UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended
December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. [No Fee Required] For the
transition period from ___________ to ______________
Commission file number 0-26828
FOOD COURT ENTERTAINMENT NETWORK INC.
(Name of small business issuer in its charter)
Delaware 51-0338736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 East 42nd Street, 16th Floor,
New York, New York 10017
(212) 983-4500
(Address, Zip Code and telephone of Issuer)
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act:
(Title of Class)
Units
Series A Common Stock, $.01 par value
Redeemable Class A Warrants
Redeemable Class B Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Check if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Issuer's revenues for its most recent fiscal year:
$122,260
As of March 31, 1997, there were outstanding 6,963,655
shares of Series A Common Stock and 1,064,765 Shares of Series B
Common Stock. The aggregate market value of Series A Common
Stock held by non-affiliates was approximately $11,223,727.(1)
________________
(1) The aggregate dollar amount of the voting stock
set forth equals the number of shares of the Company's Series A
Common Stock outstanding, reduced by the amount of Series A
Common Stock held by officers, directors, and shareholders owning
in excess of 10% of the Company's Series A Common Stock,
multiplied by the last reported sale price for the Company's
Series A Common Stock on March 31, 1997. The information
provided shall in no way be construed as an admission that any
officer, director or 10% shareholder in the Company may or may
not be deemed an affiliate of the Company or that he/it is the
beneficial owner of the shares reported as being held by him/it,
and any Such inference is hereby disclaimed. The information
provided herein is included solely for recordkeeping purposes of
the Securities and Exchange Commission.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Definitive Proxy
Statement, which will be filed not later than 120 days after the
end of the fiscal year covered by this Report, are incorporated
by reference in Part III hereof.
Certain exhibits from the Company's Registration
Statement on Form S-3 (File No. 333-21077) are incorporated by
reference as Exhibits in Part IV of this Report.
Transitional Small Business Disclosure Format
Yes ___ No X
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
THE COMPANY
SEE THE "INVESTMENT CONSIDERATIONS" SECTION WHICH
FOLLOWS THIS SECTION FOR A DISCUSSION OF CERTAIN FACTORS WHICH
SHOULD BE CONSIDERED IN CONNECTION WITH THE COMPANY'S BUSINESS.
Organization
Food Court Entertainment Network, Inc. ("The Company")
was organized in February, 1992 to establish a national
television network to broadcast high quality television
programming called Cafe USA to large, enclosed shopping mall food
courts ("Food Courts") throughout the country. The Company's
concept of providing advertising through broadcast directly into
mall Food Courts was predicated on its belief that shopping and
product decisions by consumers are often made at the
point-of-purchase. The Company believes it offers national and
regional advertisers a new vehicle to communicate their
advertising messages to consumers at or near where shopping
decisions may be made.
The Company was initially incorporated in the State of
Delaware on February 12, 1992 under the name Advanced Media, Inc.
In April, 1992, the Company changed its name to AppleBell
Communications, Inc. and then in October, 1993 to Food Court
Entertainment Network, Inc. The Company's executive offices are
located at 220 East 42nd Street, 16th Floor, New York, New York
10017 and its telephone number is (212) 983-4500.
On October 16, 1995, the Company closed on its initial
public offering (the "Public Offering") of 2,800,000 units
consisting of one share of Series A Common Stock, one Class A
Warrant and one Class B Warrant (the "IPO Units") to D.H. Blair
Investment Banking Corp. (the "Underwriter"). On November 9,
1995, the Company closed the offering of an additional 420,000
IPO Units to the Underwriter pursuant to the Underwriter's
overallotment option. On November 14, 1996, the Company closed a
private offering to accredited investors ("Private Offering") of
90 Units ("Private Units") for $100,000 per Private Unit, each
Private Unit consisting of 31,746 IPO Units. See "Managements
Discussion and Analysis and Results of Operations."
Marketing Strategy
There are approximately 750 large malls in the U.S.
which contain Food Courts. These Food Courts contain an average
of 450 seats and each features a variety of regular and fast food
restaurants. The Company believes that mall operators will
expand existing Food Courts and renovate older malls to include
Food Courts. Many such plans to do so are already in progress.
The Company is marketing the Cafe USA program and
network as an innovative advertising and promotion medium to
major national and regional advertisers. These potential
advertisers include: retailers located in malls or businesses
which sell a substantial amount of their products or services in
malls (such as apparel and shoe, cosmetic and motion picture
companies); businesses for which the target Cafe USA audience is
attractive and which rely upon malls for a portion of the sales
of their products or services (such as credit card, soft drink,
film, and greeting card companies) and businesses for which the
target Cafe USA audience is attractive even though the business
presently does not have a significant distribution of its
products or services in malls (such as telephone companies and
broadcast media).
On January 23, 1997, the Company entered into a sales
representation agreement with ABC New Media Sales ("ABC")
pursuant to which ABC has agreed to act as the Company's
exclusive advertising sales representative for Cafe USA and use
its best efforts to sell Cafe USA advertising nationwide. Under
the agreement, ABC is authorized to enter into agreements with
respect to the sale of commercial advertising space on Cafe USA
in such amounts as made available by the Company. Under the
terms of the agreement, ABC will receive a commission equal to
15% on the first $15.0 million of net advertising revenue, 10% on
the net advertising revenue between $15.0 million and
$30.0 million, and 7.5% on net advertising revenue over
$30.0 million. The agreement is for a period of six years,
subject to the right of the parties to terminate after two years.
Development Activities to Date and Plan of Operation
The Company is currently in the development stage. To
date, the Company's activities have consisted primarily of
designing, developing and producing Cafe USA programming,
producing and developing and refining an end-to-end distribution
system for delivery and management of Cafe USA programming into
Food Courts, attracting and engaging management employees,
consultants and advisers for marketing, operations and
implementation of the Cafe USA network, producing three market
research projects to evaluate the acceptance of Cafe USA in the
marketplace, establishing contacts with potential advertisers and
mall operators, and installing and operating Cafe USA as of
December 31, 1996 in 11 Food Courts (now installed in 18 Food
Courts as of March 26, 1997). Through December 31, 1996, the
Company had expended approximately $8,984,000 in its development
activities.
In the fall of 1995, the Company began a ten-week
evaluatory period ("Evaluatory Period") of Cafe USA during which
the Company broadcast the Cafe USA program in a total of four
major enclosed malls located in the Chicago, Philadelphia, New
York, and Greenville, South Carolina markets. The Company
engaged A. C. Nielsen to conduct a survey of 4,800 mall and Food
Court visitors to the four malls during the ten-week Evaluatory
Period (the "1995 Nielsen Survey"). The purpose of the
Evaluatory Period was to gather data necessary to evaluate the
acceptance of Cafe USA by mall operators and Food Court visitors,
and, assuming marketplace acceptance, to determine the pricing
structure for advertising, since the Company's future viability
and profitability are dependent upon the generation of
advertising revenue. To date, the Company has generated very
limited revenues from advertising sales.
Based upon the results of the 1995 Nielsen Survey, the
Company believes sufficient support for the Cafe USA concept
exists in the marketplace to justify the expansion of Cafe USA in
Food Courts throughout the United States (the "Mall Expansion").
The conclusions drawn by the Company's management from the
Evaluatory Period, the 1995 Nielsen Survey and marketing and
sales activities during 1996 resulted in the Company's modifying
its business strategy. The Company determined that in order to
successfully sell Cafe USA to a substantial number of
advertisers, and thereby generate significant revenues, the
distribution network for Cafe USA must first be expanded.
Accordingly, the Company requires substantial funds in addition
to revenues from operations and financing available from external
sources in order to implement its business plan and reach
profitable operations. The Company intends to seek strategic
alliances, either through a joint venture, merger or acquisition
transaction, with other entities that have significant financial
or other resources, in order to provide the Company with the
necessary funding required to successfully complete the Mall
Expansion and to build its internal marketing and advertising
sales force. There can be no assurance that the Company will be
able to enter into any such arrangements. If the Company is
unsuccessful in securing any arrangements with third parties to
provide the necessary funding, the Company may be unable to
complete the Mall Expansion. The Company currently has no paid
advertisers. The Company has an arrangement with Pan American
World Airways, Inc. ("Pan Am") pursuant to which Pan Am
advertising is broadcast on the Cafe USA network in exchange for
airline travel.
In November, 1996 the Company received approximately
$7.8 million from the Private Offering. The Company's strategy
is to utilize the proceeds of the Private Offering to expand the
Cafe USA network into up to 31 mall Food Courts.
Based upon its current plan to proceed with the Mall
Expansion, the Company is attempting to obtain commitments from
advertisers and is negotiating with mall operators for
installation and operation of Cafe USA in additional malls. As
of the date of this report, the Company has fully installed and
is operating Cafe USA in 18 Food Courts and has begun
installation in two Food Courts.
The Company has limited capital remaining after
expanding into 18 malls (estimated to be approximately
$3.8 million as of March 31, 1997). Further, it is not
anticipated that even with expansion in up to 31 Food Courts that
advertising revenue alone will be sufficient to maintain the
Company as a going concern. If the Company is not able to enter
into strategic alliances, the Company will be unable to carry out
its Plan of Operation and may cease to exist.
There can be no assurances that advertisers will be
willing to commit significant expenditures for advertising on
Cafe USA in which event, without a strategic alliance, the
Company will lack sufficient revenues to sustain operations.
Furthermore, if advertisers are not willing to commit material
expenditures towards advertising on Cafe USA or advertisers
feedback otherwise indicates that the Cafe USA program in its
current format is not being accepted by the marketplace, the
Company will review the data to determine the reasons therefor,
determine the modifications or changes necessary to gain
marketplace acceptance, if possible, and implement such
modifications or changes. If the Company determines that it is
unable to modify or revise the Cafe USA program or delivery
thereof in a manner that will achieve marketplace acceptance, the
Company may be forced to cease operations. Furthermore, it is
possible that required modifications or revisions to Cafe USA
would exhaust all of the Company's available capital.
The Mall Expansion is dependent upon the Company
obtaining financing for the lease or purchase and installation of
the monitors and sound systems necessary for the broadcasting of
Cafe USA in Food Courts. Without additional financing, the
Company will not be able to pursue its expansion plan. The
Company is negotiating with potential suppliers of the equipment,
and suppliers of programming and others to provide such
financing. There is no assurance that such financing will be
available. If the Company is not able to obtain additional
financing, the Company will be unable to pursue its Expansion
Plan and may be forced to cease business. See "Investment
Considerations - Capital Intensive Nature of Business.
While the development of a national television network
remains the core business of the Company, management has
determined that it is in the Company's best interest to restate
the Company's mission. The Company plans to promote, introduce
and operate electronic entertainment, information and transaction
networks in high-traffic consumer areas such as shopping centers,
multi-purpose malls, resorts, travel facilities and entertainment
and retail destinations, utilizing both new and traditional media
and contemporary communications technologies.
Programming
Management believes that high quality programming
integrated with national, regional and local advertising is
critical to the success of Cafe USA. The Company originally
subcontracted programming to Turner Private Networks, Inc.
("Turner"), a subsidiary of Turner Broadcasting System, Inc. In
December, 1996 the Company determined that it was in its best
interest to terminate the programming agreement with Turner.
Management of the Company believed that it could produce more
suitable programming utilizing the Company's own resources and
the expertise of its own employees who have had substantial
experience as television producers for major cable networks.
Further, management of the Company believed that it would not
only maintain quality broadcast and content standards for Cafe
USA programming, but also could produce programming for a lower
cost than the Company would have had to incur if it continued the
Turner contract. During the three months since the termination
of the Turner contract, the Company has reduced its per program
cost from $50,000 as required by the Turner contract to
approximately $37,500 per program while maintaining a quality
broadcast product.
The Cafe USA program structure currently calls for a
30-minute "cycle" with 22 minutes of national/regional/local
programming and eight minutes of advertising. Programming may
vary to address the interest of the changing audience
demographics throughout the day based upon audience research.
Proposed Local Installation, Operation and Maintenance
For each mall, the Company has installed an average of
15 to 20 monitors distributed throughout the Food Court, an audio
system designed for the Food Court and a control room with
equipment needed for the local operation of Cafe USA. The per
mall cost of setup including equipment and installation was
approximately $150,000 during 1996. In the later part of 1996,
the Company reevaluated its approach to installing audio and
video equipment in the Food Courts. Rather than having a goal of
100% coverage of the Food Court, the Company believes 70% to 80%
coverage is more appropriate, thereby having a portion of the
Food Court without monitors or audio. In addition, the Company
has redesigned the placement of the speakers and has revised its
specifications for certain equipment used to broadcast Cafe USA.
The current cost for the setup in each mall is presently
approximately $80,000 per mall. There are no assurances,
however, that future setup costs will not exceed $80,000 per
mall. The equipment is maintained by local personnel
subcontracted by the Company. In the future the Company intends
to manage the equipment from a central facility, coupled with a
third party maintenance contract for services on an as-needed
basis.
At the present time, the Company distributes its
programs via laser disc to each operative Food Court. The
Company has issued a purchase order to Digital Equipment
Corporation ("DEC") whereby DEC has undertaken to develop
software applications and provide hardware necessary to deliver
Cafe USA digitally through telecommunications network into malls
nationwide. Through the end of 1996 the Company has paid DEC the
sum of $150,000. The cost of the digital network is estimated to
be about $1,000,000. Further, DEC and the Company have agreed to
enter into a definitive agreement setting forth the exact
obligations and responsibilities of both DEC and the Company.
There can be no assurance that a definitive agreement with DEC
will be signed. In the event that the Company does not proceed
with the DEC contract, there are other options and methods of
broadcast or other digital systems which have been designed by
other companies that will be available to the Company.
Advertising
The Company expects that substantially all of its
revenues, will be derived from payments by advertisers for
commercials played on the Cafe USA network. The Company believes
that Cafe USA will provide advertisers with a capacity to reach a
sizeable audience with desirable demographics while in the
shopping environment. Advertisers may be offered competitive
exclusivity (either by type of product or service or within a
given time period).
Cafe USA is offering advertisers eight minutes of
commercials per 30 minutes replayed every half hour during the
11 to 12 hours per day the mall is open.
The Company has reevaluated its pricing structure.
Initially, the Company expected to utilize an advertising pricing
structure based upon the number of malls which broadcast Cafe USA
programming and advertising. However, experience and advertiser
feedback have dictated a modification of the pricing structure.
Rather than a price per Food Court, the Company is pricing its
advertising based upon statistical data of the number of persons
who visit the particular Food Courts in which Cafe USA is
installed and operating each month. The Company believes that
advertising revenues will be earned from a combination of
long-term exclusive contracts and short-term contracts for
specific periods. There can be no assurance that advertising
revenues will ever be sufficient to cover operating costs and
provide profitability to the Company. The Company currently has
no paid advertisers.
Competition
The Company competes in the broad arena of traditional
broadcast programming and promotional delivery vehicles and as
such is in competition with all established media/promotional
products and services. In addition, the Company competes in the
arena of alternative or place based media. In both arenas the
Company competes with companies having greater financial and
other resources than the Company.
To the knowledge of Company management, no company to
date has distributed, on a national level, entertainment
programming as a new medium for advertisers specifically targeted
to the Food Court audience. There have been previous
unsuccessful place based advertising attempts in major malls,
including in Food Courts (on a regional basis), and there are
several limited current endeavors in this area. In the future,
and especially if the Cafe USA program is successful, other
entities may develop products and related systems that are
similar to the Company's, and such entities may provide
substantial competition to the Company. Furthermore, the
Company's trade secrets and intellectual property provide no
significant barrier to competition.
Intellectual Property
The Company has received service mark registration of
Cafe USA and of its Cafe USA logo and has applied for service
mark registration of its "Television in the Red Zone" logo from
the United States Patent and Trademark Office. The Company has
no other protection with respect to its trade secrets and
intellectual property, although the Company may in the future
seek copyright or other intellectual property protection for
programming designed by Company.
Employees
The Company currently has 20 full time employees,
including 3 executive officers. The Company has entered into
employment contracts for a term of three years effective
October 1, 1996 with both the Chairman and the Chief Executive
Officer, and a one-year renewal of an existing employment
contract effective October 9, 1995 which renewed automatically
October 1, 1996 with its Chief Financial Officer. See
"Management - Employment Agreements."
INVESTMENT CONSIDERATIONS
In addition to the other information in this Report,
the following information should be considered carefully by
investors in evaluating the Company and its business.
Unproven Commercial Viability; Need for Market
Acceptance. There can be no assurance that the Company's
television programming and advertising in shopping mall Food
Courts will be accepted in the marketplace or that the Company's
operations will be commercially viable. The commercial viability
of the Cafe USA concept will be determined in large part by the
acceptance of Cafe USA by advertisers and mall operators. The
Company is currently broadcasting Cafe USA in only 18 mall Food
Courts. Without further acceptance by the marketplace, the
Company may be forced to cease operations. The Company has no
paid advertisers. While the Company has conducted testing of its
Cafe USA concept, there is no assurance that the test results of
the acceptance of Cafe USA in four malls are indicative of
widespread acceptance in the marketplace or that, if accepted, it
will ever result in the Company achieving profitable operations.
See "Development Activities and Plan of Operation."
Capital Intensive Nature of Business; Need for, and No
Assurance of, Strategic Alliances and Additional Financing to
Develop Cafe USA. The Company has received only minimal revenues
from operations and has relied on the proceeds of equity
financings to fund its operations. The net proceeds received by
the Company from the Private Offering will enable the Company to
continue operations through approximately June 30, 1997.
Management of the Company is pursuing strategic alliances through
a combination of one or more joint venture, merger or acquisition
transactions because advertising revenues generated by Cafe USA
and financing that may be available from external sources will
not provide the Company with sufficient capital required to
complete the Company's business plan for expansion of Cafe USA.
However, there can be no assurances that the Company will be able
to complete one or more of such strategic alliances. Since the
Company anticipates receiving only limited revenues from
advertisers during the early stages of the Mall Expansion, the
Company will remain dependent upon external sources of financing
until such time as the Company is able to complete one or more
strategic alliances. If the Company is unable to either complete
one or more strategic alliances or obtain additional financing on
acceptable terms, the Company will be unable to complete the
expansion of Cafe USA and will be forced to cease business.
Development Stage Company; Significant Losses. The
Company is a development stage company which has engaged
primarily in the development of the Cafe USA network. The
Company has realized only minimal revenues to date, has incurred
substantial losses since its inception and expects to continue
incurring losses in the foreseeable future. Accordingly, the
Company, as of December 31, 1996, had a deficit accumulated in
the development stage of approximately $15,691,000. The Company
has continued to incur substantial losses since such date.
Furthermore, for the foreseeable future, the Company expects
losses to continue and will be entirely dependent on public or
private financing.
Requirement for Capital Equipment; Potential Negative
Effect on Statement of Operations. The Company's business is
capital intensive, requiring substantial outlays for the purchase
and installation of broadcasting equipment. The cost of
"outfitting" each mall with equipment necessary to transmit and
receive Cafe USA is currently costing approximately $80,000,
consisting of approximately $40,000 in equipment costs and
$40,000 in installation costs. There are no assurances, however,
that future costs will not exceed actual costs to date. Although
the Company has been seeking financing for all or a portion of
these costs in view of the Company's limited cash resources, the
Company has been unsuccessful in securing such financing to date
and there is no assurance that this financing can be obtained on
favorable terms, if at all. Irrespective of whether financing is
obtained, the Company's future operations will be charged for the
depreciation of the equipment, including the installation costs,
and, if the Company has to remove the equipment for relocation
before the expiration of the expected life of the equipment, a
loss would have to be recognized equal to the undepreciated
installation costs because they would provide no future benefit.
Possible Need for Additional Statistical Data. To
provide the necessary data for the sale of advertising, the
Company will need on-going market research to develop reliable
statistical data. The Company retained A.C. Nielsen to conduct
the 1995 Nielsen Survey. The Company had previously conducted a
much smaller A.C. Nielsen survey during a week demonstration of
its programming and advertising in May, 1994 in Haywood Mall in
Greenville, South Carolina and a more preliminary Audits and
Surveys research study in October, 1992. The 1995 Nielsen Survey
was still limited in scope (only four malls) and may not provide
sufficient data required for the sale of advertising.
Accordingly, the Company will require substantial additional data
in order to validate rates to advertisers. Pricing for
advertising is based substantially on the number of visitors
exposed to Cafe USA programming and advertising and the impact of
the advertising upon those exposed. There is no assurance that
all of the necessary data will be obtained, or if obtained, will
be favorable or be accepted by advertisers.
New Enterprise. The Company was formed in February,
1992 and its success depends upon several factors, including the
quality of its programming and managing the technical aspects of
its operations. Investors should be aware of the difficulties
normally encountered by a new enterprise and the high rate of
failure of such enterprises. There is no history upon which to
base any assumption as to the likelihood that the Company will
prove successful, and as such, there can be no assurances that
the Company will be a viable and profitable business. The
likelihood of success must be considered in light of the
problems, expenses, difficulties, complications and delays
encountered in connection with the development of a business in
the area in which the Company intends to operate and in
connection with the formation and commencement of operations of a
new business in general. The Company is unable to predict how
long it will be before it begins to generate additional revenues
or how long its losses will continue. There is a substantial
risk that the Company will have inadequate working capital to pay
all of its expenses during this start-up period.
Dependence Upon Others. The success of the Company's
operations will depend upon numerous factors, many of which are
beyond the Company's control, including (i) the ability of the
Company to enter into strategic alliances through a combination
of one or more joint venture, merger or acquisition transactions,
(ii) the ability of the Company to obtain contracts with
advertisers that will produce revenues; (iii) the availability of
operating resources to produce or purchase programming; and
(iv) the availability of operating resources to install, maintain
and service the video and audio system satisfactorily, to obtain
and service satisfactory network communication and to obtain the
services of and pay a sufficient number of representatives on a
local basis necessary to operate and service all facets of the
Cafe USA business. These and other factors will require the use
of outside suppliers as well as the talents and efforts of the
Company. There can be no assurance of success with any or all of
these factors on which the Company's operations will depend.
Lack of Programming and Production Experience. Because
of the absence of any operating history in connection with
broadcasting programming and advertising to mall Food Courts on
the part of the Company or advertising entities, there can be no
assurance that the Cafe USA programming and advertising will be
viewed favorably by consumers or that advertisers will be
attracted to either the concept of this medium or the specific
programming developed by the Company. Further, the Company has
broadcast during only approximately 18 months in a limited number
of Food Courts and there can be no assurances that the technology
associated with the broadcasting will prove to be manageable.
ABC Contract, Reliance on ABC New Media Sales ("ABC")
for Advertising Sales Revenue. The Company has entered into a
six year Sales Representative Agreement with and has engaged ABC
as the Company's exclusive advertising sales representative to
sell the Company's available advertising inventory. Although the
Company maintains an internal three person sales staff, the
Company is substantially dependent upon the ability of ABC to
sell its advertising at reasonable rates. There is no assurance
that ABC will be able to sell sufficient amounts of advertising
at reasonable rates. Since advertising is the Company's main
source of earned revenue, the failure to sell sufficient
advertising could cause the Company to significantly curtail
operations or possibly to cease operations.
Risks Relating to Agreement with DEC. Although DEC has
agreed to develop software applications and provide hardware
necessary to deliver Cafe USA digitally through a
telecommunications network into malls nationwide, the execution
of a definitive agreement, which is currently being negotiated,
is subject to certain conditions. There can be no assurance that
the Company will enter into a definitive agreement with DEC. To
date, the Company has made payments to DEC aggregating $150,000.
