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, 1997
[ ] 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:
$20,000.
As of April 23, 1998, there were outstanding 13,642,082
shares of Series A Common Stock and 1,014,309 Shares of Series B
Common Stock. The aggregate market value of Series A Common
Stock held by non-affiliates was approximately $100,000.(1)
Series B Common Stock had no market value and must be converted
to Series A to be sold or transferred, except to prior
management.
________________
(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 April 20, 1998. 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>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
THE COMPANY
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 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 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Restructure of the Company
The Company, despite its best efforts, has been unable
to sell its Cafe USA advertising time to advertisers. The
Company has, during 1997 and through January 1998, sought a joint
venture partner or strategic investor to advance the business
concept. However, management was unable to attract a suitable
investor or partner.
Management began testing alternative methods of
salvaging the remaining value of the Company for its
shareholders. In order to retain value in the business
enterprise, the Company maintained the operation of its Cafe USA
network in 20 malls and continued to supply updated programming
to the malls each week. The Company sought a purchaser for its
assets and Cafe USA television network and concurrently began to
look for operating companies which were seeking a NASDAQ listed,
publicly traded company in which to operate, finance and grow an
existing operating business enterprise.
On April 23, 1998, the Company entered into a Purchase
and Sale Agreement with Prime Spot Media USA, Inc. ("Prime Spot
USA"), a wholly-owned subsidiary of Prime Spot Media, Inc., a
British Columbia Company, providing for the sale of substantially
all of the assets of the company for $450,000. Upon signing the
agreement, Prime Spot USA deposited the entire purchase price in
escrow with its legal counsel. Simultaneous with the execution
of the Purchase and Sale Agreement,Prime Spot USA and the Company
entered into a subcontract (the "Subcontract") which provides
that Prime Spot USA will, on behalf of the Company, operate its
Cafe USA network in all 20 Food Courts, maintain all equipment
and provide programming for the television network. In
consideration for Prime Spot USA management services, Prime Spot
is entitled to all net revenues from the sale of advertising less
payments to malls pursuant to the Company's contracts with each
individual mall. Closing will occur at such time as the Company
obtains necessary approval to transfer title to the assets.
The Company is presently seeking to acquire or merge
with an operating business which desires to be a publicly-held
company. There is no assurance that the Company will be
successful in completing such a transaction. On April 17, 1998,
the Company received a notice from NASDAQ, that because it failed
to meet several of the required NASDAQ minimum maintenance
standards, effective April 24, 1998, its securities would no
longer be listed on the NASDAQ Small Cap Market. The Company
appealed the delisting and, as a result of the appeal, the
delisting was automatically stayed. A hearing is scheduled for
May 28, 1998. If the Company fails to be successful in its
appeal, it will lose its NASDAQ Small Cap listing. Unless the
Company can negotiate a transaction with an operating company
prior to the date of the appeal hearing, it is likely the Company
will lose its NASDAQ listing. Even if the Company is successful
in concluding a transaction with an operating business prior to
the date of the appeal hearing, there is no assurance the Company
will be able to maintain its NASDAQ Small Cap listing.
In the event the Company is unable to acquire or merge
with an operating business, the Company will either be required
to seek protection from its creditors or negotiate its
outstanding liabilities and dissolve the company.
The Exchange Offer
On August 25, 1997, the Company offered to exchange
0.6 shares of Series A Common Stock for each issued and
outstanding Class A Warrant and 0.4 shares of Common Stock for
each issued and outstanding Class B Warrant (the "Exchange
Offer"). The Exchange Offer closed on October 27, 1997. As a
result of the Exchange Offer, 7,031,814 Class A Warrants were
exchanged for 4,219,088 shares of Series A Common Stock and
5,719,347 Class B Warrants were exchanged for 2,287,739 shares of
Series A Common Stock. The purpose of the Exchange Offer was to
decrease the dilutive effect of the large number of outstanding
Class A and Class B Warrants on the Company's capital structure,
which management believed was an impediment to obtaining
additional financing or entering into strategic alliances. The
Company believes that the conversion of Warrants to Common Stock
under the Exchange Offer has given the Company the opportunity to
restructure its business and possibly retain some value of the
investment of its shareholders. There remains issued and
outstanding 1,762,000 Class A Warrants and 1,382,000 Class B
Warrants.
Employees
The Company currently has 2 full time employees,
including 1 executive officer. The Company entered into an
employment contract for a term of three years effective
October 1, 1996 with its Chief Executive Officer. See
"Management - Employment Agreements."
ITEM 2 - PROPERTY
Effective April 30, 1998, the Company has terminated
its lease for office space for its executive and administrative
staff at the 220 East 42nd Street, 16th Floor, New York, New York
10017 but is remaining on the premises on a month-to-month basis,
as needed.
