
Boards of Directors and to provide additional incentive to members of the
Board of Directors by encouraging them to invest in shares of Series A Common
Stock and thereby acquire a proprietary interest in the Company and an
increased personal interest in the Company's continued success and progress,
to the mutual benefit of directors, employees and stockholders.
2. Aggregate Number of Shares
550,000 shares of the Company's Series A Common Stock, par
value $.01 per share ("Series A Common Stock"), shall be the aggregate number
of shares which may be issued under this Plan. Notwithstanding the foregoing,
in the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances, the aggregate number and kind of shares which may be
issued under this Plan shall be appropriately adjusted in a manner determined
in the sole discretion of the Board of Directors. Reacquired shares of the
Company's Series A Common Stock, as well as unissued shares, may be used for
the purpose of this Plan. Series A Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall
be available for future options granted under this Plan.
3. Participation
Each person who (i) is, as of June 26, 1996, a director of
the Company or any subsidiary corporation, and (ii) has not been appointed or
nominated as a director pursuant to a contractual undertaking by the Company,
and (iii) is not as of such date an employee of the Company or any subsidiary
corporation, and (iv) does not beneficially own shares of the Company's Series
B Common Stock shall, as of June 26, 1996, automatically be granted an option
to purchase 90,000 shares of the Company's Common Stock (such figure to be
subject to adjustment for the same events described in Section 2 hereof). Each
person who (i) is not a director of the Company as of June 26, 1996, and (ii)
has not been appointed or nominated as a director pursuant to a contractual
undertaking by the Company, and (iii) is not an employee of the Company or any
subsidiary corporation and (iv) does not beneficially own shares of the
Company's Series B Common Stock and who on or after June 26, 1996 is first
elected or appointed as a director of the Company or any subsidiary
corporation shall, as of the date of such election or appointment,
automatically be granted an option to purchase 90,000 shares of the Company's
Series A Common Stock (such figure to be subject to adjustment for the same
events described in Section 2 hereof) or such lower number of shares as shall
be equal to the number of shares as shall then available (if any) for grant
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under this Plan divided by the number of persons who are to receive a option
on such date, subject, however, to the provisions of Section 6 hereof.
4. Administration of Plan
This Plan shall be administered by the Board of Directors of
the Company. The Board of Directors of the Company shall adopt such rules for
the conduct of its business and administration of this Plan as it considers
desirable. A majority of the members of the Board of Directors of the Company
shall constitute a quorum for all purposes. The vote or written consent of a
majority of the members of the Board of Directors of the Company on a
particular matter shall constitute the act of the Board of Directors of the
Company on such matter. The Board of Directors of the Company shall have the
exclusive right to construe the Plan and the options issued pursuant to it, to
correct defects and omissions and to reconcile inconsistencies to the extent
necessary to effectuate the purpose of this Plan and the options issued
pursuant to it, and such action shall be final, binding and conclusive upon
all parties concerned. No member of the Board of Directors of the Company
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of any authority or discretion
granted in connection with the Plan to the Board of Directors, or for the acts
or omissions of any other members of the Board of Directors.
5. Non-Qualified Stock Options, Option Price and Term
(a) Options issued pursuant to this Plan shall be
non-qualified stock options. A non-qualified stock option is an option which
does not satisfy the requirements of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"). The option price for the non-qualified stock
options issued under this Plan shall be equal to the fair market value, as
determined by the Board of Directors of the Company, of the Company's Series A
Common Stock on the date of the grant of the option. The fair market value of
the Company's Series A Common Stock on any particular date shall mean the last
reported sale price of a share of the Company's Series A Common Stock on any
stock exchange on which such stock is then listed or admitted to trading, or
on the NASDAQ National Market System or SmallCap Market, on such date, or if
no sale took place on such day, the last such date on which a sale took place,
or if the Common Stock is not then quoted on the NASDAQ National Market System
or SmallCap Market, or listed or admitted to trading on any stock exchange,
the average of the bid and asked prices in the over-the-counter market on such
date, or if none of the foregoing, a price determined by the Board of
Directors.
(b) Options issued pursuant to this Plan shall be issued
substantially in the form set forth in Appendix I hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Options shall expire
ten years after the date they are granted, unless terminated earlier as
provided herein.
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of five years from and after the date this Plan is approved by the
stockholders of the Company. The Board of Directors of the Company reserves
the right at any time, and from time to time, to amend or supplement this Plan
in any way, or to suspend or terminate it, effective as of such date, which
date may be either before or after the taking of such action, as may be
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specified by the Board of Directors of the Company; provided, however, that
such action shall not affect options granted under the Plan prior to the
actual date on which such action occurred. Notwithstanding the foregoing, if
Rule 16b-3 of the Securities Exchange Act of 1934 is applicable to the
Company, the Plan provisions specified in Rule 16b-3(c)(2)(ii)(A) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule
may not be amended or supplemented more than once every six months, except as
permitted by Rule 16b-3(c)(2)(ii)(B). If the Board of Directors voluntarily
submits a proposed amendment, supplement, suspension or termination for
stockholder approval, such submission shall not require any future amendments,
supplements (whether or not relating to the same provision or subject matter),
suspensions or terminations to be similarly submitted for stockholder
approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the
holders of the Company's Common Stock in the manner described in Rule 16b-3(b)
under the Securities Exchange Act of 1934, as amended, or any future
corresponding rule.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director the right to continue as
a director of any of the Companies or interfere in any way with the rights of
the Companies to terminate him as a director.