If a definitive agreement is not entered into, there can be no
assurance that the Company will have rights to the software
applications and the hardware developed by DEC. Accordingly, the
payments made to DEC by the Company, which are not returnable,
may result in the Company not obtaining from DEC a digital
delivery system for Cafe USA or the ownership of the software
applications and related hardware.
Dependence Upon Mall Operators. The ability of the
Company to establish the Cafe USA network is dependent upon the
Company entering into agreements with mall operators for the
installation of Cafe USA in mall Food Courts. While agreements
have been entered into with several mall developers, there is no
assurance that a sufficient number of mall operators will accept
Cafe USA in Food Courts or continue to accept it once it is
installed.
Reliance on Senior Management and Key Employees. The
Company is substantially dependent on the efforts of its senior
management. The Company has entered into employment agreements
with its Chairman, Robert H. Lenz, and its President, James N.
Perkins, with terms ending September 30, 1999. The Company has
an employment agreement which terminates on 30 days' prior notice
by either party in October, 1997 with Darren M. Sardoff, the
Company's Senior Vice President, Business Affairs and Chief
Financial Officer. The loss of services of any of the foregoing
individuals could have a material adverse effect on the Company's
prospects. The Company maintains key-person life insurance
coverage in the face amount of $2,000,000 for each of
Messrs. Lenz and Perkins naming the Company as beneficiary.
Management of the Company believes that the future success of
Cafe USA will depend on the Company's ability to attract
additional key personnel in sales, marketing, technical support,
finance, programming and mall relations. However, there can be
no assurances that the Company will be successful in attracting
or retaining additional personnel necessary to conduct its
business.
Competition. While the Company is operating in a new
industry, it is aware of other companies which have
unsuccessfully attempted to utilize the shopping mall for point
of sale broadcast or video advertising. Entities which enter the
shopping mall Food Court business in the future may have
substantially greater marketing, financial and human resources
than the Company and may provide significant long term
competition. Since Cafe USA is a broadcasting medium, the
Company will also be competing for advertising revenue with other
established media. Furthermore, the Company does not possess any
patented or copyrighted trade secrets or intellectual property to
provide barriers to competition.
Charge to Income in the Event of Release of Escrow
Shares. If the Company attains certain earnings thresholds or
the Company is sold at certain prices, the Company will be
required to recognize additional compensation expense in
connection with the release from escrow to certain stockholders
of the Company of 636,115 shares of Series B Common Stock (the
"Escrow Shares"). Accordingly, the Company will, in the event of
the release of the Escrow Shares, recognize during the period in
which the earnings thresholds are met or such per share sales
prices obtained, what could be a substantial charge that would
have the effect of substantially increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. Such
charge will not be deductible for income tax purposes. Although
the amount of compensation expense recognized by the Company will
not affect the Company's total stockholders' equity or cash flow,
it may have a depressive effect on the market price of the
Company's securities.
Influence by Management and Other Stockholders;
Possible Depressive Effect on the Company's Securities. One of
the Company's current directors (who is also an officer) and four
other stockholders own collectively 100% of the issued and
outstanding Series B Common Stock. All current officers and
directors, together with such four other stockholders of Series B
Common Stock, beneficially own in the aggregate approximately
21.61% of the total outstanding capital stock of the Company and
have approximately 47.22% of the total voting power thereof. As
a result, such individuals will be able to influence the election
of all of the Company's directors and otherwise influence the
Company's operations. Furthermore, the disproportionate vote
afforded the Series B Common Stock could also serve to impede or
prevent a change of control of the Company. As a result,
potential acquirors may be discouraged from seeking to acquire
control of the Company through the purchase of Series A Common
Stock, which could have a depressive effect on the price of the
Company's securities.
Potential Adverse Effect of Redemption of Warrants.
The outstanding Class A and Class B Warrants may be redeemed by
the Company at a redemption price of $.05 per Warrant upon
30 days' notice if, the average closing bid price of the Series A
Common Stock exceeds $9.00 per share with respect to the Class A
Warrants and $12.00 per share with respect to the Class B
Warrants for 30 consecutive business days ending within 5 days of
the notice of redemption. Redemption of the Warrants could force
the holders to exercise the Warrants and pay the exercise price
at a time when it may be disadvantageous for the holders to sell
the Warrants at the then current market price when they might
otherwise wish to hold the Warrants; or to accept the redemption
price, which, at the time the Warrants are called for redemption,
is likely to be substantially less than the market value of the
warrants.
Possible Depressive Effect of Future Sales of Common
Stock and Exercise of Registration Rights. The Company has
outstanding 6,963,655 shares of Series A Common Stock, 1,064,765
shares of Series B Common Stock, 8,796,797 Class A Warrants and
7,097,447 Class B Warrants. The 3,220,000 shares of Series A
Common Stock, Class A Warrants and Class B Warrants sold in the
Public Offering are freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Act"), unless
acquired by "affiliates" of the Company as that term is defined
in the Act. The 2,857,189 shares of Series A Common Stock,
3,341,742 Class A Warrants and 3,336,863 Class B warrants sold in
the Private Offering have been registered under the Act effective
February 27, 1997 and are also freely tradeable. None of the
1,064,765 shares of Series B Common Stock, 573,125 shares of
Series A Common Stock issued prior to the Public Offering and the
250,000 shares issued to Turner in connection with the
programming agreement have been registered under the Act, and all
are "restricted securities" under Rule 144 of the Act. However,
a substantial portion of the Series B Stock and 573,125 shares of
Series A Common Stock issued prior to the Public Offering have
been held a sufficient period of time that it is now freely
tradeable. The holders of the 573,125 shares of Series A Common
Stock issued prior to the Public Offering also have certain
"demand" and "piggyback" registration rights. Messrs. Lenz and
Perkins have agreed not to sell any shares of the Company's
Common Stock which they own for a period of 13 months following
February 27, 1997, the effective date of a Registration Statement
filed under the Act with respect to certain restricted securities
without the written consent of D.H. Blair Investment Banking
Corp., the placement agent (the "Placement Agent") for the
Private Offering. There are 636,115 shares of Series B Common
Stock in escrow which is owned by current and prior management.
The Company also has outstanding stock options and warrants (or
commitments to issue options, stock options and warrants) to
purchase 3,043,459 shares of Series A Common Stock at prices
ranging from $2.00 to $6.85 per share.
An additional 21,313,095 shares of Series A Common
stock issuable upon exercise of the Company's Class A and Class B
Warrants issued or issuable in connection with the Company's
Public Offering and Private Offering may be resold without
restriction provided there is a current prospectus under the Act
relating thereto and applicable state securities laws are
complied with. Furthermore, 1,120,000 shares of Series A Common
Stock underlying the unit purchase options issued to the
Placement Agent in connection with the Public Offering are
subject to restrictions on transferability until October 11, 1998
and thereafter, are freely transferable without restriction
provided there is a current prospectus under the Act relating
thereto and applicable state securities laws are complied with.
The existence of the Unit Purchase Options issued in the Public
Offering, outstanding options and warrants, Class A Warrants,
Class B Warrants, and other options that may be issued by the
Company may hinder future financing by the Company, and exercise
of these securities may further dilute the interest of the
persons holding Series A Common Stock. Further, the holders of
such options and warrants may exercise them at a time when the
Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. No prediction
can be made as to the effect, if any, that sale of these
securities or the availability of such securities for sale
without restriction will have on the market prices of the
Company's securities prevailing from time to time. Nevertheless,
the possibility that substantial amounts of securities may be
sold in the public market may adversely affect prevailing market
prices for the Company's securities and could impair the
Company's ability to raise capital through the sale of its
securities.
Effect of Outstanding Options and Warrants. The
Company currently has outstanding a substantial number of Class A
Warrants, Class B Warrants and other options to purchase shares
of Series A Common Stock. For the terms of outstanding options
and warrants, the holders thereof are given an opportunity to
profit from a rise in the market price of the Series A Common
Stock with a resulting dilution in the interest of the other
stockholders. Further, the terms on which the Company may obtain
additional financing during that period may be adversely affected
by the existence of such options and warrants. The holders of
such options and warrants may exercise them at a time when the
Company might be able to obtain additional capital through a new
offering of securities on terms more favorable than those
provided by such securities.
Authorization of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of preferred stock, par value $.01 per share,
with such designation, rights and preferences as may be
determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders
of the Company's Series A and Series B Common Stock. In the
event of issuance, preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. There can be no
assurance that the Company will not issue shares of preferred
stock in the future.
No Dividends Anticipated. The Company has never paid
any cash dividends on its Series A and Series B Common Stock and
does not anticipate the payment of cash dividends in the
foreseeable future.
Possible Restrictions on Market-Making Activities in
the Company's Securities. D. H. Blair & Co., Inc. ("Blair &
Co.") is currently, and the Company believes that it intends in
the future to continue to be, a market maker in the Company's
securities. Regulation M, which was recently adopted to replace
Rule 10b-6 and certain other rules promulgated under the Exchange
Act may prohibit Blair & Co. from engaging in any market-making
activities with regard to the Company's securities for the period
from five business days (or such other applicable period as
Regulation M may provide) prior to any solicitation by
D. H. Blair Investment Banking Corp. ("Blair") of the exercise of
the Company's outstanding warrants until the later of the
termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that Blair may have to receive
a fee for the exercise of such warrants following such
solicitation. As a result, Blair & Co. may be unable to provide
a market for the Company's securities during certain periods
while the warrants are exercisable. In addition, under
applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of warrants offered by selling
securityholders may not simultaneously engage in market-making
activities with respect to any securities of the Company for the
applicable "cooling off" period (currently at least two and
possibly nine business days) prior to the commencement of such
distribution. Accordingly, in the event Blair & Co. is engaged
in a distribution of the selling securityholder warrants, Blair &
Co. will not be able to make a market in the Company's securities
during the applicable restrictive period. Any temporary
cessation of such market-making activities could have an adverse
effect on the market price of the Company securities.
Investigation of Blair and Blair & Co. by the
Securities and Exchange Commission. The Company has been advised
that the Securities and Exchange Commission (the "Commission") is
conducting an investigation concerning various business
activities of Blair and Blair & Co. The investigation appears to
be broad in scope, involving numerous aspects of Blair and
Blair & Co.'s compliance with the federal securities laws and
compliance with the federal securities laws by issuers whose
securities were underwritten by Blair or Blair & Co., or in which
Blair or Blair & Co. made over-the-counter markets, and persons
associated with Blair or Blair & Co., such issuers and other
persons. The Company has been advised by Blair that the
investigation has been ongoing since at least 1989 and that it is
cooperating with the investigation. Neither the Company, Blair
nor Blair & Co. can predict whether this investigation will ever
result in any type of formal enforcement action against Blair or
Blair & Co. An unfavorable resolution of this investigation
could have the effect of limiting Blair & Co.'s ability to make a
market in the Company's securities, which could affect the
liquidity or price of such securities. Any temporary cessation
of such market making activities could have a material adverse
effect on the market prices of the Company's securities.
ITEM 2 - PROPERTY
The Company currently utilizes approximately
7,500 square feet of space for its executive and administrative
staff at the 220 East 42nd Street, 16th Floor, New York, New York
10017 pursuant to a lease which expires December 31, 2000 and
which provides for a monthly rental of approximately $10,500.
The Company believes that such space will be sufficient for its
needs for the foreseeable future and that alternative space is
available at rental rates which would not materially adversely
affect the Company.
ITEM 3 - LEGAL PROCEEDINGS
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of stockholders of the Company
held on November 11, 1996, the stockholders of the Company
approved an amendment (the "Amendment") to Article FOURTH of the
Company's Certificate of Incorporation which (i) increased the
number of authorized shares of all classes of stock from
31,250,000 to 206,250,000, (ii) increased the number of
authorized shares of Common Stock, par value $.01 per share, from
26,250,000 to 201,250,000, and (iii) increased the number of
authorized shares of Series A Common Stock from 25,000,000 to
200,000,000. The Amendment required the approval of a majority
of the outstanding stock entitled to vote. There were 3,918,125
shares of Series A Common Stock and 1,126,115 shares of Series B
Common Stock entitled to vote on the Amendment. Each share of
Series A Common Stock was entitled to one vote and each share of
Series B Common Stock was entitled to five votes with respect to
the Amendment. There were 9,073,970 votes cast for the
Amendment, 105,095 votes cast against the Amendment, 46,720
abstentions, and no broker non-votes.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Units, Series A Common Stock, Class A
Warrants and Class B Warrants have been included on the Nasdaq
SmallCap Market under the symbols FCENU, FCENA, FCENW and FCENZ,
respectively, since October 11, 1995. The Company's Series B
Common Stock is not publicly traded and is held exclusively by
current or former management of the Company. The following table
sets forth the high asked and low bid information for the Units,
Series A Common Stock, Class A Warrants and Class B Warrants as
reported on the Nasdaq SmallCap Market for the period from
October 11, 1995 to December 31, 1995 (the "Fourth Quarter" of
1995), for each quarter in 1996, and for the period from
January 1, 1997 to March 31, 1997 (the "First Quarter" of 1997).
Market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
Security High Low
<S> <C> <C>
Units
1997
First Quarter ............... $6 7/8 $2 1/4
1996
First Quarter ............... 6 3/4 5
Second Quarter .............. 9 5 1/8
Third Quarter ............... 9 1/2 3
Fourth Quarter .............. 6 9/16 3
1995
Fourth Quarter .............. 7 3/8 5
Series A Common Stock
1997
First Quarter ............... 4 3/16 1 1/8
1996
First Quarter ............... 4 1/2 2 1/2
Second Quarter .............. 5 7/8 2 3/4
Third Quarter ............... 5 3/4 2 1/2
Fourth Quarter .............. 3 5/8 1 1/2
1995
Fourth Quarter .............. 5 2 1/2
Class A Warrants
1997
First Quarter ............... 1 3/4 1/2
1996
First Quarter ............... 1 7/8 1
Second Quarter .............. 2 3/4 1
Third Quarter ............... 2 3/4 1
Fourth Quarter .............. 2 7/8
1995
Fourth Quarter .............. 1 7/8 1 1/8
Class B Warrants
1997
First Quarter ............... 1 1/2 3/8
1996
First Quarter ............... 1 1/2 1/2
Second Quarter .............. 2 1/2
Third Quarter ............... 2 1/8 1 1/8
Fourth Quarter .............. 2 5/8
1995
Fourth Quarter .............. 1 1/2 1/2
</TABLE>
Holders
On March 31, 1997 there were 177, 190 and 158 holders
of record of Series A Common Stock, Class A Warrants and Class B
Warrants, respectively and 5 holders of Series B Common Stock.
Dividends
The Company has not paid dividends to its common
stockholders since its inception and does not anticipate paying
any dividends to its stockholders in the foreseeable future. The
Company currently intends to retain all earnings, if any, for use
in the expansion of the Company's business.
Recent Sales of Unregistered Securities
On November 14, 1996, the Company completed its private
offering (the "Private Offering") of 90 units (the "Private
Units"), each Private Unit consisting of 31,746 units identical
to those sold by the Company in its initial public offering (the
"IPO") in October 1995 (the "IPO Units"), each IPO Unit
consisting of one share of Series A Common Stock, one Class A
Warrant and one Class B Warrant. The Private Units were sold to
accredited investors pursuant to Section 4(2) of the Act for net
cash proceeds of approximately $7.8 million. As a result of the
securities sold in the Private Offering, the antidilution
provisions set forth in the Class A and Class B Warrants required
the Company to (i) issue an additional 1,275,545 Class A Warrants
and 1,020,258 Class B Warrants and (ii) adjust the exercise price
of the Class A and Class B Warrants from $6.00 to $5.13 and $8.00
to $6.85, respectively.
Each Class A Warrant entitles the holder to purchase,
at an exercise price of $5.13, subject to adjustment, one share
of Series A Common Stock and one Class B Warrant. Each Class B
Warrant entitles the holder to purchase, at an exercise price of
$6.85, subject to adjustment, one share of Series A Common Stock.
D. H. Blair Investment Banking Corp. ("Blair") acted as
placement agent in the Private Offering and pursuant to the terms
of the Agency Agreement, dated November 14, 1996, between the
Company and Blair, Blair received (i) a placement fee equal to
ten percent (10%) of the $9 million of proceeds (the "Proceeds")
from the Private Placement; (ii) a non-accountable expense
allowance equal to three percent (3%) of the Proceeds; and
(iii) a unit purchase option to purchase 35% of the Private Units
sold in the Private Offering (i.e., 999,999 IPO Units). In
addition, Blair received a right of first refusal for certain
Company financings and indemnification for liabilities arising
out of the Private Offering. Blair is also entitled to
registration rights with respect to the securities comprising the
Private Units. The Company has agreed, under certain
circumstances, to pay Blair a fee of 5% upon the exercise of the
warrants sold as part of the Private Units.
On December 16, 1996, the Company entered into a
financial advisory agreement with Furman Selz LLC ("Furman
Selz"), a New York investment banking firm. Pursuant to the
agreement Furman Selz will provide financial advisory services to
the Company for a period of approximately 18 months. Furman Selz
received warrants to purchase 401,321 shares of Series A Common
Stock, which is equal to five percent of the outstanding shares
of Series A and Series B Common Stock, at an exercise price of
$2.00 per share. The warrants contain certain antidilution
provisions. The Company will be required to recognize an
aggregate charge to operations of approximately $328,000 over an
18-month period for the value of the Furman Selz Warrants. In
the event additional warrants are issued in accordance with
antidilution provisions of the Furman Selz Warrants, the fair
value of such Warrants will be charged to operations for the
remaining term of the agreement.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
appearing elsewhere in this Report. The Company is in its
development stage. The Company's development activities to date
have consisted of designing, developing and producing Cafe USA
programming, producing and evaluating three market tests of Cafe
USA to evaluate its acceptance in the marketplace, developing and
refining an end-to-end distribution system for the delivery and
management of Cafe USA programming into Food Courts, attracting
and engaging management employees, consultants and advisers for
marketing operations and implementation of the Cafe USA network,
establishing contracts and entering into agreements with
advertisers and mall operators and installing and operating Cafe
USA in 11 Food Courts through December 31, 1996 (and 18 Food
Courts as of the date of this report). The Company has received
only limited revenues. The Company's principal expenses from its
inception through December 31, 1996 have been salaries and
payments to consultants ($5,263,000), production costs for Cafe
USA programming ($3,519,000) and advertising/marketing expenses
($1,307,000). Additionally, the Company invested approximately
$3,095,000 in capital equipment through December 31, 1996.
Accordingly, as of December 31, 1996, the Company had a deficit
accumulated in the development stage of approximately $15,691,000
and a net worth of approximately $8,148,000. The Company has
continued to incur substantial losses since such date and is
utilizing the proceeds of the Private Offering to continue its
business. For the foreseeable future, and until significant
sales, if any, of advertising occur, the Company expects losses
to continue and will be entirely dependent on public or private
financing or a strategic alliance. See also generally
"Investment Considerations."
On October 16, 1995 the Company closed a Public
Offering of 2,800,000 IPO Units, each IPO Unit consisted of one
share of Series A Common Stock, one Class A Warrant and one
Class B Warrant and on November 9, 1995 the Company closed on an
additional 420,000 Units to the Underwriter pursuant to the
Underwriter's over-allotment option. The total net proceeds to
the Company from the foregoing sales was approximately
$13,811,000. The proceeds were applied to redemption of
preferred stock (approximately $1,294,000), repayment of notes
and bank loans (approximately $3,500,000), payment of accrued
expenses and other indebtedness (approximately $2,100,000
million) and approximately $2,000,000 million to fund the
Evaluatory Period.
On November 14, 1996 the Company closed on a private
placement of 90 Private Units, each Private Unit consisting of
31,746 Units identical to the IPO Units. The total net proceeds
to the Company from the foregoing sales was approximately
$7,800,000. A portion of the proceeds were used for mall
installations and operations and working capital including
salaries of service management and technical and administrative
staff, advertising, sales and research expenses, programming and
production expenses, professional fees and office and
administrative expenses. The Company has utilized and will
continue to utilize the remainder of the proceeds to fund its
operations and continue mall installations until such time as it
begins to receive revenues from operations, if ever.
Charge to Income in the Event of Release of Escrow Shares
In connection with a private offering which began in
November, 1993 and terminated July, 1994 of units of Series A
Common Stock and Series A Redeemable Preferred Stock (the
"Preferred Stock Unit Offering"), 750,000 shares of Series B
Common Stock were placed in escrow of which 103,750 have been
canceled effective as Of July 5, 1994. In the event the Company
attains any of the earnings thresholds or the Company's Series A
Common Stock meets certain minimum purchase prices required for
the release of the Escrow Shares, such release will require the
Company to recognize additional compensation expense for shares
held by current and former officers and directors. Such charges
could substantially increase the loss or reduce or eliminate the
Company's net income, if any, for financial reporting purposes
for the period in which the Escrow Shares are released or are
probable of being released. Although the amount of compensation
expense recognized by the Company will not affect the Company's
total stockholders' equity or its working capital, it may have a
depressive effect on the market price of the Company's
securities. If neither the required earnings or sale price are
attained by December 31, 1998, the Escrow Shares as well as any
dividends or other distributions made with respect thereto, will
be contributed to the capital of the Company. See Investment
Considerations - Charge to Income in the Event of Release of
Escrow Shares" and Note E[1] of Notes to Financial Statements.
Liquidity and Capital Resources
As of December 31, 1996, the Company had a working
capital of approximately $5,502,000. The Company has financed
its operation to date almost exclusively through three private
placements of securities, bank loans and a public offering,
including $2,292,500 through the Preferred Stock Unit Offering,
the Bridge Financing of $2,250,000 of Bridge Notes, bank loans of
approximately $1,086,000, the Public Offering of approximately
$16,800,000 and the Private Offering in November, 1996 of
$9,000,000.
The Company has employment contracts with seven
executive officers and employees which provide for aggregate
salaries in 1997 in the amount of approximately $975,000. See
Note F to the Financial Statements. The Company's lease
agreement for its offices provides for monthly payments of
approximately $10,500.
Pursuant to employment agreements with two former
executive officers, the Company is obligated to make severance
payments totaling $125,000 for the period from April 1, 1997
through September 30, 1997.
The Company has entered into a settlement agreement
with a former director and officer of the Company dated
October 12, 1993 regarding any claims he had or may have had with
respect to continued employment with the Company and rights to
acquire additional securities of the Company for $200,000.
Payments under such settlement agreement will be made from 25% of
"Excess Cash Flow" (as defined below) of the Company, if any.
However, the entire remaining unpaid balance of the $200,000
shall be due and payable regardless of the Company's cash flow no
later than December 1, 1997. Interest will accrue on such
obligation at the prime rate commencing January 1, 1996 and will
be paid quarterly thereafter. "Excess Cash Flow" is defined in
the agreement as follows: for any fiscal quarter (i) net income
before taxes of the Company for such fiscal quarter, plus
(ii) amortization and other non-cash charges during such fiscal
quarter (to the extent deducted in computing net income), minus
(iii) capital expenditures made or accrued during such fiscal
quarter. Dividends and redemptions shall not be treated as
expenses in determining the Company's net income. In addition to
the above, the settlement agreement provided for the purchase by
the former director and officer from the Company of 11,250 shares
of the Company's Class B Common Stock at a price of $.01 per
share and the payment of consulting fees for services provided at
the request of the Company.