ITEM 3 - LEGAL PROCEEDINGS
An action has been filed against the Company by Blank
Rome Comisky & McCauley, LP for non-payment of legal fees in the
amount of $30,127.93. The liability is and has been reflected in
the Company's financial statement.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Series A Common Stock, Class A Warrants,
Class B Warrants and Units (one share of Series A Common Stock
one Class A Warrant and one Class B Warrant) have been included
on the NASDAQ Small Cap Market under the symbols FCENA, FCENW,
FCENZ, and FCENU, respectively, since October 11, 1995. The
Company's Series B Common Stock is not publicly traded and is
held exclusively by former management of the Company. As a
result of the completion of the Exchange Offer on October 26,
1997, in which approximately 85% of the outstanding Class A
Warrants and Class B Warrants were exchanged for Series A Common
Stock, the trading volume in the Class A and Class B Warrants was
substantially reduced. The Company therefore requested that
NASDAQ delist its Class A Warrants (FCENW) and Class B Warrants
(FCENZ). Similarly, the number of Units available to be traded
was substantially reduced upon completion of the Exchange Offer.
As of April 16, 1998, the Company requested that NASDAQ delist
its Units (FCENU). Accordingly, as of the date hereof, only
shares of the Company's Series A Common Stock (FCENA) are being
traded on the NASDAQ Small Cap Market. 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 Small Cap Market for the last quarter of
1995, each quarter of 1996 and 1997 and for the period from
January 1, 1998 to March 31, 1998. 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
1998
First Quarter ............... $ 1/8 $ 1/64
1997
First Quarter ............... 6 7/8 2 1/4
Second Quarter .............. 4 5/8 2
Third Quarter ............... 2 3/32 5/8
Fourth Quarter .............. 5/8 1/64
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
1998
First Quarter ............... 1/16 1/64
1997
First Quarter ............... 4 3/16 1 1/8
Second Quarter .............. 1 3/4 7/8
Third Quarter ............... 1 5/16 1/4
Fourth Quarter .............. 5/16 1/64
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
1998
First Quarter ............... N/A N/A
1997
First Quarter ............... 1 3/4 1/2
Second Quarter .............. 1 15/32
Third Quarter ............... 19/32 1/8
Fourth Quarter .............. 1/8 1/32
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
1998
First Quarter ............... N/A N/A
1997
First Quarter ............... 1 3/4 1/2
Second Quarter .............. 1 15/32
Third Quarter ............... 19/31 1/8
Fourth Quarter .............. 1/8 1/3
1996
First Quarter ............... 1 1/2 1/2
Second Quarter .............. 2 1/2
Third Quarter ............... 2 1/8 1 1/8
Fourth Quarter .............. 2 7/8
1995
Fourth Quarter .............. 1 1/2 1/2
</TABLE>
Holders
On May 1, 1998 there were 402, 28 and 24 holders of
record of Series A Common Stock, Class A Warrants and Class B
Warrants, respectively and 6 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 preservation of the Company's assets.
Recent Cancellations of Certain Warrants and Unit Purchase
Options
D.H. Blair Investment Banking Corp. ("D.H. Blair")
received as part of its compensation for investment banking
services provided to the Company in connection with its IPO on
October 15, 1995, options to purchase Units ("Unit Purchase
Options") at an exercise price of $6.50. D.H. Blair received an
additional 999,000 Unit Purchase Options with an exercise price
of $3.15 in connection with the Company's Private Placement of
Units on November 14, 1996. Effective December 30, 1997,
D.H. Blair canceled and terminated all of its Unit Purchase
Options.
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 was to 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. On or about August 1, 1997, Furman
Selz canceled and terminated all of its Warrants.
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. Throughout 1997, the Company
expanded its network into nine new malls and continued to produce
new programming for the Cafe USA Network. At the end of 1997,
the Company continued with production of programming but ceased
further expansion. The Company, which had been a development
stage company, is no longer operating. Accordingly, the Company,
while maintaining the operation of its Cafe USA network in twenty
malls and continuing to supply updated programming to the malls
each week, sought a purchaser for its assets. On April 23, 1998
the Company entered into an agreement to sell substantially all
of its assets for $450,000.
As a result of the above, effective December 31, 1997,
the Company changed its basis of accounting from the going
concern basis to a liquidation basis. In connection with such a
change in accounting basis, the Company has reduced the carrying
value of its assets by approximately $2,017,000 to reflect their
sale price and has accrued an obligation of $263,000 under an
existing employment agreement. As a result, at December 31,
1997, the Company had net liabilities in liquidation of $305,000.
The Company had an accumulated deficit immediately preceding its
change in basis of accounting of $21,877,000.
The Company has received only limited revenues. The
Company's principal expenses from its inception through
December 31, 1997 have been salaries and payments to consultants
($8,221,000), production costs for Cafe USA programming
($4,187,000) and advertising/marketing expenses ($1,513,000).