(b) Corporate action constituting an offer of stock for sale
to any director under the terms of the options to be granted hereunder shall
be deemed complete as of June 26, 1996, or as of the automatic grant date
hereunder after June 26, 1996, regardless of when the option is actually
delivered to the non-employee director or acknowledged or agreed to by him.
(c) The term "subsidiary corporation" as used throughout
this Plan shall mean a corporation in which the Company owns, directly or
indirectly, shares of stock representing fifty percent or more of the
outstanding voting power of all classes of stock of such corporation at the
time of the granting of an option under this Plan.
(d) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
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APPENDIX I
NON-QUALIFIED STOCK OPTION
To: ____________________________________
Name
____________________________________
Address
Date: ____________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase 90,000 shares of Series A Common Stock (par value $.01 per share)
("Series A Common Stock") of Food Court Entertainment Network, Inc. (the
"Company") at a price of $______ per share pursuant to the Company's 1996 Stock
Option Plan for Non-Employee Directors (the "Plan").
Your option may first be exercised on and after the date of grant. On
and after the date of grant and prior to one year from the date of grant, your
option may be exercised for up to 33% of the total number of shares subject to
the option minus the number of shares previously purchased by exercise of the
option (as adjusted for any change in the outstanding shares of the Series A
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter,
provided you are re-elected or continue as a director of the Company, your
option will vest and may be exercised for up to an additional 33% of the total
number of shares subject to the option minus the number of shares previously
purchased by exercise of the option (as adjusted for any change in the
outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus,
assuming you are re-elected or continue as a director, this option is fully
exercisable on and after two years after the date of grant, except if
terminated earlier as provided herein. No fractional shares shall be issued or
delivered. This option shall terminate and is not exercisable after ten years
from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "change of control" (as hereinafter defined) of the
Company, your option may, from and after the date of the change of control,
and notwithstanding the foregoing paragraph, be exercised for up to 100% of
the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason
of a stock dividend, stock split, combination of shares, recapitalization,
merger, consolidation, transfer of assets, reorganization, conversion or what
the Compensation Committee deems in its sole discretion to be similar
circumstances).
For purposes of your option, a "change in control" of the Company
shall have been deemed to conclusively occur when any of the following events
shall have occurred without your prior written consent:
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(1) a change in at least five members of the Company's Board
of Directors or the addition of five or more new members to the Company's
Board of Directors or any combination of the foregoing, within any two
calendar year period, unless such change or addition occurs with the
affirmative vote in writing of you in your capacity as a director or a
stockholders; or
(2) a person or group acting in concert as described in
Section 13(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") proposes to hold or acquire beneficial ownership within the
meaning of Rule 13(d)(3) promulgated under the Exchange Act of a number of
voting shares of the Company which constitutes either (i) more than fifty
percent of the shares which voted in the election of directors of the Company
at the stockholders' meeting immediately preceding such determination or (ii)
more than thirty percent of the Company's outstanding voting shares. The term
"proposes to hold or acquire" shall mean when a person or group acting in
concert has (A) the right to acquire or merge (whether such right is
exercisable immediately or only after the passage of time or upon the receipt
of such regulatory approvals as is required by applicable law) pursuant to an
agreement, arrangement or understanding (whether or not in writing) or upon
the exercise or conversion of rights, exchange rights, warrants or options or
otherwise; (B) commenced a tender or exchange offer with respect to the voting
shares of the Company or securities convertible or exchangeable into voting
shares of the Company; or (C) the right to vote pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided, however,
that such person or group acting in concert shall not be deemed to have
acquired such shares if the agreement, arrangement or understanding to vote
such securities arises solely from a revocable proxy given in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations of the Exchange Act and is not also then
reportable on Schedule 13D under the Exchange Act or any comparable or
successor report.