The Company entered into an agreement with an advisor
for assistance in obtaining certain financing transactions. The
Company has made certain payments pursuant to the agreement and
although the Company has terminated such agreement, it may be
required to pay consideration, including warrants, in the future
to such advisor for any financing obtained by the Company from
sources within the scope of the agreement.
In connection with the underwriting agreement for the
Private Offering, the Company entered into an agreement with the
Placement Agent that provides for a finder's fee to be paid to
the Placement Agent if it consummates a merger, acquisition,
joint venture, or other similar transaction with a party
introduced by the Underwriter during the five year period from
the consummation of the Private Offering. The fee is based on a
percentage of the consideration paid in the transaction ranging
from 7% of the first $1,000,000 to 2-1/2% of any consideration in
excess of $9,000,000.
The Company has agreed not to solicit warrant exercises
other than through the Placement Agent. Upon any exercise of the
Class A or Class B Warrants the Company will pay the Placement
Agent a fee of 5% of the aggregate exercise price, if (i) the
market price of the Company's Series A Common Stock on the date
the warrant is exercised is greater than the then exercise price
of the warrants; (ii) the exercise of the warrant was solicited
by a member of the National Association of Securities Dealers,
Inc.; (iii) the warrantholder designates in writing that the
exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. and designates in writing
the broker-dealer to receive compensation for such exercise;
(iv) the Warrant is not held in a discretionary account;
(v) disclosure of compensation arrangements was made both at the
time of the Private Offering and at the time of exercise of the
warrants; and (vi) the solicitation of exercise of the warrant
was not in violation of Rule 10b-6 promulgated under the Exchange
Act.
In connection with the Private Offering, D.H. Blair
Investment Banking Corp. was granted a five-year right of refusal
to act as underwriter for any public or private offerings by the
Company or any holder of 5% or more of the Company's Series B
Common Stock (with certain exceptions).
Plan of Operation
The Company is currently (as of March 31, 1997)
broadcasting in 18 Food Courts, has begun the installation of
Cafe USA in two additional Food Courts. The Company plans to
continue its Mall Expansion until it obtains a critical number of
installations in mall Food Courts. The Company will, however,
require substantial additional capital in order to complete its
plan. The Company intends to seek strategic alliances with
appropriate corporate partners. Without substantial additional
capital, the Company will be unable to complete a sufficient
number of installations to rely solely on revenues for its
operations.
Since revenue proceeds will not be sufficient to fund a
continued expansion of the network or the cost of operations, the
Company is actively seeking strategic alliances, either through a
joint venture, merger or acquisition transaction, with other
entities that have significant financial and other resources in
order to provide the Company with the necessary funding required
to successfully complete the Mall Expansion and to build a staff
sufficient to operate a growing media company. If the Company
determines that it is unable to enter into a strategic alliance
in a timely manner, the Company may be forced to cease
operations.
In January, 1997, the Company entered into a six-year
exclusive advertising sales representative agreement with ABC.
The agreement provides that ABC will be the exclusive advertising
representative for Food Court and will use the ABC sales force to
seek advertisers for the Company's programming. The Company
believes that the addition of the ABC sales force will have a
major impact on obtaining a significant volume of advertising
sales for the Cafe USA network. During the last quarter of 1996,
the Company ran advertisements for Sears, AT&T and the Athlete's
Foot and 20th Century Fox (for a four week period during the
fourth quarter). The Company currently has no paid advertisers.
The Company has issued a purchase order to Digital
Equipment Corporation ("DEC") whereby DEC has undertaken to
develop software applications and provide hardware necessary to
deliver Cafe USA digitally through telecommunications network
into malls nationwide. Through the end of 1996 the Company has
paid DEC the sum of $150,000. The cost of the digital network is
estimated to be about $1,000,000. Further, DEC and the Company
have agreed to enter into a definitive agreement setting forth
the exact obligations and responsibilities of both DEC and the
Company. There can be no assurance that a definitive agreement
with DEC will be signed. Although the failure to proceed with
the DEC contract will initially limit the Company's options for
broadcasting its programming into Food Courts, there are other
options and methods of broadcast or other digital systems which
may be designed by other companies that will be available to the
Company.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
INDEX
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS 28
BALANCE SHEET 29
STATEMENTS OF OPERATIONS 30
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 31
STATEMENTS OF CASH FLOWS 33
NOTES TO FINANCIAL STATEMENTS 34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Food Court Entertainment Network, Inc.
Queens, New York
We have audited the accompanying balance sheet of Food Court
Entertainment Network, Inc. (a development stage company) as at
December 31, 1996, and the related statements of operations,
changes in stockholders' equity and cash flows for the years
ended December 31, 1995 and December 31, 1996 and for the period
from February 12, 1992 (inception) through December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above
present fairly, in all material respects, the financial position
of Food Court Entertainment Network, Inc. at December 31, 1996
and the results of its operations and cash flows for the years
ended December 31, 1995 and December 31, 1996 and for the period
from February 12, 1992 (inception) through December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note A, the Company expects substantial losses to
continue until it is able to attract a significant number of
advertisers. In order to accomplish this, the Company must
expand its network into a significant number of mall food courts,
which will require additional financing. These factors raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ Richard A. Eisner & Company, L.L.P.
New York, New York
February 12, 1997
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
BALANCE SHEET
AS AT DECEMBER 31, 1996
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 6,498,864
Other current assets. . . . . . . . . . . . . . 402,626
Total current assets. . . . . . . . . . . . . 6,901,490
Fixed assets, net (Notes B[1] and C). . . . . . . 2,415,115
Other assets. . . . . . . . . . . . . . . . . . . 130,215
TOTAL . . . . . . . . . . . . . . . . . . . . $ 9,446,820
LIABILITIES
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 665,022
Accrued payroll . . . . . . . . . . . . . . . . 255,518
Other accrued expenses. . . . . . . . . . . . . 178,692
Due to former employee (Note F[3]). . . . . . . 200,000
Total liabilities . . . . . . . . . . . . . . 1,299,232
Commitments and other matters (Notes B[7] and F)
STOCKHOLDERS' EQUITY
(Note E)
Preferred stock - 5,000,000 shares authorized,
none issued
Common stock:
Series A common stock - $.01 par value,
200,000,000 shares authorized and
6,913,555 issued and outstanding. . . . . . . 69,135
Series B common stock - $.01 par value,
1,250,000 shares authorized,
1,133,009 issued. . . . . . . . . . . . . . . 11,330
Additional paid-in capital. . . . . . . . . . . . 23,757,996
Deficit accumulated during the development stage. (15,690,772)
Total . . . . . . . . . . . . . . . . . . . . 8,147,689
Treasury stock. . . . . . . . . . . . . . . . . . (101)
Total stockholders' equity. . . . . . . . . . 8,147,588
TOTAL . . . . . . . . . . . . . . . . . . . . $ 9,446,820
Attention is directed to the foregoing accountants' report and to
the accompanying notes to financial statements.
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 12,
1992
(Inception)
Through
Year Ended December 31, December 31,
1995 1996 1996
<S> <C> <C> <C>
Advertising revenue (Note B[2]) . $ 122,260 $ 122,260
Operating expenses:
Sales and marketing . . . . . . 560,513 560,513
Programming . . . . . . . . . . 1,314,340 1,314,340
Network costs . . . . . . . . . 1,228,557 1,228,557
General and administrative
expenses. . . . . . . . . . . $ 620,380 2,339,523 3,334,400
Development costs (Note B[3]) . 4,665,147 1,104,316 8,983,551
Total operating expenses. . . 5,285,527 6,547,249 15,421,361
Operating (loss). . . . . . . . . (5,285,527) (6,424,989) (15,299,101)
Other (income) expenses:
Interest expense. . . . . . . . 616,637 16,500 657,705
Interest and other (income) . . (65,313) (171,057) (266,034)
551,324 (154,557) 391,671
NET (LOSS). . . . . . . . . . . . $(5,836,851) $(6,270,432) $(15,690,772)
Net (loss) per share of common
stock . . . . . . . . . . . . . $ (2.32) $ (1.32)
Number of common shares and
common share equivalents
used in computation. . . . . . 2,413,975 4,738,565
</TABLE>
Attention is directed to the foregoing accountants' report and to
the accompanying notes to financial statements.
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Note E)
<TABLE>
<CAPTION>
Common Stock
Series A Series B
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for cash in February 1992 at $10.00 per share . . 98 $ 1
Net (loss) for the period February 12, 1992 (inception) to
December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . .
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . . . 98 1
Exchange of shares and change of capital structure in October 1993. . (98) (1) 98 $ 1
Common stock issued to founders for cash in October 1993 at $.01 per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,249,902 12,499
Cash contributed by stockholder . . . . . . . . . . . . . . . . . . .
Loan from director contributed to capital . . . . . . . . . . . . . .
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . .
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . . . 0 0 1,250,000 12,500
Issuance of stock for cash in January through June 1994 at $2.00 per
share in connection with private placement, less expense of
$254,685. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535,625 $ 5,356
Issuance of stock as settlement of director and officer loans in
January through June 1994 at $2.00 per share. . . . . . . . . . . . 37,500 375
Value assigned to warrants issued in connection with bridge
financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares forfeited and cancelled. . . . . . . . . . . . . . . . . . . . (103,750) (1,038)
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . .
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 0 0 573,125 5,731 1,146,250 11,462
Sale of treasury stock for cash in April 1995 at $.01 per share . . .
Value assigned to warrants issued in connection with bridge
financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends paid. . . . . . . . . . . . . . . . . . . . . . .
Issuance of units at $5.00 per unit pursuant to initial public
offering, less expense of $2,254,009. . . . . . . . . . . . . . . . 3,220,000 32,200
Value assigned to options and warrants issued as compensation . . . .
Value assigned to warrants issued for guarantees of debt. . . . . . .
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . .
Balance - December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 0 0 3,793,125 37,931 1,146,250 11,462
Common stock issued as consideration for programming. . . . . . . . . 250,000 2,500
Issuance of stock and warrants for cash in October at $3.15 per
share in connection with private placement (less expenses of
$1,341,109) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,857,189 28,572
Sale of common B shares . . . . . . . . . . . . . . . . . . . . . . . 13,241 132 (13,241) (132)
Granting of common B shares to former employee as a form of
settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of warrants as consideration for consulting services . . . .
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . .
BALANCE - DECEMBER 31, 1996 . . . . . . . . . . . . . . . . . . . . . 0 $ 0 6,913,555 $69,135 1,133,009 $11,330
</TABLE>
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Note E)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Series B
Paid-in Development Treasury Stock Subscription
Capital Stage Shares Amount Receivable Total
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for cash in February 1992 at
$10.00 per share . . . . . . . . . . . . . . . . $ 979 $(980) $ 0
Net (loss) for the period February 12, 1992
(inception) to December 31, 1992 . . . . . . . . $ (154,488) (154,488)
Balance - December 31, 1992 . . . . . . . . . . . . 979 (154,488) (980) (154,488)
Exchange of shares and change of capital
structure in October 1993 . . . . . . . . . . . . (979) 980 1
Common stock issued to founders for cash in
October 1993 at $.01 per share. . . . . . . . . . 12,499
Cash contributed by stockholder . . . . . . . . . . 32,500 32,500
Loan from director contributed to capital . . . . . 190,000 190,000
Net (loss) for the year . . . . . . . . . . . . . . (783,612) (783,612)
Balance - December 31, 1993 . . . . . . . . . . . . 222,500 (938,100) 0 (703,100)
Issuance of stock for cash in January through
June 1994 at $2.00 per share in connection with
private placement, less expense of $254,685 . . . 811,209 816,565
Issuance of stock as settlement of director and
officer loans in January through June 1994 at
$2.00 per share . . . . . . . . . . . . . . . . . 74,625 75,000
Value assigned to warrants issued in connection
with bridge financing . . . . . . . . . . . . . . 140,000 140,000
Shares forfeited. . . . . . . . . . . . . . . . . . 641 (64,085) $(641) 0
Shares forfeited and cancelled. . . . . . . . . . . 1,038 0
Net (loss) for the year . . . . . . . . . . . . . . (2,645,389) (2,645,389)
Balance - December 31, 1994 . . . . . . . . . . . . 1,250,013 (3,583,489) (64,085) (641) 0 (2,316,924)
Sale of treasury stock for cash in April 1995 at
$.01 per share . . . . . . . . . . . . . . . . . 43,950 440 440
Value assigned to warrants issued in connection
with bridge financing. . . . . . . . . . . . . . 85,000 85,000
Preferred dividends paid. . . . . . . . . . . . . . (148,112) (148,112)
Issuance of units at $5.00 per unit pursuant to
initial public offering, less expense of
$2,254,009. . . . . . . . . . . . . . . . . . . . 13,778,872 13,811,072
Value assigned to options and warrants issued as
compensation. . . . . . . . . . . . . . . . . . . 22,580 22,580
Value assigned to warrants issued for guarantees
of debt . . . . . . . . . . . . . . . . . . . . . 86,003 86,003
Net (loss) for the year . . . . . . . . . . . . . . (5,836,851) (5,836,851)
Balance - December 31, 1995 . . . . . . . . . . . . 15,074,356 (9,420,340) (20,135) (201) 0 5,703,208
Common stock issued as consideration for
programming . . . . . . . . . . . . . . . . . . . 697,500 700,000
Issuance of stock and warrants for cash in October
at $3.15 per share in connection with private
placement (less expenses of $1,341,109) . . . . . 7,630,319 7,658,891
Sale of common B shares . . . . . . . . . . . . . . 0
Granting of common B shares to former employee
as a form of settlement . . . . . . . . . . . . . 28,150 10,000 100 28,250
Issuance of warrants as consideration for
consulting services . . . . . . . . . . . . . . . 327,671 327,671
Net (loss) for the year . . . . . . . . . . . . . . (6,270,432) (6,270,432)
BALANCE - DECEMBER 31, 1996 . . . . . . . . . . . . $23,757,996 $(15,690,772) (10,135) $(101) $ 0 $ 8,147,588
</TABLE>
Attention is directed to the foregoing accountants' report and to
the accompanying notes to financial statements.
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 12,
1992
(Inception)
Through
Year Ended December 31, December 31,
1995 1996 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,836,851) $(6,270,432) $(15,690,772)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 541,907 390,093 964,086
Loss on disposal of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 26,182 26,182
Write-off of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . 146,397 146,397
Value assigned to options and warrants issued as compensation and for
guarantees of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,583 108,583
Common stock issued as consideration for programming . . . . . . . . . . . . . . 700,000 700,000
Common stock and warrants issued as consideration for compensation . . . . . . . 38,002 38,002
Changes in operating assets and liabilities:
(Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . . . 38,641 (210,825) (213,789)
Increase in accrued expenses and other liabilities . . . . . . . . . . . . . . 232,842 366,639 1,299,231
Net cash (used in) operating activities. . . . . . . . . . . . . . . . . . . (4,768,481) (4,960,341) (12,622,080)
Cash flows from investing activities:
Purchase of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,512,129) (1,391,583) (3,024,077)
Organization costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,336)
Net cash (used in) investing activities. . . . . . . . . . . . . . . . . . (1,512,129) (1,391,583) (3,035,413)
Cash flows from financing activities:
Net proceeds from sale of units of common stock and warrants . . . . . . . . . . . 13,811,512 7,658,891 23,370,719
Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,146,250) (1,146,250)
Preferred dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148,112) (148,112)
Capital contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,500
Proceeds from bridge loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,000 2,250,000
Repayment of bridge loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,250,000) (2,250,000)
Deferred financing fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,500) (292,500)
Proceeds from director and officer loans . . . . . . . . . . . . . . . . . . . . . 50,000 390,000
Repayment of director and officer loans. . . . . . . . . . . . . . . . . . . . . . (50,000) (50,000)
Proceeds from note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642,972 954,572
Repayment of note payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (954,572) (954,572)
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 10,695,050 7,658,891 22,156,357
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,414,440 1,306,967 6,498,864
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . 777,457 5,191,897
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 5,191,897 $ 6,498,864 $ 6,498,864
Supplemental schedule of noncash financing activities:
Warrants issued in connection with bridge loan . . . . . . . . . . . . . . . . . . $ 85,000 $ 225,000
Warrants issued in connection with deferred consulting . . . . . . . . . . . . . . $ 317,919 317,919
Director and officer loans exchanged for common and preferred stock. . . . . . . . 150,000
Director loan contributed to capital . . . . . . . . . . . . . . . . . . . . . . . 190,000
Supplemental disclosure of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,334 336,406
</TABLE>
Attention is directed to the foregoing accountants' report and to
the accompanying notes to financial statements.
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
Food Court Entertainment Network, Inc. (the "Company") is a
Delaware corporation which was incorporated on February 12, 1992.
The Company's initial plan had been to establish a national
television network to broadcast a high quality television program
called Cafe USA, specifically to large, enclosed shopping mall
food courts across the United States. While the development of a
national television network remains the core business, the
Company intends to expand its mission. The Company plans to
promote, introduce, and operate electronic entertainment,
information and transaction systems in various high traffic
consumer areas utilizing both new and traditional media and
contemporary communication technologies. The Company is in the
development stage and to date its activities have consisted
primarily of designing, developing and producing its Cafe USA
programming, establishing contacts and entering into agreements
with potential advertisers and mall operators, producing and
evaluating market tests of its programming, developing a system
for delivery of programming into mall food courts, engaging
management, employees and consultants for operations, including
marketing, installing and operating Cafe USA in various mall food
courts.
As shown in the accompanying financial statements, the
Company has incurred substantial losses from operations since
inception. Such losses are expected to continue until the
Company is able to attract a significant number of advertisers.
The Company currently has no paid advertisers and it is
anticipated that revenues will not be sufficient to cover the
Company's operating expenses until it has achieved a presence in
a significant number of malls. Mall expansion is dependent upon
the Company obtaining financing for the lease or purchase and
installation of equipment necessary for the broadcasting of its
programming in mall food courts. Without additional financing,
the Company will not be able to pursue its expansion plan. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company is negotiating with
potential suppliers of equipment and programming to provide such
financing. The Company is also negotiating an arrangement with a
mall developer whereby the developer will fund the installations
in certain mall food courts for a portion of the related
advertising revenues. In addition, the Company is pursuing other
sources of financing required for expansion into additional
malls. There is no assurance that such financing will be
available. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
(NOTE B) - Summary of Significant Accounting Policies:
[1] Depreciation:
Depreciation is provided using the straight-line method
over the five-year estimated useful life of the assets.
[2] Revenue recognition:
Revenue will generally be recognized by the Company
when media placements appear.
[3] Development costs:
Development and start up costs expended prior to
commencement of operations have been expensed as incurred.
[4] Programming costs:
The Company charges programming costs to expense as
they are incurred.
[5] Loss per share of common stock:
Net loss per share of common stock is based on the
weighted average number of shares outstanding during each period,
as modified in accordance with certain rules of the Securities
and Exchange Commission. Accordingly, the weighted average
number of shares outstanding during 1995 includes options and
warrants issued within twelve months of the Company's initial
public offering using the treasury stock method as if they were
outstanding from January 1, 1995 through June 30, 1995. The
weighted average number of shares outstanding for 1995 and 1996
excludes Series B shares in escrow. In addition, the net loss
per share of common stock for 1995 is adjusted for the
amortization of an assumed discount on the Series A redeemable
preferred stock through the effective date of the Company's
initial public offering.
[6] Use of estimates in the preparation of financial
statements:
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
[7] Concentration of credit risk:
The Company maintains all of its cash and cash
equivalents in one commercial bank.
[8] Stock options:
In October 1995, the FASB issued SFAS 123 "Accounting
for Stock-Based Compensation Arrangements" ("SFAS 123").
SFAS 123 permits the Company to choose either a new fair value-
based method of accounting for stock-based compensation to
employees and directors, or retain the intrinsic value-based
method of accounting for such stock-based compensation. The
statement requires pro forma disclosures of net income and
earnings per share computed as if the fair value-based method had
been applied in financial statements of companies that continue
to follow the intrinsic value-based method of accounting. The
Company has adopted SFAS 123 for disclosure purposes only, and as
a result, the adoption of SFAS 123 will not materially impact the
Company's financial position or results of operations.
(NOTE C) - Equipment:
Equipment is summarized as follows at December 31, 1996:
Installations . . . . . . . . . . . . $2,708,473
Office furniture and fixtures . . . . 13,540
Transmission system in progress . . . 205,000
Computer equipment. . . . . . . . . . 67,587
T o t a l . . . . . . . . . 2,994,600
Less accumulated depreciation . . . . 579,485
B a l a n c e . . . . . . . $2,415,115
[1] Installations:
Installations includes the cost of equipment necessary
to transmit and receive the Company's programming and the related
costs of installing such equipment. At December 31, 1996 the
cost basis of installations includes $1,538,370 of equipment and
the remaining balance represents the aggregate costs of
technicians, engineers, general contractors, architects and other
installation consultants.
[2] Transmission system in progress:
The cost basis of transmission system in progress
consists of costs related to the development of software
applications and hardware necessary to deliver the Cafe USA
program digitally through telephone wires into malls nationwide.
The Company has entered into a consulting agreement which
provides for payments aggregating approximately $1 million and
such costs will be depreciated when the related asset is placed
into service. The Company will be required to write off these
costs and any additional amounts due if it does not proceed with
this agreement (Note F[4]).
(NOTE D) - Income Taxes:
At December 31, 1996, the Company has available net
operating loss carryforwards of approximately $7,350,000, which
expire at various dates through 2011. Under Section 382 of the
Internal Revenue Code of 1986, as amended, the Company is subject
to an annual limitation on the utilization of approximately
$600,000 of its net operating loss carryforwards because an
ownership change of more than 50% has occurred.
Prior to the commencement of operations the Company was
required to treat certain costs as start-up costs for tax
purposes. Accordingly, development and general and
administrative expenses were not deducted for tax purposes until
April 1996. The Company's financial statements do not reflect a
benefit from its net operating loss carryforwards or from
temporary differences (primarily due to the unamortized balance
of expenses which were capitalized as start-up costs for tax
purposes), because a valuation allowance, which increased by
approximately $2,558,000 for the year ended December 31, 1996,
has been provided against the deferred tax asset. The valuation
allowance has been provided due to management's uncertainty
regarding the future profitability of the Company. At
December 31, 1996 the principal components of deferred tax assets
(liabilities) are as follows:
Net operating loss carryforwards. . . . $ 2,940,000
Start-up costs. . . . . . . . . . . . . 3,358,000
Depreciation. . . . . . . . . . . . . . (213,000)
Other . . . . . . . . . . . . . . . . . 171,000
6,256,000
Valuation allowance . . . . . . . . . . (6,256,000)
Net deferred tax. . . . . . . . . . . . $ - 0 -
(NOTE E) - Stockholders' Equity:
[1] Capital stock:
In connection with the Company's private placement in
1993, 646,250 shares of Series B common stock are held in escrow
to be released based on attaining certain net earning levels.
The shares will also be released if the Company is sold in a
private sale obtaining specified per share prices. If the above
conditions have not been met, the escrow shares will be
cancelled.
Upon the release of any of the Series B shares held in
escrow, the Company will incur a reportable earnings charge for
compensation expense in the amount of the then fair value of the
shares released. Such charge is not deductible for income tax
purposes.
The holders of Series A shares are entitled to one vote
per share. The holders of the Series B shares are entitled to
five votes per share. The Series B stock is primarily held by
the current management of the Company.
[2] Stock options:
(a) Consultants and advisors stock option plan:
During 1994, the Board of Directors and the
stockholders of the Company approved a stock option plan (the
"Plan") which provides for the granting of options to purchase up
to 100,000 shares of Series A common stock. Consultants and
advisors of the Company are eligible to receive nonqualified
options to purchase shares under the Plan. Options granted under
the Plan are exercisable for a period of four years from the date
of grant at an exercise price as determined by the Company's
compensation committee, of not less than $2.00 per share.
Options for 104,800 shares were outstanding under the Plan as at
December 31, 1996.
(b) Employee stock option plan:
In August 1995, the Board of Directors and the
stockholders approved the Company's Employee Stock Option Plan
(the "Employee Plan"), for the benefit of officers and key
employees of the Company or any of its current or future parents
or subsidiaries. The Employee Plan, as amended, provides that
options to purchase an aggregate of 2,000,000 shares of the
Company's Series A common stock may be granted pursuant to the
Employee Plan. Options granted under the Employee Plan may be
incentive stock options or nonqualified stock options. The term,
the exercise price, and the rate at which options may be
exercised will be determined by the Company's Board of Directors
or by the compensation committee. Unexercised options expire
five to ten years after the date of grant.
The Company granted options to purchase
100,000 shares of its Series A common stock to an officer in 1995
at $5.00 per share. No other options were granted under the
Employee Plan during 1995.
During the year ended December 31, 1996 the
options for 100,000 shares previously granted under the Employee
Plan were cancelled and options to purchase 503,000 shares of the
Company's Series A common stock were granted to employees.
In October 1996 the Company agreed to issue
options to purchase 1,000,000 shares of Series A common stock in
connection with employment agreements with its chairman and
president and the resignation of its former president. Options
for all of these shares are subject to vesting provisions,
900,000 of which are based on the Company's attaining specified
earnings thresholds. There will be a charge to operations equal
to the difference between the exercise price and the fair value
of the stock on the date that these options vest.
(c) The Director Plan:
In July 1996, the stockholders of the Company
approved the Director Plan, pursuant to which the Company granted
to seven directors options to purchase all of the 630,000 shares
of Series A common stock available under such plan at an exercise
price of $5.00. Options to purchase 210,000 shares are
immediately exercisable, options to purchase 210,000 shares
become exercisable in each of July 1997 and July 1998 provided
the directors are re-elected. In October 1996, 180,000 options
were forfeited due to the resignation of two members of the Board
of Directors.
(d) Other stock options:
The Company has outstanding options to purchase
120,000 shares of its Series A common stock which were granted to
directors outside of any of the plans.
The Company applies APB Opinion 25 and related
interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for its stock option grants
to employees and directors. However, the Company recognized
compensation of approximately $23,000 and $10,000 in 1995 and
1996, respectively, related to options and warrants granted to
others. Had compensation cost for the company's stock option
grants to employees and directors been determined based on the
fair value at the grant dates for awards consistent with the
method of FASB Statement 123, the Company's net income and
earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C> <C>
Net loss As reported $(5,836,851) $(6,270,432)
Pro forma $(5,960,601) $(7,181,020)
Net loss per share As reported $ (2.32) $ (1.32)
Pro forma $ (2.36) $ (1.52)
</TABLE>
A summary of the status of the Company's stock options
as of December 31, 1995 and December 31, 1996, and changes during
the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1995 1996
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year. . . . . . . . 117,800 $2.00 310,800 $3.42
Granted. . . . . . . . . 193,000 4.28 2,363,000 3.03
Cancelled. . . . . . . . (390,000) 3.64
Forfeited. . . . . . . . (191,000) 4.87
Outstanding at end of
year 310,800 3.42 2,092,800 2.81
Options exercisable at
year-end . . . . . . . 190,800 2.74 777,800 2.92
Weighted-average fair
value of options
granted during
the year . . . . . . . $1.75 $2.03
</TABLE>
The following table summarizes information about
fixed stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
exercise prices 1996 Life Price 1996 Price
<S> <C> <C> <C> <C> <C>
$2.00 - $2.83 1,562,800 9 $2.12 547,800 $2.20
$3.87 - $5.00 530,000 9 4.84 230,000 4.63
2,092,800 9 $2.81 777,800 $2.92
</TABLE>
The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants
in 1995 and 1996: dividend yield of 0%, expected volatility of
45% and 70%, respectively, risk-free interest rate of 6% and
expected lives ranging from 4 to 7.5 years.
[3] Warrants:
Warrants outstanding and exercisable at December 31,
1996 are summarized as follows:
<TABLE>
<CAPTION>
Shares
Covered by Exercise
Warrants Price Expiration
<S> <C> <C> <C>
Class A warrants (i) . . . . 8,796,797 $5.13 October 2000
Class B warrants . . . . . . 7,097,447 6.85 October 2000
Financial advisor's warrants 401,321 2.00 October 2000
Placement agent's warrants . 124,212 2.00 January 1999
Warrants to mall developer . 25,000 5.00 October 2000
16,444,777
</TABLE>
(i) Upon the exercise of each Class A warrant, the
holder will receive a share of Series A common stock and a
Class B warrant.
In connection with the Company's initial public
offering in 1995, the underwriter purchased, for nominal
consideration, an option to purchase up to 280,000 units, each
consisting of one share of Series A common stock, one Class A
warrant and one Class B warrant.
In connection with the Company's private placement in
1996, the placement agent received an option to purchase up to
999,999 of such units.
(NOTE F) - Commitments and Other Matters:
[1] Employment and consulting agreements:
The Company has employment agreements with three
officers which provide for aggregate annual compensation of
approximately $363,000, $250,000 and $187,000 in 1997, 1998 and
1999, respectively, plus increases and bonuses as determined by
the board of directors. The agreements also provide for
aggregate severance payments of up to $900,000 plus the granting
of options to purchase 100,000 shares of common stock at $2.00.
The Company has employment agreements with four
executives and a consulting agreement which provide for aggregate
compensation of $569,000, $448,000 and $450,000 for the years
ending December 31, 1997, December 31, 1998 and December 31,
1999, respectively.
Pursuant to employment agreements with two former
officers, the Company is obligated to make severance payments
aggregating $187,500 through September 30, 1997. Such
compensation was charged to operations during the fourth quarter
of 1996. Additionally, the Company agreed to grant options to
purchase 100,000 shares of Series A common stock to one of the
former officers.
[2] Leases:
Through June 30, 1996, the Company leased office and
other space on a month-to-month basis. Rent expense was
approximately $89,132 and $121,000 for the years ended
December 31, 1996, and December 31, 1995, respectively.
Effective July 1, 1996 the Company entered into an
operating lease for office space. The agreement expires
December 29, 2000 and provides for monthly payments of rent, real
estate taxes and operating expenses.
Future minimum lease payments as at December 31, 1996
are as follows:
1997. . . . . . . . . . . . . . $124,950
1998. . . . . . . . . . . . . . 124,950
1999. . . . . . . . . . . . . . 124,950
2000. . . . . . . . . . . . . . 124,950
T o t a l . . . . . . $499,800
[3] Employee settlement:
The Company reached an agreement with a former employee
to settle claims relating to continued employment and rights to
additional ownership interest in the Company. The agreement
requires the Company to pay the employee $200,000 plus accrued
interest from excess cash flow (as defined) of the Company; the
unpaid balance of the obligation is due on December 31, 1997 and
interest at the prime rate began accruing on January 1, 1996.
[4] Other commitments:
The Company has entered into an agreement with a
consultant for approximately $1,000,000 in connection with the
development of software applications and hardware necessary to
deliver the Cafe USA program digitally through telephone wires
into malls nationwide. Through December 31, 1996 $150,000 has
been paid in connection with this agreement. The Company is
considering other similar systems and should this agreement be
terminated, additional amounts may be due.
Under a previous agreement with an advisor, the Company
may be required to pay consideration, including warrants, for any
future financing obtained from sources within the scope of such
agreement.
In December 1996, the Company entered into a financial
advisory agreement with an investment banking firm (the "Firm").
Pursuant to the agreement the Firm will provide financial
advisory services to the Company for a period of 18 months. In
connection with the agreement, the Firm received warrants to
purchase 401,321 shares of Series A common stock at an exercise
price of $2.00 per share. The Company recognized a charge to
operations of $9,000 in the fourth quarter and will amortize the
remaining deferred consulting fees of $319,000 over an 18-month
period. In the event additional warrants are issued in
accordance with certain antidilution provisions, the fair value
of such warrants will be charged to operations over the remaining
term of the agreement.
(NOTE G) - Subsequent Events:
In January 1997, the Company entered into a six-year
agreement with an exclusive sales representative, subject to the
right of the parties to terminate after two years. Under the
terms of the agreement, the sales representative will receive a
guaranteed minimum first year commission of $100,000 to be
applied towards commissions earned in the first year, 15% on the
first $15 million of net advertising revenue, 10% on the net
advertising revenue between $15 million and $30 million and 7.5%
on net advertising over $30 million.
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
Information regarding the directors and executive
officers of the Company as of March 31, 1997 is set forth below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert H. Lenz 57 Chairman of the Board of Directors
James N. Perkins 63 President, Chief Executive Officer
and Director
Gary D. Penisten 65 Director
Howard W. Phillips 66 Director
Robert J. Wussler 58 Director
Benjamin Frank 62 Director
E. Donald Shapiro 65 Director
Darren M. Sardoff 31 Senior Vice President, Business
Affairs, Chief Financial Officer
and Secretary
</TABLE>
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.
James N. Perkins,
President, Chief Executive Officer and Director
Mr. Perkins has served as President, Chief Executive
Officer and Director of the Company since October 1, 1996.
Mr. Perkins served as Executive Vice President and Chief
Operating Officer of the Company from February, 1996 to
October 1, 1996. From 1988 to 1996, Mr. Perkins was President of
US Tel, Inc., a telecommunications development company
specializing in new media. From 1985 to 1988, Mr. Perkins
organized and managed an interactive media research venture of
Citibank, NYNEX and RCA. From 1981 to 1985, Mr. Perkins
organized 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.
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 Pioneer
Healthcare.
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.
Benjamin Frank,
Director
Mr. Frank has been a Director of the Company since
October, 1995. Currently, Mr. Frank, an Attorney, is the
Chairman of 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.
Darren M. Sardoff,
Senior Vice President, Business Affairs, Chief Financial Officer
and Secretary
Mr. 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, 1996, 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
Messrs. Frank and Perkins were late in filing initial statements
of beneficial ownership on Form 3, Messrs. Lenz and Perkins were
each late in filing a Form 4 for one transaction, and
Mr. Penisten was late in filing a Form 5 for one transaction.
ITEM 10 - EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information for each of
the three years ended December 31, 1996, concerning compensation
for services in all capacities awarded to, earned by or paid to
(i) each person serving as the chief executive officer, and
(ii) the other executive officers of the Company who earned more
than $ 100,000 during 1996 (collectively, the "Named
Executives"). There were no other executive officers for whom
disclosure would have been provided but for the fact that such
individuals were not serving at December 31, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
Other Securities All
Annual Underlying Other
Compensa- Restricted Options/ LTIP Compen-
tion(1) Stock Awards SARs(2) Payouts sation
Name and Principal Position Year Salary ($) Bonus($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Lenz................ 1996 $100,000 $ N/A $ N/A $ N/A 600,000 $ N/A $ N/A
Chairman of the 1995 82,083 N/A N/A N/A N/A N/A N/A
Board and Director 1994 118,749 N/A N/A N/A N/A N/A N/A
James N. Perkins.............. 1996 151,667 N/A N/A N/A 500,000 N/A
President and Chief 1995 N/A N/A N/A N/A N/A N/A N/A
Executive Officer 1994 N/A N/A N/A N/A N/A N/A N/A
Darren M. Sardoff............. 1996 155,000 N/A N/A N/A 100,000 N/A N/A
Chief Financial Officer 1995 29,583 N/A N/A N/A N/A N/A N/A
1994 N/A N/A N/A N/A N/A N/A N/A
Stephen G. Bowen.............. 1996 175,000 N/A N/A N/A 100,000 N/A N/A
Former President and 1995 165,208 N/A A N/A N/A N/A N/A
Chief Executive Officer 1994 97,920 N/A A N/A N/A N/A N/A
_______________
</TABLE>
"N/A" indicates that the column is not applicable because no
compensation of the category required to be disclosed in the
column was received.
"A" indicates that the column is applicable but that no amount is
required to be disclosed.
(1) The costs of certain perquisites and other personal benefits
are not included because they did not exceed, in the case of
each Named Executive, the lesser of $50,000 or 10% of the
total of annual salary and bonus reported in the columns
above.
(2) Indicates number of shares for which options were granted
during the applicable periods.
The following table sets forth information concerning grants
of stock options for the fiscal year ended December 31, 1996 to
the Named Executives.
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/ Number of
Underlying SARs Shares/
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price(2) Expiration
(#)(1) Year ($/Sh) Date
<S> <C> <C> <C> <C>
Robert H. Lenz....... 600,000 43.17 600,000/2.00 11/14/06
James N. Perkins..... 500,000 35.97 25,000/2.81 2/06/06
475,000/2.00 11/14/06
Darren M. Sardoff.... 100,000 7.19 85,000/2.81 2/06/06
15,000/2.00 11/14/06
Stephen G. Bowen..... 100,000 7.19 100,000/2.00 11/14/06
_______________
</TABLE>
(1) All amounts represent stock options to purchase shares of
Series A Common Stock granted under the terms of the 1995
Employee Stock Option Plan (the "Plan"). No SARs or SARs
granted in tandem with options were granted during 1996.
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).
(2) Under the terms of the Plan, the exercise price per share
must equal the fair market value on the date the option is
granted. Certain options granted to Messrs. Perkins and
Sardoff were repriced. See " -- Compensation Committee
Report on Option Repricing," herein. The exercise price may
be paid in cash, in shares of Series A Common Stock valued
at fair market value on the date of exercise, or in any
combination of cash and shares of Series A Common Stock.
The following table sets forth information concerning
the exercise of options to purchase shares of Series A Common
Stock by the Named Executives during the fiscal year ended
December 31, 1996, as well as the number of securities underlying
unexercised options and potential value of unexercised options
(both options which are presently exercisable and options which
are not presently exercisable) as of December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Value(1)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End
(#) ($)(2)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert H. Lenz....... 0 $0 0/600,000 $0/0
James N. Perkins..... 0 0 200,000/300,000 0/0
Darren M. Sardoff.... 0 0 85,000/15,000 0/0
Stephen G. Bowen..... 0 0 100,000/0 0/0
</TABLE>
_____________________
(1) All amounts represent stock options to purchase shares of
Series A Common Stock. No SARs or SARs granted in tandem
with stock options were either exercised during 1996 or
outstanding at fiscal year-end 1996.
(2) "In-the-money options" are stock options with respect to
which the market value of the underlying shares of Series A
Common Stock exceeded the exercise price at December 31,
1996. The value of such options is determined by
subtracting the aggregate exercise price for such options
from the aggregate fair market value of the underlying
shares of Series A Common Stock on December 31, 1996.
Employment Contracts, Termination of Employment and Change-in-
Control Arrangements
Effective October 1, 1996, Robert H. Lenz, the
Company's Chairman, entered into a three-year employment
agreement with the Company which provides for: (1) a base salary
of $100,000 per year, with increases in subsequent years as may
be determined in the discretion of the Board of Directors,
(2) bonus compensation as determined from time to time in the
discretion of the Board of Directors, (3) a special bonus
consisting of 3.75% of the fair market value of any strategic
alliance or merger or acquisition transaction, (4) options to
purchase 600,000 shares of Series A Common Stock at an exercise
price of $2.00 per share, with certain vesting provisions as
described below, (5) severance payments upon a change in control
of the Company, termination of employment or voluntary
resignation for "good reason" (as defined in the agreement) equal
to 2.99 times his then base compensation, and (6) benefits
provided to all other senior management employees of the Company.
Effective October 1, 1996, James N. Perkins, President
and Chief Executive Officer, entered into an employment agreement
with the Company on substantially similar terms to that between
the Company and Mr. Lenz except that Mr. Perkins will receive
base compensation of $150,000 and options to purchase 500,000
shares of Series A Common Stock at an exercise price of $2.00 per
share, with certain vesting provisions as described below.
The options granted to Messrs. Lenz and Perkins under
their employment agreements shall vest in three equal annual
installments on November 14, 1997, 1998 and 1999 provided that
(a) the first installment shall vest if and only if the Company
(i) reports positive earnings before extraordinary items,
interest, taxes, depreciation and amortization for the fiscal
year ending December 31, 1997, or (ii) reports earnings (before
extraordinary items) per primary share ("EPS") of at least $0.35
for the fiscal year ending December 31, 1998, or (iii) reports
EPS of at least $0.60 for the fiscal year ending December 31,
1999, or (iv) reports EPS of at least $0.90 for the fiscal year
ending December 31, 2000, (b) the second installment shall vest
if and only if the Company achieves a target set forth in
preceding sub-clauses (a)(ii), (a)(iii) or (a)(iv), and (c) the
third installment shall vest if and only if the Company achieves
a target set forth in sub-clause (a)(iii) or (a)(iv).
On October 9, 1995, 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. Under the employment agreement, Mr. Sardoff is entitled
to a minimum base salary of $150,000 per year, and bonus and
incentive compensation as determined by the Board of Directors.
The contract will continue from year to year unless terminated by
either party. Under the employment agreement, Mr. Sardoff
received options to purchase 100,000 shares of Series A Common
Stock at an exercise price equal to the fair market value on the
date of the grant. 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 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 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. Prior to Completion of the Private
Offering on November 14, 996, the Compensation Committee of the
Board of Directors determined to replace options to purchase
15,000 shares of Series A Common stock with an exercise price of
$2.81 per share with options with an exercise price of $2.00 per
share. See " -- Compensation Committee Report on Option
Repricing," herein.
On October 24, 1996, the Company entered into a
severance agreement with Stephen Bowen, former President and
Chief Executive Officer of the Company. Under the severance
agreement, Mr. Bowen is entitled to receive severance pay of
$175,000 which is payable by the Company in 52 weekly
installments beginning on October 1, 1996. In addition,
Mr. Bowen was granted options to purchase 100,000 shares of
Series A Common Stock which are fully vested and immediately
exercisable at the price of $2.00 per share.
Compensation Committee Report on Option Repricing
Prior to the completion of the Company's Private
Offering on November 14, 1996, the Company agreed to (i) reset
the exercise price of all outstanding options to purchase
200,000 shares of Series A Common Stock granted to Mr. Perkins
from $2.81 per share to $2.00 per share, and (ii) reset the
exercise price of all outstanding options to purchase
15,000 shares of Series A Common Stock granted to Mr. Sardoff
from $2.81 per share to $2.00 per share. The Compensation
Committee believes that Mr. Perkins and Mr. Sardoff have each
made valuable contributions to the Company and accordingly
determined in November, 1996 to reset the exercise price of their
outstanding options. The reset exercise price of the options is
equal to the closing bid price of the Series A Common Stock in
the over-the-counter market as reported by Nasdaq on November 13,
1996, the last business day immediately preceding the date on
which the Private Offering was completed.
Directors' Compensation
In 1996, non-employee directors of the Company who were
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 July 1996, the Company granted options
to purchase 90,000 shares of Series A Common Stock at an exercise
price of $5.00 to each of Messrs. Penisten, Phillips, Wussler,
Frank and Shapiro pursuant to the Company's Director Stock Option
Plan.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of April 1, 1997,
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 and
Executive Officers, and (iii) all 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.
<TABLE>
<CAPTION>
Shares of Percentage of Shares of Percentage of
Series A Series A Series B Series B
Common Stock Common Stock Common Stock Common Stock
Beneficially Beneficially Beneficially Beneficially Voting
Name(1) Owned(2) Owned Owned(2)(3)(4) Owned(5) Control
- -------------------------------- ------------ ------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Robert H. Lenz................. 1,024,471(6) 12.89 440,748(7) 41.39 21.73%
Stephen G. Bowen............... 349,045(8) 4.78 206,545(9) 19.40 9.45
Jeffrey Steinberg.............. 169,545(10) 2.38 163,386(9) 15.34 6.70
Joseph Mercaldo................ 188,786(11) 2.64 178,786(9) 16.79 7.36
Harvey S. Wilson............... 101,526(12) 1.44 75,300(13) 7.07 3.16
Gary Penisten.................. 60,000(14) * -0- -0- *
Howard W. Phillips............. 93,488(15) 1.32 -0- -0- *
Robert S. Wussler.............. 60,000(14) * -0- -0- *
Benjamin Frank................. 45,000(16) * -0- -0- *
E. Donald Shapiro.............. 45,000(16) * -0- -0- *
James Perkins.................. 215,873(17) 2.79 -0- -0- 1.73
Darren M. Sardoff.............. 100,000(18) 1.42 -0- -0- *
All Officers and Directors
as a Group (8 persons)....... 1,643,832(19) 19.22% 440,748 41.39% 25.36%
</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., 220 East 42nd Street, New York, New York 10017.
(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 of 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 Stock.
(5) Excludes 20,135 shares of Series B Common Stock held in
treasury.
(6) Includes warrants to purchase 542,850 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. Does not include (i) 55,668 shares of Series A
Common Stock underlying warrants which are not exercisable
until November 14, 1997 or (ii) 600,000 shares of Series A
Common Stock underlying unvested options.
(7) Includes 241,180 Escrow Share.
(8) Includes (i) 100,000 shares of Series A Common Stock which
may be acquired upon the exercise of currently exercisable
options, (ii) 30,000 shares of Series A Common Stock
underlying currently exercisable warrants and (ii) 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) Includes 163,386 shares of Series A Common Stock which may
be acquired upon the conversion of Series B Common Stock.
(11) Includes 178,786 shares of Series A Common Stock which may
be acquired upon the conversion of Series B Common Stock.
(12) Includes warrants to purchase 14,026 shares of Series A
Common Stock and 75,300 shares of Series A Common Stock
which may be acquired upon the conversion of Series B Common
Stock.
(13) Includes 75,300 Escrow Shares.
(14) Represents 60,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options. Does not include 60,000 shares of Series A Common
Stock underlying unvested options.
(15) Represents 93,488 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.
Does not include 60,000 shares of Series A Common Stock
underlying unvested options.
(16) Represents 45,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options. Does not include 60,000 shares of Series A Common
Stock underlying unvested options.
(17) Includes 200,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options. Does not include (i) 55,668 shares of Series A
Common Stock underlying warrants which are not exercisable
until November 14, 1997 or (ii) 300,000 shares of Series A
Common Stock underlying unvested stock options.
(18) Represents 100,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options.