You may exercise your option by giving written notice to the
Secretary of the Company on forms supplied by the Company at its then
principal executive office, accompanied by payment of the option price for the
total number of shares you specify that you wish to purchase. The payment may
be in any of the following forms: (a) cash, which may be evidenced by a check;
(b) (unless prohibited by the Board of Directors) certificates representing
shares of Series A Common Stock of the Company, which will be valued by the
Secretary of the Company at the fair market value per share of the Company's
Series A Common Stock (as determined in accordance with the Plan) on the date
of delivery of such certificates to the Company, accompanied by an assignment
of the stock to the Company; or (c) (unless prohibited by the Board of
Directors) any combination of cash and Series A Common Stock of the Company
valued as provided in clause (b). Any assignment of stock shall be in a form
and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease to be a director of
the Company or a subsidiary corporation (whether by death, disability,
resignation, removal, failure to be reelected or otherwise and regardless of
whether the failure to continue as a director was for cause or otherwise), but
in no event later than ten years from the date this option is granted. After
the date you cease to be a director, you may exercise this option only for the
number of shares which you had a right to purchase and did not purchase on the
date you ceased to be a director. If you are a director of a subsidiary
corporation, your directorship shall be deemed to have terminated on the date
such company ceases to be a subsidiary corporation, unless you are also a
director of the Company or another subsidiary corporation, or on that date
became a director of the Company or another subsidiary corporation. Your
directorship shall not be deemed to have terminated if you cease being a
director of the Company or a subsidiary corporation but are or concurrently
therewith become a director of the Company or another subsidiary corporation.
A-5
<PAGE>
If you die while a director of the Company or a subsidiary
corporation, executor or administrator, as the case may be, may, at any time
within three months after the date of your death (but in no event later than
ten years from the date this option is granted), exercise the option as to any
shares which you had a right to purchase and did not purchase during your
lifetime. If your directorship with the Company or a subsidiary corporation is
terminated by reason of your becoming disabled, you or your legal guardian or
custodian may at any time within three months after the date of such
termination (but in no event later than 10 years from the date this option is
granted), exercise the option as to any shares which you had a right to
purchase and did not purchase prior to such termination. Your executor,
administrator, guardian or custodian must present proof of his authority
satisfactory to the Company prior to being allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination
of shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Board of Directors deems in its sole
discretion to be similar circumstances, the number and kind of shares subject
to this option and the option price of such shares shall be appropriately
adjusted in a manner to be determined in the sole discretion of the Board of
Directors.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a stockholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of exercise of this
option during any period of time in which the Company deems, in its sole
discretion, that such delivery may not be consummated without violating a
federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this
option is not exercisable until all the following events occur and during the
following periods of time:
(a) Until the Plan is approved by the stockholders;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies
and securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
A-6
<PAGE>
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account
for investment purposes only, and not with a view to, or in connection with,
any resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement
under the Securities Act of 1933, as amended, and under any
applicable state securities laws or an opinion of counsel acceptable
to the Company that the proposed transaction will be exempt from such
registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
This option shall be subject to the terms of the Plan in effect on
the date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the
terms of this option and the terms of the Plan in effect on the date of this
option, the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of
the State of New York.
A-7
<PAGE>
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its
terms and conditions.
FOOD COURT ENTERTAINMENT NETWORK, INC.
(SEAL) By:___________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and, having read it hereby signify my understanding of, and my agreement with,
its terms and conditions.
______________________________________
(Signature) (Date)
A-8
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Proxy for Annual Meeting of Stockholders
June 26, 1996
Solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints Stephen G. Bowen and Darren M.
Sardoff and each of them, as attorneys-in-fact and proxies of the undersigned,
with full power of substitution for and in the name, place and stead of the
undersigned to appear at the Annual Meeting of Stockholders of Food Court
Entertainment Network, Inc. (the "Company"), to be held on the 26th day of
June, 1996, and at any postponement or adjournment thereof, and to vote all of
the shares of Series A Common Stock and Series B Common Stock of the Company
which the undersigned is entitled to vote, with all the powers and authority
the undersigned would possess if personally present. The undersigned directs
that this proxy be voted as follows:
Please mark your votes as in this example. |X|
1. For |_| the election of Robert H. Lenz, Stephen G. Bowen, Gary D.
Penisten, Howard W. Phillips, Robert J. Wussler, Jeffrey Steinberg,
Benjamin Frank, E. Donald Shapiro, John J. McMenamin and Steven J.
Heyer as Directors of the Company, as more fully described in
the accompanying Proxy Statement (to withhold authority to vote for
all directors, check this box:|_|)
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below.
______________________________________________________________________
2. To approve amendments to the Company's Employee Stock Option Plan, as
more fully described in the accompanying proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve the Company's Director Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
4. To transact such other business as may properly come before this
meeting or any postponement or adjournment thereof.
This proxy will, when properly executed, be voted as directed. If no
directions to the contrary are indicated, the persons named herein intend to
vote for the election of the named nominees for director and to approve
proposals 2 and 3.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES
(OR, IF ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE
POWERS CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS
PROXY AS TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
The undersigned hereby acknowledges receipt of the Company's 1995
Annual Report to Shareholders, Notice of the Company's 1996 Annual Meeting of
Shareholders and the Proxy Statement relating thereto.
DATE:___________________________, 1996
(Please date this Proxy)
--------------------------------------
--------------------------------------
Signature(s)
It would be helpful if you signed your
name exactly as it appears on your stock
certificate(s), indicating any official
position or representative capacity. If
shares are registered in more than one
name, all owners should sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTAGE PAID ENVELOPE.