(19) Includes 964,338 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options and warrants and 629,534 shares of Series A Common
Stock which may be acquired upon conversion of Series B
Common Stock.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Title
3.1 Amended and Restated Certificate of Incorporation of
the Company
3.2* Bylaws of the Company
4.1* Specimen Form of Series A Common Stock Certificate
4.2* Forms of Unit Purchase Options
4.3* Form of Warrant Agreement, with Specimen Form of
Class A and Class B Warrant Certificate attached
10.1* Stock Option Plan for Consultants and Advisers
10.4 Employment Agreement with Robert H. Lenz**
10.5 Employment Agreement with James N. Perkins**
10.6 Employment Agreement with Darren M. Sardoff
(incorporated by reference from Exhibit 10.10 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995)**
10.7 Sales Representation Agreement with ABC New Media Sales
10.8 Financial Advisory Agreement with Furman Selz LLC
10.9* Escrow Agreement
10.10* Employee Stock Option Plan**
10.11 Severance Agreement with Stephen G. Bowen.**
23 Consent of Richard A. Eisner & Company, LLP
27 Financial Data Schedule
____________
* Incorporated by reference from Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 33-91054).
** Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
On December 18, 1996, the Company filed a Current
Report on Form 8-K, dated November 26, 1996, reporting
information under Items 5 and 7. No Financial Statements were
included in the Report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FOOD COURT ENTERTAINMENT NETWORK,
INC.
By: /s/ James N. Perkins
James N. Perkins, President
and Chief Executive Officer
Date: April 11, 1997
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
Registrant and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ James N. Perkins President, Chief Executive April 11, 1997
James N. Perkins Officer, Director (Principal
Executive Officer)
/s/ Robert H. Lenz Chairman of the Board of April 11, 1997
Robert H. Lenz Directors
/s/ Darren M. Sardoff Senior Vice President and April 11, 1997
Darren M. Sardoff Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Benjamin Frank Director April 11, 1997
Benjamin Frank
/s/ Gary D. Penisten Director April 11, 1997
Gary D. Penisten
/s/ Howard W. Phillips Director April 11, 1997
Howard W. Phillips
/s/ E. Donald Shapiro Director April 11, 1997
E. Donald Shapiro
/s/ Robert S. Wussler Director April 11, 1997
Robert S. Wussler
</TABLE>
<PAGE>
EXHIBIT INDEX
Number Title
3.1 Amended and Restated Certificate of Incorporation of
the Company
3.2* Bylaws of the Company
4.1* Specimen Form of Series A Common Stock Certificate
4.2* Forms of Unit Purchase Options
4.3* Form of Warrant Agreement, with Specimen Form of
Class A and Class B Warrant Certificate attached
10.1* Stock Option Plan for Consultants and Advisers
10.4 Employment Agreement with Robert H. Lenz**
10.5 Employment Agreement with James N. Perkins**
10.6 Employment Agreement with Darren M. Sardoff
(incorporated by reference from Exhibit 10.10 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995)**
10.7 Sales Representation Agreement with ABC New Media Sales
10.8 Financial Advisory Agreement with Furman Selz LLC
10.9* Escrow Agreement
10.10* Employee Stock Option Plan**
10.11 Severance Agreement with Stephen G. Bowen.**
23 Consent of Richard A. Eisner & Company, LLP
27 Financial Data Schedule
____________
* Incorporated by reference from Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 33-91054).
** Denotes a management contract or compensatory plan or
arrangement.
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FOOD COURT ENTERTAINMENT NETWORK, INC.
Food Court Entertainment Network, Inc., a corporation
organized and existing under the laws of the State of Delaware
(the "Corporation"), hereby certifies that:
I. The present name of the Corporation is Food Court
Entertainment Network, Inc.
II. The name under which the Corporation was originally
incorporated is Advanced Media Inc., and the date of filing of
its original certificate of incorporation with the Secretary of
State of the State of Delaware is February 12, 1992. On
April 29, 1992, the Corporation filed a Certificate of Amendment
of Certificate of Incorporation whereby its name was changed to
Applebell Communications, Inc. and on October 15, 1993 the
Corporation filed an Amended and Restated Certificate of
Incorporation whereby, among other amendments, the name of the
Corporation was changed to Food Court Entertainment Network, Inc.
III. In accordance with the provision of Sections 228, 242,
and 245 of the General Corporation Law of the State of Delaware,
this Amended and Restated Certificate of Incorporation was duly
adopted by the unanimous vote of the Board of Directors of the
Corporation at a meeting held on August 9, 1995, and by the
written consent of the holders of more than a majority of the
outstanding stock and each class of stock of the Corporation
entitled to vote thereon and prompt written notice of such action
has been provided pursuant to Section 228(d).
IV. The Corporation's certificate of incorporation is
hereby amended and restated in its entirety to read as follows:
FIRST: The name of the corporation is Food Court
Entertainment Network, Inc. (the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is No. 1209 Orange Street,
in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose for which the Corporation was
formed is to engage in any lawful act or activity for which
Corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
31,250,000 shares, consisting of 5,000,000 shares of Preferred
Stock (the "Preferred Stock"), par value $.01 per share, as more
fully described in Section A below and 26,250,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"),
consisting of 25,000,000 shares Series A Common Stock and
1,250,000 shares of Series B Common Stock, as more fully
described in Section B below.
A. Preferred Stock. The shares of Preferred Stock may be
divided and issued from time to time in one or more series as may
be designated by the Board of Directors of the Corporation, each
such series to be distinctly titled and to consist of the number
of shares designated by the Board of Directors. All shares of
any one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares
of any one series issued at different times may differ as to the
dates from which dividends thereon (if any) shall accrue or be
cumulative (or both). The designations, preferences and
relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions thereof
(if any), of any series of Preferred Stock may differ from those
of any and all other series at any time outstanding. The Board
of Directors of the Corporation is hereby expressly vested with
authority to fix by resolution the powers, designations,
preferences and relative, participating, optional or other
special rights (if any), and the qualifications, limitations or
restrictions and (if any), of the Preferred Stock and each series
thereof which may be designated by the Board of Directors,
including, but without limitation the generality of the
foregoing, the following:
1. The voting rights and powers (if any) of the
Preferred Stock and each series thereof;
2. The rates and times at which, and the terms and
conditions on which, dividends (if any) on the Preferred Stock,
and each series thereof, will be paid and any dividend
preferences or rights of cumulation.
3. The rights (if any) of holders of the Preferred
Stock, and each series thereof, to convert the same into, or
exchange the same for, shares of other classes (or series of
classes) of capital stock of the Corporation and the terms and
conditions for such conversion or exchange, including provisions
for adjustment of conversion or exchange prices or rates in such
events as the Board of Directors shall determine;
4. The redemption rights (if any) of the Corporation
and of the holders of the Preferred Stock, and each series
thereof, and the times at which, and the terms and conditions on
which, the Preferred Stock and each series thereof, may be
redeemed; and
5. The rights and preferences (if any) of the holders
of the Preferred Stock, and each series thereof, upon the
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation.
B. Common Stock.
1. General. The voting dividend and liquidation
rights of the holders of the Common Stock are subject to and
qualified by the rights of the holders of the Preferred Stock of
any series as may be designated by the Board of Directors upon
any issuance of the Preferred Stock of any series. The
designations, preferences, limitations and relative rights of the
Series A Common Stock and Series B Common Stock shall be
identical in all respects, except as stated in this Certificate
of Incorporation or as otherwise required by law. Except as
provided in this Certificate of Incorporation or as may otherwise
be required by law, the Series A Common Stock and Series B Common
Stock shall vote together as a single class with respect to all
matters. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by
the Board of Directors and subject to any preferential dividend
rights or restrictions of any then outstanding Preferred Stock.
Upon the dissolution or liquidation of the Corporation, whether
voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for
distribution to its stockholders after payment of creditors and
subject to any preferential rights of any then outstanding
Preferred Stock.
2. Series A Common Stock.
a. Designation. The series of Common Stock
designated and known as "Series A Common Stock" shall consist of
25,000,000 shares of the authorized Common Stock of the
Corporation (the "Series A Common Stock").
b. Voting. The holders of Series A Common Stock
are entitled to one (1) vote for each share held at all meetings
of stockholders (and written actions in lieu of meetings). There
shall be no cumulative voting.
3. Series B Common Stock.
a. Designation. The series of Common Stock
designated and known as "Series B Common Stock" shall consist of
1,250,000 shares of the authorized Common Stock of the
Corporation (the "Series B Common Stock").
b. Voting. The holders of Series B Common Stock
are entitled to five (5) votes for each share held at all
meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
c. Conversion.
(1) Optional Conversion. Each record holder
of Series B Common Stock is entitled, at any time or from time to
time, to convert any or all of the shares of such holder's
Series B Common Stock into shares of Series A Common Stock at the
ratio of one share of Series A Common Stock for each share of
Series B Common Stock.
(2) Optional Conversion Procedures.
(a) Each conversion of shares pursuant
to Paragraph (c)(1) of this section shall be effected by the
surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation
at any time during normal business hours, together with a written
notice by the holder stating the number of shares that such
holder desires to convert. Such conversion shall be deemed to
have been effected as of the close of business on the date on
which such certificate or certificates have been surrendered, and
at such time, the rights of any such holder with respect to the
converted shares of such holder will cease and the person or
persons in whose name or names the certificate or certificates
for shares are to be issued upon such conversion will be deemed
to have become the holder or holders of record of such shares
represented thereby.
(b) Promptly after such surrender, the
Corporation will issue and deliver in accordance with the
surrendering holder's instructions the certificate or
certificates for the Series A Common Stock issuable upon such
conversion and a certificate representing any Series B Common
Stock which was represented by the certificate or certificates
delivered to the Corporation in connection with such conversion,
but which was not converted.
(3) Automatic Conversion. Each share of
Series B Common Stock will convert automatically into one share
of Series A Common Stock upon the sale or any other transfer
thereof (including, without limitation, conveyance into a trust
and transfer by the operation of any will or the laws of descent
and distribution), except upon a sale or any other transfer to a
person who immediately prior to such sale or transfer is a holder
of a share or shares of Series B Common Stock.
(4) Issuance Costs. The issuance of
certificates upon conversion of shares pursuant hereto will be
made without charge to the holder or holders of such shares for
any issuance tax (except stock transfer tax) in respect thereof
or other costs incurred by the Corporation in connection
therewith.
(5) Reservation of Shares. Solely for the
purpose of issuance upon conversion of such shares as herein
provided, the Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Series A
Common Stock such number of shares of Series A Common Stock as
are then issuable upon the conversion of all outstanding shares
of Series B Common Stock.
C. Other Provisions. No holder of any of the shares of
any class or series of stock or of options, warrants or other
rights to purchase shares of any class or series of stock or of
other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any
class or series or any additional shares of any class or series
to be issued by reason of any increase of the authorized capital
stock of the Corporation of any class or series, or bonds,
certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of
any class or series, or carrying any right to purchase stock of
any class or series, but any such unissued stock, additional
authorized shares of any class or series of stock or securities
convertible into or exchangeable for stock or carrying any right
to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms,
corporations or associations, whether any such persons, firms,
corporations or associations are holders or others, and upon such
terms as may be deemed advisable by the Board of Directors in the
exercise of its sole discretion.
FIFTH: In furtherance and not in limitation of the
powers conferred by the laws of the State of Delaware, the Board
of Directors of the Corporation is expressly authorized and
empowered to make, alter or repeal the Bylaws of the Corporation,
subject to the power of the stockholders of the Corporation to
alter or repeal any Bylaw made by the Board of Directors.
SIXTH: The Corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation; and
other provisions authorized by the laws of the State of Delaware
at the time in force may be added or inserted, in the manner now
or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form as hereafter
amended are granted subject to the right reserved in this
Article.
SEVENTH: To the fullest extent permitted by the
Delaware General Corporation Law as the same exists or may
hereafter be amended, a director of this Corporation shall not be
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Notwithstanding the foregoing sentence, a director shall be
liable to the extent provided by applicable law, (i) for breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
the law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to
or repeal of this Article Seventh shall apply to or have any
effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
IN WITNESS WHEREOF, Food Court Entertainment Network, Inc.
has caused this Restated Certificate of Incorporation to be
signed by its President and attested by its Secretary this 16th
day of October, 1995.
FOOD COURT ENTERTAINMENT
NETWORK, INC.
(SEAL) By /s/ Stephen G. Bowen
Stephen G. Bowen, President
ATTEST: /s/ Harvey S. Wilson
Harvey S. Wilson,
Secretary<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FOR
FOOD COURT ENTERTAINMENT NETWORK, INC.
Food Court Entertainment Network, Inc., a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"),
pursuant to a Certificate of Incorporation which was filed on
February 12, 1992, does hereby certify:
FIRST: That the Board of Directors of the Corporation, at a
meeting held on October 4, 1996, adopted the following resolution
proposing and declaring advisable the following amendment:
RESOLVED, that Article Fourth of the Amended and
Restated Certificate of Incorporation of the Corporation shall be
amended to read:
"FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
206,250,000 shares, consisting of 5,000,0000 shares of Preferred
Stock (the "Preferred Stock"), par value $.01 per share, as more
fully described in Section A below and 201,250,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"),
consisting of 200,000,000 shares of Series A Common Stock and
1,250,000 shares of Series B Common Stock, as more fully
described in Section B below."
SECOND: That, at a meeting of the stockholders held on
November 4, 1996 and reconvened on November 11, 1996, a majority
of the outstanding stock entitled to vote thereon voted in favor
of said amendment.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced
under or by reason of this amendment.
IN WITNESS WHEREOF, FOOD COURT ENTERTAINMENT NETWORK, INC.
has caused this Certificate to be signed by James N. Perkins, its
President, and attested by Darren M. Sardoff, its Secretary, this
11th day of November, 1996.
FOOD COURT ENTERTAINMENT
NETWORK, INC.
By /s/ James N. Perkins
James N. Perkins, President
ATTEST: /s/ Darren M. Sardoff
Darren M. Sardoff,
Secretary
EXHIBIT 10.4
EMPLOYMENT CONTRACT
BETWEEN
FOOD COURT ENTERTAINMENT NETWORK, INC.
AND
ROBERT H. LENZ
<PAGE>
EMPLOYMENT CONTRACT
Agreement made the ________ day of ___________________, 1996
by and between
Corporation: Food Court Entertainment Network, Inc.
220 East 42nd Street
New York, NY 10017
(a Delaware Corporation)
and
Executive: Robert H. Lenz
109 Old Branchville Road
Ridgefield, CT 06877
Effective Date: October 1, 1996
BACKGROUND
It is in the best interest of the Corporation and its
shareholders to secure Executive's services for the Corporation
with an employment agreement. The Corporation, as an incentive
to Executive to continue employment with the Corporation grants
compensation and other incentives as more fully set forth in this
Agreement and the attached Schedules. Executive and the
Corporation desire to enter an employment agreement under the
terms and conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and
valuable consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in
the capacity of Chairman of the Corporation.
2. DUTIES
Executive shall serve the Corporation faithfully and to
the best of his ability, under the direction of the Board of
Directors. He shall devote such time, energy and skill during
regular business hours and such other hours as are reasonably
necessary to fulfill his obligations as Chairman of the
Corporation. Executive shall have such duties as are normally
associated with the position of a chairman in a similarly
situated company. He shall report to the Board of Directors as
required.
This Section 2 shall not be construed as preventing the
Executive from investing the Executive's personal assets in
businesses which do not compete with the Company or any
affiliates of the Company, where the form or manner of such
investments will not require services on the part of the
Executive in the operation of the affairs of the business in
which such investments are made and in which the Executive's
participation is solely that of a private investor.
In addition to the foregoing, he shall be, during the
term of his employment, a Director of the Corporation.
3. COMPENSATION
The Corporation shall pay or cause to be paid to
Executive during the term of his employment the salary and
bonuses as more particularly set forth in Schedule "A" which is
attached to this Agreement and made part hereof.
4. STOCK OPTIONS
Executive shall be granted options to purchase the
Corporation's Series A common stock in accordance with the
provisions of Schedule "B" which is attached to this Agreement
and made part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits
which may from time to time be made available to senior
executives of the Corporation and as set forth in the personnel
policies of the Corporation, or as determined by the Board,
including but not limited to any employee benefit plan which is
qualified and exempt under Sections 401(a) and 501(a) of the
Internal Revenue Code ("Code"), and any group medical, dental,
hospitalization or insurance program.
6. EXPENSES
The Corporation shall reimburse Executive for
out-of-pocket expenditures for transportation, fuel,
entertainment, travel, meals, hotel accommodations and the like
incurred by him in the interest of the Corporation
("out-of-pocket expenses"). Executive shall from time to time
but no less frequently than each month submit vouchers, receipts
or other documentation together with appropriate written
explanation required by the Corporation to verify out-of-pocket
expenses and shall be reimbursed for the actual expenses
incurred. Corporation shall provide Executive with a reasonable
monthly allowance for automobile expenses, including cost of the
vehicle, gas, maintenance and repairs or, in the alternative, may
provide a suitable motor vehicle for use by the Executive for
conduct of business on behalf of the Corporation.
7. WORKING FACILITIES
The Corporation shall furnish Executive with such
office space at the Corporate headquarters, secretarial
assistance, and such other facilities and services as is
appropriate of the Chairman of the Corporation and necessary for
performance of his duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts
binding upon the Corporation and to create any obligations on the
part of the Corporation in the normal course of business and as
would be expected of a chairman of a similar corporation.
Notwithstanding the foregoing, Executive shall, have authority to
enter into contracts binding the Corporation, without prior
approval with the Board of Directors, for purchases or
transactions in the ordinary course of business.
9. VACATIONS
Executive shall be entitled each year to vacation at
such time and for such duration as is reasonable and which do not
interfere with the ability of Executive to fulfill his duties and
effectively operate the Corporation.
Vacations shall be coordinated with other employees of
the Corporation, shall be consistent with Executive's duties (as
more fully set forth in Section 2 of this Agreement) and the
needs of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
Except as otherwise provided herein, the term of
employment shall be for a period of three (3) years, commencing
as of the Effective Date of this Agreement and continuing through
September 30, 1999. At the end of the initial three (3) year
term, Corporation and Executive agree to negotiate in good faith
a new contract or extension of the current contract. In the
event the Corporation and Executive fail to reach an Agreement,
Executive shall be entitled upon his termination to the sum of
his highest Minimum Base Compensation and Bonus Compensation (if
any) paid at any time under this Agreement, payable in equal
installments for one (1) year from the date of termination with
the same frequency as his salary was paid while employed
("Severance Pay"). Executive shall have no duty to mitigate
damages and should he accept other employment, Severance Pay
shall not be reduced or deducted from any other earned income.
Further, in the event the Corporation terminates
Executive other than pursuant to the provisions set forth in
Section 10.b. below, the Executive shall be, in lieu of any
additional severance pay and lieu of any bonus compensation,
entitled to continue to receive his then Minimum Base
Compensation through the remaining term of this Agreement and
continuance of benefits described in Section 5, above, or, if
longer, one (1) year. In addition, he shall be entitled to
receive the benefits and amounts described in Clauses (b), (c)
and (d) of Section 10.b.1.
10.b. Termination
10.b.1. Termination by Death. If Executive dies,
then this Agreement shall terminate immediately, except that
Executive's heirs, personal representatives or estate shall be
entitled to receive (a) his then Minimum Base Compensation for a
period of one (1) year after his death payable with the same
frequency as his salary was paid during Executive's lifetime;
(b) any accrued benefits up to the date of termination;
(c) bonuses that have accrued but not been paid; and (d) any
benefits which are to be continued or paid after the date of
termination in accordance with the terms of the corresponding
benefit plans.
10.b.2. Termination by Disability. If Executive
becomes disabled, and such disability continues for more than
three (3) consecutive months after the Onset of Disability (as
defined below) or for periods aggregating more than four (4)
months during any six-month period, then Corporation shall have
the right to terminate this Agreement immediately, except that
Executive shall be entitled to receive (a) the difference in his
then Minimum Base Compensation above any disability insurance
proceeds received from any disability policy or plan paid for or
provided by Corporation for a period of one (1) year beginning on
the date of the Onset of Disability; (b) any accrued benefits up
to the date of termination; (c) bonuses that have accrued but not
been paid; and (d) any benefits which are to be continued or paid
after the date of termination in accordance with the terms of the
corresponding benefit plans. "Onset of Disability" means the
first day on which Executive shall be unable, without reasonable
accommodation, to perform any of his duties under this Agreement
on a full time basis by reason of physical or mental incapacity,
sickness or infirmity.
In the event of a partial disability, Executive
shall be entitled to work for such time and in such capacity as
his disability permits and the Corporation shall provide such
reasonable accommodations as may be necessary.
10.b.3. For Cause. This Agreement may be
terminated by the Corporation for cause as defined below, by
providing five (5) days prior written notice from the Corporation
to the Executive upon the occurrence or act by the Executive of
any one or more of the following events:
(a) fraud,
(b) dishonesty, or
(c) other material and willful misconduct by
the Executive.
If Executive's employment is terminated for cause
pursuant to this section, Executive shall be entitled to receive
(i) his then Minimum Base Corporation accrued through the date of
termination, (ii) any accrued benefits up to the date of
termination, and (iii) any benefits which are to be continued or
paid after the date of termination in accordance with the terms
of corresponding benefit plans.
10.b.4. Mutual Agreement. This Agreement may be
terminated at any time upon mutual agreement of the parties.
10.b.5. Change in Control. Upon the occurrence
of a Change in Control, the provisions set forth in Schedule "C"
attached hereto shall apply, notwithstanding anything herein to
the contrary.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall
promptly return to Corporation all documents (including copies)
and other materials and property of Corporation pertaining to its
business, including without limitation customer and prospect
lists, contracts, files, manuals, letters, reports and records in
his possession or control, no matter from whom or in what manner
acquired.
12. DISCOVERIES
Executive shall communicate to Corporation, in writing
when requested, and preserve as confidential information of
Corporation, all marketing concepts, software ideas and other
ideas or designs relating to the business of the Corporation
which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after
business hours) during the term of Executive's employment with
Corporation (such concepts, ideas and designs are referred to as
"Executive's Discoveries") or have been made heretofore by the
Executive in relation to business of the Corporation. All of
Executive's Discoveries shall be Corporation's exclusive
property, and Executive shall, at Corporation's expense, sign all
documents and take such other actions as they may reasonably
request to confirm its ownership of Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except
with Corporation's express prior written consent or in connection
with the proper performance of services under this Agreement,
Executive shall not, directly or indirectly, communicate,
disclose or divulge to any Person (as defined in Section 22
below) or use for the benefit of any Person, any confidential or
proprietary knowledge or information, no matter when or how
acquired, concerning the business of the Corporation or the
conduct and details of the business of Corporation including, but
not limited to (a) names of customers, locations, prospects and
suppliers, (b) details of contracts, proposals or other business
arrangements with clients, prospects and suppliers, (c) marketing
methods, trade secrets, and financial condition, and
(d) software, source code, technical documentation and other
information. For purposes of this Section 13, confidential
information shall not include any information which is now known
by the general public, or which becomes known by the general
public other than as a result of any improper act or omission of
Executive.
14. RESTRICTIVE COVENANT
14.a. Covenant Not To Compete or Solicit
The Corporation is in the business of broadcasting
programming and advertising to food courts in large enclosed
shopping malls throughout the United States (the "Business"). As
a material inducement to entering this Agreement, Executive
agrees and covenants that, while he is an employee of the
Corporation and for a period of two (2) years thereafter, he:
(1) shall be restricted from competing with the
Business of the Corporation, directly or indirectly on his own
behalf or through third parties, in any manner whatsoever as a
shareholder, director, officer, joint venturer, partner, sole
proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or
representative of or for a competing business within the fifty
(50) states of the United States, all territories of the United
States and Canada;
(2) shall not either directly or indirectly on
his own behalf or through third parties solicit or attempt to
solicit or do business or attempt to do business with any of the
advertisers, agencies, developers, operators, owners, clients or
customers (collectively "Customers") of the Corporation who are
or were Customers of the Corporation at any time during the
preceding two (2) years prior to his termination of employment
with respect to any of the Business of the Corporation of its
subsidiaries or affiliates; and
(3) shall not communicate with or solicit any
person or entity who is, or during a six (6) month period prior
to his termination of employment was, an employee, salesman,
contractor, agent or representative (hereinafter collectively
"Employee" or "Contractor") of the Corporation in any manner
which interferes or which might interfere with such Employee's or
Contractor's relationship with the Corporation or in an effort to
obtain such person as an employee, salesman, contractor, agent or
representative of an entity or business which competes with the
Corporation's business.
Notwithstanding the foregoing, Executive shall
neither be restricted nor prohibited from acting as an
advertising agent, media supplier or in any other capacity in or
for an advertising agency.
14.b. Covenant Not to Violate Corporate Confidences
The parties agree and acknowledge that the
Executive will have access to and will become aware of
confidential information and trade secrets, including Customer
data, files, and business techniques (collectively, "Confidential
Information"), and that this Confidential Information (1) is not
generally available to the public, (2) has been compiled at the
Corporation's expense and over a substantial amount of time,
(3) is critical to the Corporation's ability to compete in the
industry in which it does business, and (4) if disclosed or
released will greatly and irreparably damage the Corporation's
business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not,
while he is an Executive or during a two (2) year period
beginning on the date of termination of his employment, either
disclose or divulge this confidential information to anyone or
use this confidential information in any manner to compete with
the Corporation.
14.c. Enforcement
The Corporation may enforce the provisions of this
Section 14 by suit for damages, injunction, or both, as provided
below:
(1) The parties agree and acknowledge that the
Corporation will be irreparably injured by the breach of any
provision of this Section, and that money damages alone will not
be an appropriate measure of the harm to the Corporation from
such continuing breach. Therefore, the parties agree that
equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of
these provisions.
(2) If any portion of the provisions of this
Section or its application is construed to be invalid, illegal or
unenforceable, then the other portions and their application
shall not be affected thereby and shall be enforceable without
regard thereto. If any of the covenants are determined to be
unenforceable because of their scope, duration, geographic area
or similar factor, then the court or arbitrator making such
determination shall have the power to reduce or limit such scope,
duration, area or other factor, and such covenant shall then be
enforceable in its reduced or limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the parties is that of
employer and employee. The employee shall be eligible to
participate in any plans or arrangements or distributions by the
Corporation pertaining to any profit-sharing, bonus or similar
benefits provided for regular employees, except to be extent that
such plans, arrangements or distributions are superseded by more
liberal provisions in this Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
Corporation shall be managed by the Board of Directors of the
corporation in accordance with the laws of the State of Delaware
governing the organization and administration of business
corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate to be construed as
a waiver of any subsequent breach of the same or any other
provision of this Agreement.
18. NOTICES
All notices, consents or other communications required
or permitted to be given under this Agreement shall be in writing
and shall be deemed to have been duly given (a) when delivered
personally, (b) three business days after being mailed by first
class certified mail, return receipt requested, postage prepaid,
or (c) one business day after being sent by a reputable overnight
delivery service, postage or delivery charges prepaid, to the
parties at their respective addresses stated on the first page of
this Agreement. Notices may also be given by prepaid telegram or
facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in
the manner provided in the preceding sentence. Notice to
Corporation, addressed to the attention of the Corporate
Secretary, shall suffice as notice to the Corporation, provided
that a copy thereof is simultaneously sent to Stephen F. Ritner,
Esquire, Stevens & Lee, P.C., One Glenhardie Corporate Center,
1275 Drummers Lane, P.O. Box 236, Wayne, Pennsylvania 19087-0236.
A copy of any notice to the Executive shall simultaneously be
sent to Perry Ashley, Esquire, Seaman & Ashley, 51 East 42nd
Street, New York, NY 10017. Any party may change its address for
notice and the address to which copies must be sent by giving
notice of the new addresses to the other parties in accordance
with this Section 18, except that any such change of address
notice shall not be effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to Corporation (a) that there are
no restrictions, agreements or undertakings whatsoever to which
Executive is a party which would make unlawful his execution of
this Agreement or his employment hereunder, (b) that his
execution of this Agreement or his employment hereunder do not
constitute a breach of any contract, agreement or understanding,
oral or written to which he is a party or which he is bound, and
(c) that he is free and able to execute this Agreement and to
enter into the employment contemplated hereby.
20. ASSIGNMENT
Corporation may not assign its rights and duties under
this Agreement to any party without the consent of Executive.
This Agreement, being for the personal services of Executive,
shall not be assignable by him.
21. OTHER PROVISIONS
This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous, oral or written,
express or implied, agreements and understandings. This
Agreement shall not be modified or terminated except in writing.
No action taken by Corporation under this Agreement, including
without limitation any waiver, consent or approval, shall be
effective unless approved by Corporation's Board of Directors.
This Agreement shall inure to the benefit of and bind each of the
parties hereto and the successors and assigns of Corporation and
the personal representatives, estate and heirs of Executive.
Neither the failure nor any delay on the part of either party to
exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or any other
right, remedy, power or privilege with respect to any occurrence
or be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party
asserted to have granted such waiver. Any headings preceding the
text of any of the Sections or Subsections of this Agreement are
inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction,
meaning, or effect.
22. DEFINITION
Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association,
cooperative, trust, estate, governmental body, administrative
agency, regulatory authority or other entity of any nature.
23. LIMITATION ON PAYMENTS AND BENEFITS
Notwithstanding any provision of this Agreement to the
contrary, in no event shall the present value of the amounts
payable hereunder which are treated as parachute payments, when
added to any other payments made or to be made to Executive by
the Corporation which are treated as parachute payments, exceed
2.99 times the Executive's base amount. For purposes of the
preceding sentence, the terms "parachute payment" and "base
amount" shall have the meanings ascribed to such terms in Code
Section 280G, and the "present value" of such parachute payments
shall be determined in accordance with the provisions of such
section. To the extent the provisions of this Section require a
reduction in payments or benefits under this Agreement, the
Executive shall be entitled to select, within a reasonable period
of time under the circumstances, which payments or benefits shall
be reduced.
WITNESS the due execution and delivery hereof on the date
first above written.
CORPORATION: EXECUTIVE:
FOOD COURT ENTERTAINMENT
NETWORK, INC.
/s/ James N. Perkins /s/ Robert H. Lenz
Name: James N. Perkins ROBERT H. LENZ
Title: President
<PAGE>
SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination and base salary adjustment
provisions of this Agreement, Executive shall be paid an annual
minimum base salary of $100,000 for all services rendered to the
Corporation for the term of this Agreement ("Minimum Base
Compensation") in equal weekly or bi-weekly installments with a
deduction for all taxes and other amounts required to be withheld
or deducted by law.
The Minimum Base Salary shall be payable with respect
to each fiscal year commencing October 1 and ending on the
following September 30 ("Contract Fiscal Year"); provided,
however, that, on or about November 1, 1997, the Compensation
Committee of the Board of Directors shall evaluate Executive's
performance from the Effective Date of this Agreement through
October 31, 1997 and consider whether his Minimum Base
Compensation should be increased with respect to the remainder of
the then current Contract Fiscal Year.
In addition to the provisions of the preceding
paragraph, Executive's Minimum Base Compensation shall be subject
to annual review and adjustment, as deemed appropriate by the
Compensation Committee of the Board of Directors, commencing
November 1, 1997.
2. BONUS COMPENSATION
In addition to his Minimum Base Compensation, Executive
shall be entitled to bonus compensation ("Bonus Compensation") as
determined from time-to-time by the Compensation Committee of the
Board of Directors based upon the progress of the Company and the
success of the Company in completing its strategic plan.
3. SPECIAL COMPENSATION FOR EXTRAORDINARY SERVICES
Executive has, during his career prior to joining the
Corporation, developed relationships with certain companies and
certain business executives which are valuable to the
Corporation. Executive intends to pursue certain strategic
alliances and certain merger and acquisition transactions which
will be of great value to the Corporation and which will result
from Executive's relationships, credibility in the marketplace
and/or business acumen in developing such relationships and
concluding such transactions. Accordingly, if a strategic
alliance or a merger or acquisition is completed, Executive shall
be entitled to be paid additional compensation in cash, stock
options or stock bonus equal to 3.75% of the fair market value of
any such transaction.
<PAGE>
SCHEDULE B
STOCK OPTIONS
Executive shall be granted options to purchase 600,000
shares of the Series A common stock of the Corporation pursuant
to the provisions of its 1995 Employee Stock Option Plan. Such
options shall include the following terms and provisions:
(a) the grant date shall be November 15, 1996;
(b) the exercise price per share shall be equal to the
lower of (i) the closing bid price of the Series A Common
Stock in the over-the-counter market as reported by NASDAQ
(the "Common Stock Bid Price") on the business day
immediately preceding the first closing on the Private
Placement of Units as described in the Letter of Intent
between the Corporation and D.H. Blair Investment Banking
Corp. dated October 7, 1996 (the "Private Placement") or
(ii) the average Common Stock Bid Price for 30 consecutive
business days ending on the business day immediately
preceding the first closing on the Private Placement.
(c) the right to exercise such options shall vest in
three equal annual installments on the first, second and
third anniversaries of the final closing on the Private
Placement provided that:
(1) The first installment shall vest if and only
if the Corporation (I) reports positive
earnings before extraordinary items,
interest, taxes, depreciation and
amortization for the fiscal year ending
December 31, 1997, or (II) reports earnings
(before extraordinary items) per primary
share, as defined below, ("EPS") of at least
$0.35 for the fiscal year ending
December 31, 1998, (III) reports EPS of at
least $0.60 for the fiscal year ending
December 31, 1999; or (IV) reports EPS of at
least $0.90 for the fiscal year ending
December 31, 2000,
(2) the second installment shall vest if and only
if the Corporation achieves a target set
forth in preceding sub-clauses (1) (II),
(III) or (IV), above and
(3) the third installment shall vest if and only
if the Corporation achieves a target set
forth in sub-clauses (1) (III) or (IV),
above.
Earnings per primary share or EPS shall be calculated by
dividing the Net Income for the Corporation (before extraordinary
items) for the fiscal year by the weighted average of the number
of shares of Common Stock issued and outstanding during the
fiscal year.
Such options shall contain such additional terms and
provisions as the Compensation Committee may determine and as are
in compliance with, in all respects, the terms of the Employee
Stock Option Plan, as amended (which terms are incorporated
herein by reference).
<PAGE>
SCHEDULE C
CHANGE IN CONTROL
1. MODIFICATION OF CONTRACT UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, this
Agreement shall be modified as set forth below.
(a) The then remaining term shall, as of the date
of the occurrence of the Change in Control, be extended
through the day immediately preceding the third anniversary
date of such occurrence ("anniversary date"). Thereafter,
unless either party notifies the other, no later than 60
days prior to an anniversary date, of an intent not to
extend the term of this Agreement, it shall automatically be
extended for an additional year effective as of such
anniversary date.
(b) Executive shall have the right, within the
90-day period following the occurrence of an event
constituting Good Reason, to voluntarily terminate his
employment with the Corporation and receive the amounts and
benefits described in the last paragraph of Section 10.a.
Executive shall be deemed to have perfected his right to so
terminate by delivering a written notice to such effect to
the Corporation within such 90-day period and specifying a
termination date no later than the last day of such period.
2. CHANGE IN CONTROL DEFINED
For purposes of this Agreement, the term "Change in
Control" means the occurrence of any of the following events:
(a) any Person (except (i) the Corporation or any
Subsidiary of the Corporation, or (ii) any Employee Benefit
Plan (or any trust forming a part thereof) maintained by the
Corporation or any Subsidiary of the Corporation) is or
becomes the beneficial owner, directly or indirectly, of the
Corporation's securities representing 19.9% or more of the
combined voting power of the Corporation's then outstanding
securities, other than pursuant to a transaction described
in Clause (c);
(b) there occurs a sale, exchange, transfer or
other disposition of substantially all of the assets of the
Corporation to another entity, except to an entity
controlled directly or indirectly by the Corporation;
(c) there occurs a merger, consolidation, share
exchange, division or other reorganization of or relating to
the Corporation, unless--
(i) the shareholders of the Corporation
immediately before such merger, consolidation, share
exchange, division or reorganization own, directly or
indirectly, immediately thereafter at least 66-2/3% of
the combined voting power of the outstanding voting
securities of the Surviving Company in substantially
the same proportion as their ownership of the voting
securities immediately before such merger,
consolidation, share exchange, division or
reorganization; and
(ii) the individuals who, immediately before
such merger, consolidation, share exchange, division or
reorganization, are members of the Incumbent Board
continue to constitute at least two-thirds of the board
of directors of the Surviving Company; provided,
however, that if the election, or nomination for
election by the Corporation's shareholders, of any new
director was approved by a vote of at least two-thirds
of the Incumbent Board, such director shall, for the
purposes hereof, be considered a member of the
Incumbent Board; and provided further, however, that no
individual shall be considered a member of the
Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened
Election Contest or Proxy Contest, including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; and
(iii) no Person (except (A) the Corporation
or any Subsidiary of the Corporation, (B) any Employee
Benefit Plan (or any trust forming a part thereof)
maintained by the Corporation or any Subsidiary of the
Corporation, or (C) the Surviving Company or any
Subsidiary of the Surviving Company) has beneficial
ownership of 19.9% or more of the combined voting power
of the Surviving Company's outstanding voting
securities immediately following such merger,
consolidation, share exchange, division or
reorganization;
(d) a plan of liquidation or dissolution of the
Corporation, other than pursuant to bankruptcy or insolvency
laws, is adopted; or
(e) during any period of two consecutive years,
individuals who, at the beginning of such period,
constituted the Board of Directors of the Corporation cease
for any reason to constitute at least a majority of such
Board of Directors, unless the election, or the nomination
for election by the Corporation's shareholders, of each new
director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of the period; provided, however, that no
individual shall be considered a member of the Board of
Directors of the Corporation at the beginning of such period
if such individual initially assumed office as a result of
either an actual or threatened Election Contest or Proxy
Contest, including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of securities representing 19.9% or more
of the combined voting power of the Corporation's then
outstanding securities solely as a result of an acquisition by
the Corporation of its voting securities which, by reducing the
number of shares outstanding, increases the proportionate number
of shares beneficially owned by such Person; provided, however,
that if a Person becomes a beneficial owner of 19.9% or more of
the combined voting power of the Corporation's then outstanding
securities by reason of share repurchases by the Corporation and
thereafter becomes the beneficial owner, directly or indirectly,
of any additional voting securities of the Corporation, then a
Change in Control shall be deemed to have occurred with respect
to such Person under Clause (a).
Notwithstanding anything contained herein to the contrary, if the
Executive's employment is terminated and he reasonably
demonstrates that such termination (i) was at the request of a
third party who has indicated an intention of taking steps
reasonably calculated to effect a Change in Control and who
effects a Change in Control, or (ii) otherwise occurred in
connection with, or in anticipation of, a Change in Control which
actually occurs, then for all purposes hereof, a Change in
Control shall be deemed to have occurred on the day immediately
prior to the date of such termination of his employment.
3. GOOD REASON DEFINED
For purposes of this Schedule "C", the term "Good
Reason" means the occurrence of any of the following events:
(a) a change in the Executive's status or
position, or any material diminution in his duties or
responsibilities;
(b) any increase in the Executive's duties
inconsistent with his position with the Corporation;
(c) any reduction in the Executive's Minimum Base
Compensation;
(d) a failure to increase the Executive's Minimum
Base Compensation, consistent with his performance review,
within 12 months of the last increase or performance
review;
(e) a failure by the Corporation to continue in
effect any Employee Benefit Plan in which the Executive
participates, including (whether or not they constitute
Employee Benefit Plans) incentive bonus, stock option, or
other qualified or nonqualified plans of deferred
compensation (i) other than as a result of the normal
expiration of such a plan, or (ii) unless such plan is
merged or consolidated into, or replaced with, a plan with
benefits which are of equal or greater value;
(f) requiring the Executive to be based at a
location further than 50 miles from the location of his
principal office immediately prior to the Change in Control;
(g) refusal to allow the Executive to attend to
matters or engage in activities in which he was permitted
to engage prior to the Change in Control;
(h) failure of the Corporation to secure the
affirmation by a Successor, within three business days prior
to a Change in Control, of this Agreement and its or the
Corporation's continuing obligations hereunder (or where the
Corporation does not have at least three business days
advance notice that a Person may become a Successor, within
one business day after having notice that such Person may
become or has become a Successor); or
(i) any purported termination of the Executive's
employment which is not in accordance with the terms of
this Agreement.
4. ADDITIONAL DEFINITIONS
For purposes of this Schedule "C", the following terms
shall have the meanings ascribed to them:
"Election Contest" means a solicitation with respect to
the election or removal of directors that is subject to the
provisions of Rule 14a-11 of the 1934 Act.
"Employee Benefit Plan" has the meaning ascribed to
such term in ERISA Section 3(3).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended and as the same may be amended from time
to time.
"Incumbent Board" means the Board of Directors of the
Corporation as constituted at any relevant time.
"1934 Act" means the Securities Exchange Act of 1934,
as amended and as the same may be amended from time to time.
"Person" has the same meaning as such term has for
purposes of Sections 13(d) and 14(d) of the 1934 Act.
"Proxy Contest" means the solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors of the Corporation.
"Subsidiary" means, with respect to any corporation,
any business entity of which a majority of its voting power or
its equity securities or equity interests is owned, directly or
indirectly, by such corporation.
"Successor" means any Person that succeeds to, or has
the practical ability to control (either immediately or with the
passage of time), the Corporation's business directly, by merger
or consolidation, or indirectly, by purchase of the Corporation's
voting securities or all or substantially all of its assets.
"Surviving Company" means the business entity that is a
resulting company following a merger, consolidation, share
exchange, division or other reorganization of or relating to the
Corporation.
EXHIBIT 10.5
EMPLOYMENT CONTRACT
BETWEEN
FOOD COURT ENTERTAINMENT NETWORK, INC.
AND
JAMES N. PERKINS
<PAGE>
EMPLOYMENT CONTRACT
Agreement made the ________ day of ___________________, 1996
by and between
Corporation: Food Court Entertainment Network, Inc.
220 East 42nd Street
New York, NY 10017
(a Delaware Corporation)
and
Executive: James N. Perkins
201 Stilson Hill Road
New Milford, CT 06776
Effective Date: October 1, 1996
BACKGROUND
It is in the best interest of the Corporation and its
shareholders to secure Executive's services for the Corporation
with an employment agreement. The Corporation, as an incentive
to Executive to continue employment with the Corporation grants
compensation and other incentives as more fully set forth in this
Agreement and the attached Schedules. Executive and the
Corporation desire to enter an employment agreement under the
terms and conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and
valuable consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in
the capacity of President and Chief Executive Officer of the
Corporation.
2. DUTIES
Executive shall serve the Corporation faithfully and to
the best of his ability, under the direction of the Chairman and
the Board of Directors. He shall devote such time, energy and
skill during regular business hours and such other hours as are
reasonably necessary to fulfill his obligations as President and
Chief Executive Officer of the Corporation. Executive shall be
responsible for the management and operation of the Corporation
and shall have such duties as are normally associated with the
position of a President and Chief Executive Officer in a
similarly situated company. He shall report to the Chairman and
the Board of Directors as required.
This Section 2 shall not be construed as preventing the
Executive from participating in businesses which do not compete
with the Company or any affiliate of the Company, where the form
or manner of such participation will not require services on the
part of the Executive in the operation of the affairs of the
business.
In addition to the foregoing, he shall be, during the
term of his employment, a Director of the Corporation.
3. COMPENSATION
The Corporation shall pay or cause to be paid to
Executive during the term of his employment the salary and
bonuses as more particularly set forth in Schedule "A" which is
attached to this Agreement and made part hereof.
4. STOCK OPTIONS
Executive shall be granted options to purchase the
Corporation's Series A common stock in accordance with the
provisions of Schedule "B" which is attached to this Agreement
and made part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits
which may from time to time be made available to senior
executives of the Corporation and as set forth in the personnel
policies of the Corporation, or as determined by the Board,
including but not limited to any employee benefit plan which is
qualified and exempt under Sections 401(a) and 501(a) of the
Internal Revenue Code ("Code"), and any group medical, dental,
hospitalization or insurance program.
6. EXPENSES
The Corporation shall reimburse Executive for
out-of-pocket expenditures for transportation, fuel,
entertainment, travel, meals, hotel accommodations and the like
incurred by him in the interest of the Corporation
("out-of-pocket expenses"). Executive shall from time to time
but no less frequently than each month submit vouchers, receipts
or other documentation together with appropriate written
explanation required by the Corporation to verify out-of-pocket
expenses and shall be reimbursed for the actual expenses
incurred. Corporation shall provide Executive with a reasonable
monthly allowance for automobile expenses, including cost of the
vehicle, gas, maintenance and repairs or, in the alternative, may
provide a suitable motor vehicle for use by the Executive for
conduct of business on behalf of the Corporation.
7. WORKING FACILITIES
The Corporation shall furnish Executive with such
office space at the Corporate headquarters, secretarial
assistance, and such other facilities and services, in the
discretion of the Chairman, as is appropriate of the President of
the Corporation and necessary for performance of his duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts
binding upon the Corporation and to create any obligations on the
part of the Corporation in the normal course of business and as
would be expected of a chairman of a similar corporation.
Notwithstanding the foregoing, Executive shall, have authority to
enter into contracts binding the Corporation, without prior
approval with the Board of Directors, for purchases or
transactions in the ordinary course of business; provided
however, that any contract, agreement or transaction having a
value of greater than $100,000 must also have the approval of the
Chairman.
9. VACATIONS
Executive shall be entitled each year to vacation at
such time and for such duration as is reasonable and which do not
interfere with the ability of Executive to fulfill his duties and
effectively operate the Corporation. Vacations shall be
coordinated with other employees of the Corporation, shall be
consistent with Executive's duties (as more fully set forth in
Section 2 of this Agreement) and the needs of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
Except as otherwise provided herein, the term of
employment shall be for a period of three (3) years, commencing
as of the Effective Date of this Agreement and continuing through
September 30, 1999. At the end of the initial three (3) year
term, Corporation and Executive agree to negotiate in good faith
a new contract or extension of the current contract. In the
event the Corporation and Executive fail to reach an Agreement,
Executive shall be entitled upon his termination to the sum of
his highest Minimum Base Compensation and Bonus Compensation (if
any) paid at any time under this Agreement, payable in equal
installments for one (1) year from the date of termination with
the same frequency as his salary was paid while employed
("Severance Pay"). Executive shall have no duty to mitigate
damages and should he accept other employment, Severance Pay
shall not be reduced or deducted from any other earned income.
Further, in the event the Corporation terminates
Executive other than pursuant to the provisions set forth in
Section 10.b. below, the Executive shall be, in lieu of any
additional severance pay and lieu of any bonus compensation,
entitled to continue to receive his then Minimum Base
Compensation through the remaining term of this Agreement and
continuance of benefits described in Section 5, above, or, if
longer, one (1) year. In addition, he shall be entitled to
receive the benefits and amounts described in Clauses (b), (c)
and (d) of Section 10.b.1.
10.b. Termination
10.b.1. Termination by Death. If Executive dies,
then this Agreement shall terminate immediately, except that
Executive's heirs, personal representatives or estate shall be
entitled to receive (a) his then Minimum Base Compensation for a
period of one (1) year after his death payable with the same
frequency as his salary was paid during Executive's lifetime;
(b) any accrued benefits up to the date of termination;
(c) bonuses that have accrued but not been paid; and (d) any
benefits which are to be continued or paid after the date of
termination in accordance with the terms of the corresponding
benefit plans.
10.b.2. Termination by Disability. If Executive
becomes disabled, and such disability continues for more than
three (3) consecutive months after the Onset of Disability (as
defined below) or for periods aggregating more than four (4)
months during any six-month period, then Corporation shall have
the right to terminate this Agreement immediately, except that
Executive shall be entitled to receive (a) the difference in his
then Minimum Base Compensation above any disability insurance
proceeds received from any disability policy or plan paid for or
provided by Corporation for a period of one (1) year beginning on
the date of the Onset of Disability; (b) any accrued benefits up
to the date of termination; (c) bonuses that have accrued but not
been paid; and (d) any benefits which are to be continued or paid
after the date of termination in accordance with the terms of the
corresponding benefit plans. "Onset of Disability" means the
first day on which Executive shall be unable, without reasonable
accommodation, to perform any of his duties under this Agreement
on a full time basis by reason of physical or mental incapacity,
sickness or infirmity.
In the event of a partial disability, Executive
shall be entitled to work for such time and in such capacity as
his disability permits and the Corporation shall provide such
reasonable accommodations as may be necessary.
10.b.3. For Cause. This Agreement may be
terminated by the Corporation for cause as defined below, by
providing five (5) days prior written notice from the Corporation
to the Executive upon the occurrence or act by the Executive of
any one or more of the following events:
(a) fraud,
(b) dishonesty, or
(c) other material and willful misconduct by
the Executive.
If Executive's employment is terminated for cause
pursuant to this section, Executive shall be entitled to receive
(i) his then Minimum Base Corporation accrued through the date of
termination, (ii) any accrued benefits up to the date of
termination, and (iii) any benefits which are to be continued or
paid after the date of termination in accordance with the terms
of corresponding benefit plans.
10.b.4. Mutual Agreement. This Agreement may be
terminated at any time upon mutual agreement of the parties.
10.b.5. Change in Control. Upon the occurrence
of a Change in Control, the provisions set forth in Schedule "C"
attached hereto shall apply, notwithstanding anything herein to
the contrary.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall
promptly return to Corporation all documents (including copies)
and other materials and property of Corporation pertaining to its
business, including without limitation customer and prospect
lists, contracts, files, manuals, letters, reports and records in
his possession or control, no matter from whom or in what manner
acquired.
12. DISCOVERIES
Executive shall communicate to Corporation, in writing
when requested, and preserve as confidential information of
Corporation, all marketing concepts, software ideas and other
ideas or designs relating to the business of the Corporation
which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after
business hours) during the term of Executive's employment with
Corporation (such concepts, ideas and designs are referred to as
"Executive's Discoveries") or have been made heretofore by the
Executive in relation to business of the Corporation. All of
Executive's Discoveries shall be Corporation's exclusive
property, and Executive shall, at Corporation's expense, sign all
documents and take such other actions as they may reasonably
request to confirm its ownership of Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except
with Corporation's express prior written consent or in connection
with the proper performance of services under this Agreement,
Executive shall not, directly or indirectly, communicate,
disclose or divulge to any Person (as defined in Section 22
below) or use for the benefit of any Person, any confidential or
proprietary knowledge or information, no matter when or how
acquired, concerning the business of the Corporation or the
conduct and details of the business of Corporation including, but
not limited to (a) names of customers, locations, prospects and
suppliers, (b) details of contracts, proposals or other business
arrangements with clients, prospects and suppliers, (c) marketing
methods, trade secrets, and financial condition, and
(d) software, source code, technical documentation and other
information. For purposes of this Section 13, confidential
information shall not include any information which is now known
by the general public, or which becomes known by the general
public other than as a result of any improper act or omission of
Executive.
14. RESTRICTIVE COVENANT
14.a. Covenant Not To Compete or Solicit
The Corporation is in the business of broadcasting
programming and advertising to food courts in large enclosed
shopping malls throughout the United States (the "Business"). As
a material inducement to entering this Agreement, Executive
agrees and covenants that, while he is an employee of the
Corporation and for a period of two (2) years thereafter, he:
(1) shall be restricted from competing with the
Business of the Corporation, directly or indirectly on his own
behalf or through third parties, in any manner whatsoever as a
shareholder, director, officer, joint venturer, partner, sole
proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or
representative of or for a competing business within the fifty
(50) states of the United States, all territories of the United
States and Canada;
(2) shall not either directly or indirectly on
his own behalf or through third parties solicit or attempt to
solicit or do business or attempt to do business with any of the
advertisers, agencies, developers, operators, owners, clients or
customers (collectively "Customers") of the Corporation who are
or were Customers of the Corporation at any time during the
preceding two (2) years prior to his termination of employment
with respect to any of the Business of the Corporation of its
subsidiaries or affiliates; and
(3) shall not communicate with or solicit any
person or entity who is, or during a six (6) month period prior
to his termination of employment was, an employee, salesman,
contractor, agent or representative (hereinafter collectively
"Employee" or "Contractor") of the Corporation in any manner
which interferes or which might interfere with such Employee's or
Contractor's relationship with the Corporation or in an effort to
obtain such person as an employee, salesman, contractor, agent or
representative of an entity or business which competes with the
Corporation's business.
Notwithstanding the foregoing, Executive shall not be
restricted nor prohibited from acting as a business consultant,
as a developer of new media and/or communications businesses, or
as a designer and implementor of broadcast systems and
technologies, or in any other capacity in or for a broadcasting,
advertising, communications, computer, cable television or
telecommunications company.
14.b. Covenant Not to Violate Corporate Confidences
The parties agree and acknowledge that the
Executive will have access to and will become aware of
confidential information and trade secrets, including Customer
data, files, and business techniques (collectively, "Confidential
Information"), and that this Confidential Information (1) is not
generally available to the public, (2) has been compiled at the
Corporation's expense and over a substantial amount of time,
(3) is critical to the Corporation's ability to compete in the
industry in which it does business, and (4) if disclosed or
released will greatly and irreparably damage the Corporation's
business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not,
while he is an Executive or during a two (2) year period
beginning on the date of termination of his employment, either
disclose or divulge this confidential information to anyone or
use this confidential information in any manner to compete with
the Corporation.
14.c. Enforcement
The Corporation may enforce the provisions of this
Section 14 by suit for damages, injunction, or both, as provided
below:
(1) The parties agree and acknowledge that the
Corporation will be irreparably injured by the breach of any
provision of this Section, and that money damages alone will not
be an appropriate measure of the harm to the Corporation from
such continuing breach. Therefore, the parties agree that
equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of
these provisions.
(2) If any portion of the provisions of this
Section or its application is construed to be invalid, illegal or
unenforceable, then the other portions and their application
shall not be affected thereby and shall be enforceable without
regard thereto. If any of the covenants are determined to be
unenforceable because of their scope, duration, geographic area
or similar factor, then the court or arbitrator making such
determination shall have the power to reduce or limit such scope,
duration, area or other factor, and such covenant shall then be
enforceable in its reduced or limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the parties is that of
employer and employee. The employee shall be eligible to
participate in any plans or arrangements or distributions by the
Corporation pertaining to any profit-sharing, bonus or similar
benefits provided for regular employees, except to be extent that
such plans, arrangements or distributions are superseded by more
liberal provisions in this Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
Corporation shall be managed by the Board of Directors of the
corporation in accordance with the laws of the State of Delaware
governing the organization and administration of business
corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate to be construed as
a waiver of any subsequent breach of the same or any other
provision of this Agreement.
18. NOTICES
All notices, consents or other communications required
or permitted to be given under this Agreement shall be in writing
and shall be deemed to have been duly given (a) when delivered
personally, (b) three business days after being mailed by first
class certified mail, return receipt requested, postage prepaid,
or (c) one business day after being sent by a reputable overnight
delivery service, postage or delivery charges prepaid, to the
parties at their respective addresses stated on the first page of
this Agreement. Notices may also be given by prepaid telegram or
facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in
the manner provided in the preceding sentence. Notice to
Corporation, addressed to the attention of the Corporate
Secretary, shall suffice as notice to the Corporation, provided
that a copy thereof is simultaneously sent to Stephen F. Ritner,
Esquire, Stevens & Lee, P.C., One Glenhardie Corporate Center,
1275 Drummers Lane, P.O. Box 236, Wayne, Pennsylvania 19087-0236.
Any party may change its address for notice and the address to
which copies must be sent by giving notice of the new addresses
to the other parties in accordance with this Section 18, except
that any such change of address notice shall not be effective
unless and until received.
19. PRIOR AGREEMENTS
Executive represents to Corporation (a) that there are
no restrictions, agreements or undertakings whatsoever to which
Executive is a party which would make unlawful his execution of
this Agreement or his employment hereunder, (b) that his
execution of this Agreement or his employment hereunder do not
constitute a breach of any contract, agreement or understanding,
oral or written to which he is a party or which he is bound, and
(c) that he is free and able to execute this Agreement and to
enter into the employment contemplated hereby.
20. ASSIGNMENT
Corporation may not assign its rights and duties under
this Agreement to any party without the consent of Executive.
This Agreement, being for the personal services of Executive,
shall not be assignable by him.
21. OTHER PROVISIONS
This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous, oral or written,
express or implied, agreements and understandings. This
Agreement shall not be modified or terminated except in writing.
No action taken by Corporation under this Agreement, including
without limitation any waiver, consent or approval, shall be
effective unless approved by Corporation's Board of Directors.
This Agreement shall inure to the benefit of and bind each of the
parties hereto and the successors and assigns of Corporation and
the personal representatives, estate and heirs of Executive.
Neither the failure nor any delay on the part of either party to
exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or any other
right, remedy, power or privilege with respect to any occurrence
or be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party
asserted to have granted such waiver. Any headings preceding the
text of any of the Sections or Subsections of this Agreement are
inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction,
meaning, or effect.
22. DEFINITION
Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association,
cooperative, trust, estate, governmental body, administrative
agency, regulatory authority or other entity of any nature.
23. LIMITATION ON PAYMENTS AND BENEFITS
Notwithstanding any provision of this Agreement to the
contrary, in no event shall the present value of the amounts
payable hereunder which are treated as parachute payments, when
added to any other payments made or to be made to Executive by
the Corporation which are treated as parachute payments, exceed
2.99 times the Executive's base amount. For purposes of the
preceding sentence, the terms "parachute payment" and "base
amount" shall have the meanings ascribed to such terms in Code
Section 280G, and the "present value" of such parachute payments
shall be determined in accordance with the provisions of such
section. To the extent the provisions of this Section require a
reduction in payments or benefits under this Agreement, the
Executive shall be entitled to select, within a reasonable period
of time under the circumstances, which payments or benefits shall
be reduced.
WITNESS the due execution and delivery hereof on the date
first above written.
CORPORATION: EXECUTIVE:
FOOD COURT ENTERTAINMENT
NETWORK, INC.
/s/ Robert H. Lenz /s/ James N. Perkins
Name: Robert H. Lenz JAMES N. PERKINS
Title: Chairman
<PAGE>
SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination and base salary adjustment
provisions of this Agreement, Executive shall be paid an annual
minimum base salary of $150,000 for all services rendered to the
Corporation for the term of this Agreement ("Minimum Base
Compensation") in equal weekly or bi-weekly installments with a
deduction for all taxes and other amounts required to be withheld
or deducted by law.
The Minimum Base Salary shall be payable with respect
to each fiscal year commencing October 1 and ending on the
following September 30 ("Contract Fiscal Year"); provided,
however, that, on or about November 1, 1997, the Compensation
Committee of the Board of Directors shall evaluate Executive's
performance from the Effective Date of this Agreement through
October 31, 1997 and consider whether his Minimum Base
Compensation should be increased with respect to the remainder of
the then current Contract Fiscal Year.
In addition to the provisions of the preceding
paragraph, Executive's Minimum Base Compensation shall be subject
to annual review and adjustment, as deemed appropriate by the
Compensation Committee of the Board of Directors, commencing
November 1, 1997.
2. BONUS COMPENSATION
In addition to his Minimum Base Compensation, Executive
shall be entitled to bonus compensation ("Bonus Compensation") as
determined from time-to-time by the Compensation Committee of the
Board of Directors based upon the progress of the Company and the
success of the Company in completing its strategic plan.
3. SPECIAL COMPENSATION FOR EXTRAORDINARY SERVICES
Executive has, during his career prior to joining the
Corporation, developed relationships with certain companies and
certain business executives which are valuable to the
Corporation. Executive intends to pursue certain strategic
alliances and certain merger and acquisition transactions which
will be of great value to the Corporation and which will result
from Executive's relationships, credibility in the marketplace
and/or business acumen in developing such relationships and
concluding such transactions. Accordingly, if a strategic
alliance or a merger or acquisition is completed, Executive shall
be entitled to be paid additional compensation in cash, stock
options or stock bonus equal to 3.75% of the fair market value of
any such transaction.
<PAGE>
SCHEDULE B
STOCK OPTIONS
Executive shall be granted options to purchase 475,000 shares of
the Series A common stock of the Corporation pursuant to the
provisions of its 1995 Employee Stock Option Plan. Such options
shall include the following terms and provisions:
(a) the grant date shall be the date of this Agreement
was executed by all parties or the date of final closing on
the Private Placement (defined below);
(b) the exercise price per share shall be equal to the
lower of (i) the closing bid price of the Series A Common
Stock in the over-the-counter market as reported by NASDAQ
(the "Common Stock Bid Price") on the business day
immediately preceding the first closing on the Private
Placement of Units as described in the Letter of Intent
between the Corporation and D.H. Blair Investment Banking
Corp. dated October 7, 1996 (the "Private Placement") or
(ii) the average Common Stock Bid Price for 30 consecutive
business days ending on the business day immediately
preceding the first closing on the Private Placement.
(c) 175,000 options shall vest on the final closing of
the Private Placement
(d) the right to exercise 300,000 of such options
shall vest in three equal annual installments on the first,
second and third anniversaries of the final closing on the
Private Placement provided that:
(1) The first installment shall vest if and only
if the Corporation (I) reports positive
earnings before extraordinary items,
interest, taxes, depreciation and
amortization for the fiscal year ending
December 31, 1997, or (II) reports earnings
(before extraordinary items) per primary
share, as defined below, ("EPS") of at least
$0.35 for the fiscal year ending
December 31, 1998, (III) reports EPS of at
least $0.60 for the fiscal year ending
December 31, 1999; or (IV) reports EPS of at
least $0.90 for the fiscal year ending
December 31, 2000,
(2) the second installment shall vest if and only
if the Corporation achieves a target set
forth in preceding sub-clauses (1) (II),
(III) or (IV), above and
(3) the third installment shall vest if and only
if the Corporation achieves a target set
forth in sub-clauses (1) (III) or (IV),
above.
Earnings per primary share or EPS shall be calculated by
dividing the Net Income for the Corporation (before extraordinary
items) for the fiscal year by the weighted average of the number
of shares of Common Stock issued and outstanding during the
fiscal year.
Such options shall contain such additional terms and
provisions as the Compensation Committee may determine and as are
in compliance with, in all respects, the terms of the Employee
Stock Option Plan, as amended (which terms are incorporated
herein by reference).
<PAGE>
SCHEDULE C
CHANGE IN CONTROL
1. MODIFICATION OF CONTRACT UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, this
Agreement shall be modified as set forth below.
(a) The then remaining term shall, as of the date
of the occurrence of the Change in Control, be extended
through the day immediately preceding the third anniversary
date of such occurrence ("anniversary date"). Thereafter,
unless either party notifies the other, no later than 60
days prior to an anniversary date, of an intent not to
extend the term of this Agreement, it shall automatically be
extended for an additional year effective as of such
anniversary date.
(b) Executive shall have the right, within the
90-day period following the occurrence of an event
constituting Good Reason, to voluntarily terminate his
employment with the Corporation and receive the amounts and
benefits described in the last paragraph of Section 10.a.
Executive shall be deemed to have perfected his right to so
terminate by delivering a written notice to such effect to
the Corporation within such 90-day period and specifying a
termination date no later than the last day of such period.
2. CHANGE IN CONTROL DEFINED
For purposes of this Agreement, the term "Change in
Control" means the occurrence of any of the following events:
(a) any Person (except (i) the Corporation or any
Subsidiary of the Corporation, or (ii) any Employee Benefit
Plan (or any trust forming a part thereof) maintained by the
Corporation or any Subsidiary of the Corporation) is or
becomes the beneficial owner, directly or indirectly, of the
Corporation's securities representing 19.9% or more of the
combined voting power of the Corporation's then outstanding
securities, other than pursuant to a transaction described
in Clause (c);
(b) there occurs a sale, exchange, transfer or
other disposition of substantially all of the assets of the
Corporation to another entity, except to an entity
controlled directly or indirectly by the Corporation;
(c) there occurs a merger, consolidation, share
exchange, division or other reorganization of or relating to
the Corporation, unless--
(i) the shareholders of the Corporation
immediately before such merger, consolidation, share
exchange, division or reorganization own, directly or
indirectly, immediately thereafter at least 66-2/3% of
the combined voting power of the outstanding voting
securities of the Surviving Company in substantially
the same proportion as their ownership of the voting
securities immediately before such merger,
consolidation, share exchange, division or
reorganization; and
(ii) the individuals who, immediately before
such merger, consolidation, share exchange, division or
reorganization, are members of the Incumbent Board
continue to constitute at least two-thirds of the board
of directors of the Surviving Company; provided,
however, that if the election, or nomination for
election by the Corporation's shareholders, of any new
director was approved by a vote of at least two-thirds
of the Incumbent Board, such director shall, for the
purposes hereof, be considered a member of the
Incumbent Board; and provided further, however, that no
individual shall be considered a member of the
Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened
Election Contest or Proxy Contest, including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; and
(iii) no Person (except (A) the Corporation
or any Subsidiary of the Corporation, (B) any Employee
Benefit Plan (or any trust forming a part thereof)
maintained by the Corporation or any Subsidiary of the
Corporation, or (C) the Surviving Company or any
Subsidiary of the Surviving Company) has beneficial
ownership of 19.9% or more of the combined voting power
of the Surviving Company's outstanding voting
securities immediately following such merger,
consolidation, share exchange, division or
reorganization;
(d) a plan of liquidation or dissolution of the
Corporation, other than pursuant to bankruptcy or insolvency
laws, is adopted; or
(e) during any period of two consecutive years,
individuals who, at the beginning of such period,
constituted the Board of Directors of the Corporation cease
for any reason to constitute at least a majority of such
Board of Directors, unless the election, or the nomination
for election by the Corporation's shareholders, of each new
director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of the period; provided, however, that no
individual shall be considered a member of the Board of
Directors of the Corporation at the beginning of such period
if such individual initially assumed office as a result of
either an actual or threatened Election Contest or Proxy
Contest, including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of securities representing 19.9% or more
of the combined voting power of the Corporation's then
outstanding securities solely as a result of an acquisition by
the Corporation of its voting securities which, by reducing the
number of shares outstanding, increases the proportionate number
of shares beneficially owned by such Person; provided, however,
that if a Person becomes a beneficial owner of 19.9% or more of
the combined voting power of the Corporation's then outstanding
securities by reason of share repurchases by the Corporation and
thereafter becomes the beneficial owner, directly or indirectly,
of any additional voting securities of the Corporation, then a
Change in Control shall be deemed to have occurred with respect
to such Person under Clause (a).
Notwithstanding anything contained herein to the contrary, if the
Executive's employment is terminated and he reasonably
demonstrates that such termination (i) was at the request of a
third party who has indicated an intention of taking steps
reasonably calculated to effect a Change in Control and who
effects a Change in Control, or (ii) otherwise occurred in
connection with, or in anticipation of, a Change in Control which
actually occurs, then for all purposes hereof, a Change in
Control shall be deemed to have occurred on the day immediately
prior to the date of such termination of his employment.
3. GOOD REASON DEFINED
For purposes of this Schedule "C", the term "Good
Reason" means the occurrence of any of the following events:
(a) a change in the Executive's status or
position, or any material diminution in his duties or
responsibilities;
(b) any increase in the Executive's duties
inconsistent with his position with the Corporation;
(c) any reduction in the Executive's Minimum Base
Compensation;
(d) a failure to increase the Executive's Minimum
Base Compensation, consistent with his performance review,
within 12 months of the last increase or performance
review;
(e) a failure by the Corporation to continue in
effect any Employee Benefit Plan in which the Executive
participates, including (whether or not they constitute
Employee Benefit Plans) incentive bonus, stock option, or
other qualified or nonqualified plans of deferred
compensation (i) other than as a result of the normal
expiration of such a plan, or (ii) unless such plan is
merged or consolidated into, or replaced with, a plan with
benefits which are of equal or greater value;
(f) requiring the Executive to be based at a
location further than 50 miles from the location of his
principal office immediately prior to the Change in Control;
(g) refusal to allow the Executive to attend to
matters or engage in activities in which he was permitted
to engage prior to the Change in Control;
(h) failure of the Corporation to secure the
affirmation by a Successor, within three business days prior
to a Change in Control, of this Agreement and its or the
Corporation's continuing obligations hereunder (or where the
Corporation does not have at least three business days
advance notice that a Person may become a Successor, within
one business day after having notice that such Person may
become or has become a Successor); or
(i) any purported termination of the Executive's
employment which is not in accordance with the terms of
this Agreement.
4. ADDITIONAL DEFINITIONS
For purposes of this Schedule "C", the following terms
shall have the meanings ascribed to them:
"Election Contest" means a solicitation with respect to
the election or removal of directors that is subject to the
provisions of Rule 14a-11 of the 1934 Act.
"Employee Benefit Plan" has the meaning ascribed to
such term in ERISA Section 3(3).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended and as the same may be amended from time
to time.
"Incumbent Board" means the Board of Directors of the
Corporation as constituted at any relevant time.
"1934 Act" means the Securities Exchange Act of 1934,
as amended and as the same may be amended from time to time.
"Person" has the same meaning as such term has for
purposes of Sections 13(d) and 14(d) of the 1934 Act.
"Proxy Contest" means the solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors of the Corporation.
"Subsidiary" means, with respect to any corporation,
any business entity of which a majority of its voting power or
its equity securities or equity interests is owned, directly or
indirectly, by such corporation.
"Successor" means any Person that succeeds to, or has
the practical ability to control (either immediately or with the
passage of time), the Corporation's business directly, by merger
or consolidation, or indirectly, by purchase of the Corporation's
voting securities or all or substantially all of its assets.
"Surviving Company" means the business entity that is a
resulting company following a merger, consolidation, share
exchange, division or other reorganization of or relating to the
Corporation.
Exhibit 10.7
REPRESENTATION AGREEMENT
This agreement dated as of January 1, 1997 between ABC New Media
Sales ("ABC"), a division of ABC, Inc., and Food Court
Entertainment Network, Inc. ("you"), shall set forth the terms
and conditions pursuant to which you shall appoint ABC as the
exclusive advertising sales representative for Cafe USA.
For good and valuable consideration the receipt of which is
hereby acknowledged, you and ABC hereby agree as follows (the
"Agreement"):
1. APPOINTMENT
(a) Subject to the terms and conditions of this Agreement,
you hereby appoint ABC as Cafe USA's exclusive
advertising sales representative in all forms of
television media (the "Media") throughout the World
(the "Sales Area").
(b) You hereby grant to ABC the power, either in your name,
on your behalf, or in ABC's name, to take and do such
action, and to make, sign, execute, acknowledge,
deliver, and record any and all instruments or
documents which ABC may deem necessary to perform the
services relating to the representation of Cafe USA in
the sale of advertising in the Media provided such
instruments or documents have been approved by you or
are similar to previous instruments or documents
approved by you. All advertising hereunder shall be
subject to the standards and policies of Cafe USA,
which standards and policies specifically exclude the
advertising of spirits, tobacco, political, religious
and birth control advertising.
(c) All third parties purchasing advertising hereunder
pursuant to subparagraph (b) above shall be subject to
your credit approval, which approval shall be based on
pricing and terms and conditions previously approved by
you and provided to ABC on or before the effective date
hereof.
(d) In the event you decide to sell television advertising
outside of Cafe USA or if you decide to sell audio-
visual advertising in any other media ("Additional
Media,"), you agree that ABC shall have the right to
sell the Additional Media pursuant to the terms
hereunder provided you agree, in good faith, that ABC
is suitable to sell such Additional Media.
2. SERVICES
ABC hereby accepts the appointment under Paragraph 1 hereof
and agrees to solicit, promote, negotiate and enter into
agreements with respect to the sale of Cafe USA commercial
advertising inventory in the Media (the "Commercial
Inventory"). ABC's will make the New Media sales force
available to perform the services described in the foregoing
sentence, which sales force is currently comprised of one
(1) Director and three (3) account executives in New York,
one (1) manager in Chicago and one (1) manager in Los
Angeles. The Director shall keep the Cafe USA Sales Manager
apprised of all sales efforts hereunder. ABC agrees to
discuss with you any change in the assignment of the
foregoing sales force prior to making any such change.
3. TERM
(a) The term of this Agreement shall commence on the date
hereof and shall continue in effect for a period of six
(6) years (each twelve-month period, beginning with the
foregoing commencement date, shall be referred to
herein as a "Contract Year").
(b) Notwithstanding subparagraph (a) above, ABC shall have
the right to terminate this Agreement upon ninety (90)
days written notice for a period of thirty (30) days
after the end of the second Contract Year and each
Contract Year thereafter, and you shall have the right
to terminate this Agreement upon thirty (30) days
written notice for a period of thirty (30) days after
the end of (i) the second Contract Year if less than
sixty percent (60%) of the Commercial Inventory has
been sold during such second Contract Year and (ii) the
fourth Contract Year if less than seventy-two percent
(72%) of the Commercial Inventory has been sold during
such fourth Contract Year.
(c) Commencing at least six (6) months prior to the
expiration of the term hereof, you and ABC agree to
negotiate exclusively for a period of ninety (90) days
(the "Negotiation Period"), with respect to the terms
and conditions on which ABC may continue as your
exclusive advertising sales representative as described
hereunder. It is expressly understood that you shall
not have any discussions or negotiations whatsoever
with any third party at any time during the Negotiating
Period with respect to the advertising sales
representation of Cafe USA.
4. CONSIDERATION
(a) Commission:
In consideration of the services to be performed by ABC
described in Paragraph 2 hereof, you shall pay to ABC
the following commission on the "Net Advertising
Revenue," as such term is defined in subparagraph (c)
below (the "Commission") during each Contract Year
hereof:
(i) On the first Fifteen Million Dollars ($15,000,000)
of Net Advertising Revenue, fifteen percent (15%);
(ii) On Net Advertising Revenue greater than Fifteen
Million Dollars ($15,000,000) and less than or
equal to Thirty Million Dollars ($30,000,000), ten
percent (10%); and
(iii) On Net Advertising Revenue greater than Thirty
Million Dollars ($30,000,000), seven and one-half
percent (7.5%).
(b) Guaranteed Commission:
You hereby agree to pay ABC the one-time amount of One
Hundred Thousand Dollars ($100,000). ABC hereby
acknowledges the receipt of Seventy-Five Thousand
Dollars ($75,000) of such one-time amount and you agree
to pay the balance thereof upon the full execution
hereof. The foregoing amount shall be considered
guaranteed commission and you shall be entitled to
recover such amount from the first One Hundred Thousand
Dollars ($100,000) of Commissions due to ABC pursuant
to subparagraph (a) above during the first year hereof.
(c) Net Advertising Revenue:
"Net Advertising Revenue," as used herein, shall be
defined as all monies actually received by you with
respect to any of the Commercial Inventory sold or
placed by either you or ABC during the term hereof and
for a period of one (1) year thereafter, less monies
credited for refunds and less actual agency commissions
paid with respect to such Commercial Inventory.
(d) Collections:
You shall be responsible for all billing and the
collection of all amounts due in connection with the
sales of the Commercial Inventory and ABC shall have no
liability therefor.
(e) Reports and Payment:
At the end of each calendar month during the term
hereof, you shall each deliver ABC a statement setting
forth the name of each advertiser that purchased
Commercial Inventory, the gross revenue and Net
Advertising Revenue received from such advertiser and
the Commissions due ABC with respect to such calendar
month. You agree to pay any and all Commissions due
ABC within ten (10) days after the completion of each
such month based upon the total Net Advertising Revenue
derived during such month. ABC shall have the right to
audit and examine your books, at its own expense, with
respect to the Commercial Inventory in this Agreement,
during reasonable business hours upon five (5) days
notice no more than twice each Contract Year.
(f) ABC Commercial Spots
You agree to provide to ABC, its Parent, or any
entities related thereto (the "Related Entities") one
(1) thirty-second (-:30) commercial spot for use by any
of the Related Entities, which spot shall run on Cafe
USA during each standard advertising spot cycle. In
addition to the foregoing, you agree to provide the
Related Entities with a twenty percent (20%) discount
on all additional commercial spots purchased by any of
the Related Entities.
5. COVENANT NOT TO COMPETE
ABC agrees that during the term hereof and for a period of
one (1) year thereafter, ABC shall not engage in or
represent a third party in the field of advertiser supported
television solely distributed within shopping malls;
provided, however, the foregoing restriction shall not apply
in the event you terminate this Agreement pursuant to
subparagraph 3(6) above or in the event of a termination of
this Agreement due to a breach by you. Notwithstanding
anything to the contrary contained herein, nothing shall
prevent ABC from providing sales services and representation
for Channel M.
6. PROMOTION/RESEARCH
(a) You agree to use your best efforts to promote and
advertise Cafe USA in a manner commensurate with
television programmers, distributors, and exhibits in
commercial sponsored television. All costs and
expenses with respect to the foregoing promotion and
advertising shall be incurred by you and you agree to
consult with ABC with respect to such promotion and
advertising. ABC shall have the right, but shall have
no obligation, to provide additional promotional and
advertising support at its expense.
(b) You agree to perform and incur all cost for all
reasonable research necessary for sales purposes, which
research shall include, but not be limited to, (i) two
(2) Nielsen studies per Contract Year to verify
compliance and traffic and (ii) volumetric studies as
needed (approximately five (5) per contract year). You
agree to consult with ABC with respect to such research
and to provide ABC with the results of such research on
a timely basis throughout the term hereof.
7. INDEMNIFICATION
(a) You agree to indemnify and hold ABC, ABC, Inc. and its
affiliates and subsidiaries and their officers,
directors, and agents harmless from and against any and
all claims, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) arising out of
your performance hereunder, your performance or failure
to perform in connection with your obligations arising
out of; agreements entered into by ABC on your behalf
provided such agreements have been approved by you or
are similar to previous agreements approved by you; the
breach of any representation and/or warranty hereunder,
or any other claim arising out of this Agreement. ABC
shall promptly notify you by telecopy, receipt
confirmed, or registered mail of any claim or suit
which may be filed and shall not admit any liability or
compromise with respect to any suit without first
obtaining your consent in writing, which consent shall
not be unreasonably withheld or delayed.
(b) ABC agrees to indemnify and hold you, your parent and
its affiliates and subsidiaries and their officers,
directors, and agents harmless from and against any and
all claims, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) arising out of
ABC's performance hereunder or ABC's breach of any
representation and/or warranty hereunder. You shall
promptly notify ABC by telecopy, receipt confirmed, or
registered mail of any claim or suit which may be filed
and shall not admit any liability or compromise with
respect to any suit without first obtaining ABC's
consent in writing, which consent shall not be
unreasonably withheld or delayed.
8. MISCELLANEOUS
(a) Amendment; Binding Agreement; Assignment
This Agreement shall be binding upon and shall inure to
the benefit of the undersigned parties and their
respective successors and permitted assigns. No
assignment of this Agreement, whether by operation of
law or otherwise, shall be made by either party.
Notwithstanding the foregoing, (i) ABC shall have the
right to assign this Agreement and all its rights and
obligations hereunder to any party acquiring ABC's
business or to any entity controlling it, controlled by
it or under common control with it and (ii) you shall
have the right to assign this Agreement, and all your
rights and obligations hereunder, provided you obtain
ABC's prior written approval, which approval shall not
be unreasonably withheld.
(b) Independent Contractors:
You and ABC are independent contractors and nothing
herein creates the relationship of principal and agent,
employer and employee, partners or joint venturers.
You agree that all contracts, express or implied, of
employment for your personnel shall be made by you as
principal and that there will be no liability
whatsoever on ABC's part with respect to such
contracts.
(c) Waiver:
The failure of either party at any time to require
performance by the other party of any provision hereof
shall in no way affect the full right to require such
performance at any time thereafter, nor shall the
waiver by either party of a breach of any provision
hereof be taken or held to be a waiver of any
succeeding breach of such provision or as a waiver of
the provision itself.
(d) Separability:
If any provision of this Agreement or the application
thereof to any person or circumstances shall to any
extent be held to be invalid or unenforceable, the
remainder of the Agreement, or the application of such
provisions to persons or circumstances as to which it
is not held to be invalid or unenforceable, shall not
be affected thereby, and each provision shall be valid
and be enforced to the fullest extent permitted by law.
(e) Entire Agreement:
This Agreement contains the entire understanding of the
parties and supersedes all previous verbal and written
agreements on the subject thereof.
(f) Governing Law:
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
If the foregoing is in accordance with your understanding please
indicate your consent by signing in the space provided below.
ACCEPTED AND AGREED: Very truly yours,
FOOD COURT ENTERTAINMENT ABC NEW MEDIA SALES
NETWORK, INC.
By /s/ James N. Perkins By /s/ John Watkins
James N. Perkins, President John Watkins, President
Chief Executive Officer
Exhibit 10.8
December 16, 1996
Food Court Entertainment Network, Inc.
220 East 42nd Street
New York, NY 10017
Attention: Mr. James N. Perkins
President and Chief Executive Officer
Gentlemen:
1. This is to confirm the engagement of Furman Selz LLC
("Furman Selz") to render financial advisory and investment
banking services to Food Court Entertainment Network, Inc. (the
"Company") concerning the strategic development of the Company's
business, including advice with respect to potential
acquisitions, divestitures, joint ventures, capital markets
transactions or other potential corporate transactions or any
combination of such transactions.
2. As compensation for the services rendered by Furman
Selz hereunder, upon the execution of this engagement letter
Furman Selz shall receive warrants (the "Warrants") to purchase
Series A Common Stock representing 5.0% of the outstanding
Series A and Series B Common Stock of the Company (collectively,
the "Common Stock"). The Warrants shall have a term of five
years from the date of this Agreement. The amount of shares of
Common Stock underlying the Warrants shall be determined based on
the shares outstanding as of the date of execution of this
Agreement and shall, in any event, include shares being issued
pursuant to the Company's private placement (the "Private
Placement") as described in the Private Placement Memorandum
dated November, 1996. The initial exercise price of the Warrants
shall be $2.00 per share of Series A Common Stock. The Warrants
shall adjust to maintain the 5.0% percentage ownership in the
event of conversion or exercise of any derivative securities of
the Company (including, but not limited to, the Company's Class A
Warrants and Class B Warrants) outstanding as of the date of the
execution of this Agreement, including derivative securities
being issued pursuant to the Private Placement. In the event of
such an adjustment, the Company will issue to Furman Selz new
Warrants ("New Warrants") exercisable for the number of shares of
Series A Common Stock necessary to maintain the 5.0% percentage
ownership. The New Warrants will be the same in all respects as
the Warrants, except that to the extent they become issuable
because of the exercise of currently outstanding derivative
securities, they will be initially exercisable at the same
exercise price as such derivative securities. The exercise price
of the Warrants and the New Warrants and the number of shares of
Common Stock underlying the Warrants and the New Warrants shall
be subject to adjustment based on the same terms as the
securities issued pursuant to the Private Placement (as detailed
in Section 9 of the Company's Warrant Agreement as part of the
Subscription Agreement as Exhibit (vii) to the Company's Private
Placement Memorandum dated November, 1996). The Warrants will
provide that they may be exercised for cash or by delivery of
Common Stock issuable upon exercise having a fair market value
equal to the aggregate exercise price applicable to the Common
Stock with respect to which the Warrants are exercised. Also
Furman Selz will be entitled to similar registration rights to
the holders of the Units issued pursuant to the Private
Placement.
3. Advisory services related to specific transactions will
be provided pursuant to a separate engagement letter for such
transactions for which the Company shall pay Furman Selz a
reasonable and customary fee to be mutually negotiated at the
time of engagement for each such transaction in addition to the
retainer referred to above. Furman Selz will have a right of
first refusal (subject to the right of first refusal granted to
D.H. Blair Investment Banking Corp. ("D.H. Blair") pursuant to
the Agency Agreement between D.H. Blair and the Company dated
November 14, 1996) for a period of two years after the date
hereof to act as the Company's investment banker or financial
advisor for any such transaction. Accordingly, during that
period, before engaging an investment banker or financial advisor
for any such transaction, the Company will notify Furman Selz in
writing of the proposed terms offered by such investment banker
or financial advisor for any such engagement; if Furman Selz
fails to accept such terms in writing within 30 days of its
receipt of such notification (or in the case of a potential
financial advisory assignment, within 10 days of its receipt of
such notification but only in the case that the Company notifies
Furman Selz in writing of such 10 day requirement), it will have
no further right with respect to the engagement. If, thereafter,
any material or economic terms proposed for the engagement are
materially modified, the Company will adopt the same procedure
with respect to the modified terms as is provided in the
preceding sentence with respect to the initially proposed terms.
It shall be the obligation of the Company to have the right of
first refusal granted to D.H. Blair amended to allow the Company
to comply with the right of first refusal granted to Furman Selz
under this Agreement and it shall be the obligation of Furman
Selz to provide reasonable assistance to the Company in its
negotiations with D.H. Blair by having Furman Selz
representatives attend relevant meetings with D.H. Blair as
reasonably requested by the Company and allowing D.H. Blair to
review relevant documents delivered to the Company by Furman
Selz; however, the conduct of Furman Selz with respect to such
obligations shall not release the Company from its obligations in
this regard.
4. In addition to any fees payable hereunder, Furman Selz
shall be reimbursed by the Company for its reasonable out-of-
pocket expenses (including professional fees, except those over
$1500 in each instance which expenses require prior Company
approval, and disbursements) incurred during the period of its
engagement hereunder, with respect to the services provided by
it.
5. This engagement shall continue in effect until June 30,
1998 except as otherwise provided in paragraph 3 and except that
the provisions of paragraphs 2 through 7 shall survive the term
of this engagement. In the event that Michael Garin shall cease
to be an employee or shall be unable to perform his duties as an
employee of Furman Selz, the Company shall have the right to
terminate this Agreement. In the event of such termination, an
amount Warrants issued pursuant to paragraph 2 of this Agreement
shall be canceled in the same proportion as the time remaining
under the term of this Agreement bears to the total amount of
time under this Agreement, and fees to be paid for services
provided pursuant to any engagement letter executed pursuant to
paragraph 3 of this Agreement, including fees to be paid pursuant
to any engagement for which such engagement has not been
completed, shall be negotiated in good faith by all parties
involved.
6. The Company agrees to indemnify and hold Furman Selz
harmless from and against any losses, claims, damages or
liabilities (or actions, including security holder actions, in
respect thereof) related to or arising out of Furman Selz'
engagement hereunder or its role in connection herewith, and will
reimburse Furman Selz for all expenses (including counsel fees)
as they are incurred by Furman Selz in connection with
investigating, preparing for or defending any such action or
claim, whether or not in connection with pending or threatened
litigation in which Furman Selz is a party. The Company will
not, however, be responsible for any claims, liabilities, losses,
damages or expenses which are finally judicially determined to
have resulted primarily from the willful misconduct or gross
negligence of Furman Selz. The Company also agrees that Furman
Selz shall not have any liability (whether direct or indirect, in
contract or tort or otherwise) to the Company for or in
connection with such engagement, except for any such liability
for losses, claims, damages, liabilities or expenses incurred by
the Company that result primarily from the willful misconduct or
gross negligence of Furman Selz. In the event that the foregoing
indemnity is unavailable (except by reason of the willful
misconduct or gross negligence of Furman Selz) or insufficient,
then the Company shall contribute to amounts paid or payable by
Furman Selz in respect of its losses, claims, damages and
liabilities in such proportion as appropriately reflects the
relative benefits received by, and fault of, the Company and
Furman Selz in connection with the matters as to which such
losses, claims, damages or liabilities relate and other equitable
considerations; provided, however, that in no event shall the
amount to be contributed by Furman Selz exceed the amount of the
fee actually received by Furman Selz. The foregoing shall be in
addition to any rights that Furman Selz or any other indemnified
person may have at common law or otherwise and shall extend to
and inure to the benefit of any director, officer, employee,
agent or controlling person of Furman Selz. The Company hereby
consents to personal jurisdiction, service and venue in any court
in which any claim which is subject to this agreement is brought
against Furman Selz or any other person entitled to
indemnification or contribution hereunder.
7. This Agreement may not be amended or modified except in
writing and shall be governed by and construed in accordance with
the laws of the State of New York.
8. Please confirm that the foregoing is in accordance with
your understandings and agreements with Furman Selz by signing
and returning to us the duplicate of this letter enclosed
herewith.
Very truly yours,
FURMAN SELZ LLC
By /s/ Michael N. Garin
Michael N. Garin
Senior Managing Director
CONFIRMED AND AGREED:
FOOD COURT ENTERTAINMENT, INC.
By /s/ James N. Perkins
James N. Perkins
President and Chief Executive
Officer
Exhibit 10.11
October 24, 1996
Mr. Stephen G. Bowen
1 West 85th Street
Apartment 4B
New York, NY 10024
Dear Steve:
On September 26, 1996, I forwarded to you a letter setting
forth an outline of the terms and conditions of your resignation
as President and Chief Executive Officer of Food Court
Entertainment Network, Inc. (the "Company" or "Food Court").
After review with your advisors' and in particular your counsel
James Garrity, Esquire, we have agreed to the following, which
replaces and supersedes that letter:
Date - The October 18, 1996 date set forth in the original
letter for entering into this Agreement and signing the attached
waiver and release is extended to the date of execution by you of
this letter and the attached release.
Severance Pay - You will receive severance pay consisting of
52 weeks salary ($175,000), less withholding. Severance will be
paid weekly, beginning on October 1, 1996.
Restriction on Series B Escrow Stock - All of the Series B
Common Stock issued to you and which are still subject to
forfeiture pursuant to your Employment Agreement dated
October 25, 1993, will be released from the forfeiture provisions
effective on the date of your formal resignation. A portion of
your Series B Common Stock continues to be subject to the Escrow
Agreement you signed with the Company in October, 1993.
In the event the Escrow Agreement for the Series B Common
Stock is modified to be more favorable or the right to "piggy-
back" or otherwise register the Series B Common Stock is offered
to any one of the holders of any Series B Common Stock, the
modification or right will include all or such portion (in the
same percentage as applied to Robert Lenz) of your Series B
Common Stock.
Waiver and General Release - You agree to sign simultaneous
with this letter agreement the Waiver and General Release form
attached to this letter.
Health and Disability Benefits - You will continue to
receive health and hospitalization coverage as provided by the
Company to its management for six months from October 1, 1996;
provided, however, that you pay such portion of the benefits as
paid by senior management employees and the Company's obligation
to provide such benefits will terminate when you obtain full-time
employment.
Stock Options - As consideration for executing the attached
Waiver and General Release, you will be granted 100,000 options
to purchase 100,000 shares of Series A Common Stock. You will
have five years from the date of grant to exercise the options.
The exercise price of the options will be the lower of the
average bid price for the 30 business days preceding the date of
the final closing on the Private Placement through D.H. Blair
Investment Banking Corporation as described in a certain letter
of intent dated October 7, 1996 or the closing bid price of the
Series A stock on the day before the final closing. The stock
options will only be granted and issued provided you execute this
letter and the attached Waiver and General Release.
Survival of Certain Contract Terms - Your Employment
Contract provided for certain proprietary information to be
maintained as confidential as the exclusive property of the
Corporation (Section 12), a non-disclosure provision (Section 13)
and a restrictive covenant (Section 14). You agree and
understand that the foregoing provisions of your Employment
Contract survive termination of your employment and your
Employment Contract with the Company and that you are under a
continuous duty to abide by the terms, conditions and covenants
of the foregoing sections of your Employment Contract.
Indemnification of Liability - The Certificate of
Incorporation of the Company (Article Fifth of the Amended
Certificate) provides for indemnification of Directors as
permitted by the Delaware general corporation law. The
limitation of liability set forth in Article Fifth of the
Certificate of Incorporation shall survive your resignation and
be applicable to any claims or actions which may be made against
you while you were a director of the Corporation.
Directors and Officers Liability Insurance - The Company
will continue to provide coverage for you in connection with your
actions while an officer and director of the Company in the
amounts provided for then current officers and directors of the
Company.
Public Statements - Each of you and the Company agrees that
no public statements will be made without the prior approval of
the other, provided however, that the approval will not be
reasonably withheld.
Binding Effect - The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and
to their respective heirs, beneficiaries, legal representatives,
successors and assigns.
Due Authorization - The Company and the person signing below
on its behalf have been duly and lawfully authorized to so bind
the Company.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
On behalf of our entire organization, I want to thank you
for the valuable contributions you have made during your
employment with Food Court Entertainment Network, Inc.
Sincerely,
FOOD COURT ENTERTAINMENT NETWORK, INC.
By: /s/ Robert H. Lenz
Robert H. Lenz
Chairman
Agreed to and Accepted
/s/ Stephen G. Bowen
Stephen G. Bowen
Dated: 10/24/96
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement on Form S-3 (Registration No. 333-21077)
of our report dated February 12, 1997 on the financial statements
included in the annual report on Form 10-KSB of Food Court
Entertainment Network, Inc. as at and for the year ended
December 31, 1996.
/s/ Richard A. Eisner & Company, L.L.P.
New York, New York
April 14, 1997
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0
0
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</TABLE>