The Company invested approximately $4,013,000 in capital
equipment through December 31, 1997. Additional funds were spent
substantially on general and administrative costs and financing
fees and expenses. The Company's net liabilities in liquidation
have continued to increase.
The Company has entered into a Purchase and Sale of
Assets Agreement on April 23, 1998 to sell all of its assets in
connection with the Cafe USA Network to Prime Spot USA for
$450,000. The Company intends to close on the transaction at
such time as it obtains necessary corporate approval to do so.
The Company is seeking to merge with or acquire an operating
business which is seeking to become a publicly-held entity. If
it fails to do so, the Company will be required to seek
protection from its creditors or negotiate its outstanding
liabilities and dissolve the Company.
Liquidity and Capital Resources
As of December 31, 1997, the Company had net
liabilities in liquidation of $305,000. The Company had financed
its operation 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 an employment contract with one
executive officer which provides for salary in 1998 of
approximately $150,000. The Company has terminated its lease
agreement for its offices. The Company remains on a month-to-
month basis at a rental to be negotiated.
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. The
entire remaining unpaid balance of the $200,000 was due
December 1, 1997. Interest has accrued on such obligation at the
prime rate commencing January 1, 1996 and was to be paid
quarterly thereafter. The principal balance plus interest as of
March 31, 1998 was $240,000. 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 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.
ITEM 7 - FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Food Court Entertainment Network, Inc.
Queens, New York
We have audited the accompanying statement of net liabilities in
liquidation of Food Court Entertainment Network, Inc. as of
December 31, 1997, and the related statement of changes in net
assets (liabilities) in liquidation (each on a liquidation basis)
on December 31, 1997. In addition, we have audited the
statements of operations, changes in stockholders' equity and
cash flows (each on a going concern basis), for the years ended
December 31, 1997 and 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.
As discussed in Note A to the financial statements, subsequent to
December 31, 1997 the Company entered into an agreement pursuant
to which it will sell substantially all of its assets and has
ceased its operations. As a result, the Company has changed its
basis of accounting effective as of December 31, 1997 from a
going concern basis to a liquidation basis.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the net liabilities in
liquidation of Food Court Entertainment Network, Inc. as of
December 31, 1997, the changes in its net assets (liabilities) in
liquidation on December 31, 1997 and the results of its
operations and its cash flows for the years ended December 31,
1997 and 1996 in conformity with generally accepted accounting
principles applied on the bases described in the preceding
paragraph.
Richard A. Eisner & Company, LLP
New York, New York
April 1, 1998
With respect to Note A
April 23, 1998
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statement of Net Liabilities in Liquidation
December 31, 1997
ASSETS
Cash and cash equivalents $ 284,000
Prepaid rent 21,000
Fixed assets, at realizable value 450,000
755,000
LIABILITIES
Accounts payable 144,000
Accrued payroll 75,000
Other accrued expenses 344,000
Due to former employee 234,000
Obligation under employment contract 263,000
Net (liabilities) in liquidation $ (305,000)
Statement of Changes in Net Assets (Liabilities)
in Liquidation On December 31, 1997
Net assets in liquidation - beginning $ 1,975,000
Write down of fixed assets to estimated
realizable value (2,017,000)
Accrual of obligation under employment contract (263,000)
Net (liabilities) in liquidation - end $ (305,000)
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Operations
(going concern basis)
Year Ended December 31,
1997 1996
Advertising revenue $ 20,000 $ 122,000
Operating expenses:
Sales and marketing 601,000 561,000
Programming 1,227,000 1,314,000
Network costs 1,873,000 1,229,000
General and administrative
expenses 2,599,000 2,339,000
Development costs 1,104,000
6,300,000 6,547,000
Operating loss (6,280,000) (6,425,000)
Other (income) expenses:
Interest expense 16,000
Interest and other (income) (93,000) (171,000)
(93,000) (155,000)
Net loss $(6,187,000) $(6,270,000)
Net loss per share - basic and
diluted $ (.77) $ (1.32)
Number of common shares used in
computation 8,081,000 4,739,000
<PAGE>
<TABLE>
<CAPTION>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Changes in Stockholders' Equity
(going concern basis)
Common Stock Additional Series B
Series A Series B Paid-in Accumulated Treasury Stock
Shares Amount Shares Amount Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 3,794,000 $ 38,000 1,146,000 $11,000 $15,076,000 $ (9,420,000) (20,000) $0 $ 5,705,000
Common stock issued as
consideration for
programming 250,000 2,000 698,000 700,000
Issuance of stock and
warrants for cash in
October at $3.15 per share
in connection with private
placement (less expenses
of $1,341,000) 2,857,000 29,000 7,630,000 7,659,000
Conversion of B shares 13,000 (13,000) 0
Granting of common B shares
to former employee as a
form of settlement 28,000 10,000 28,000
Issuance of warrants as
consideration for
consulting services 328,000 328,000
Net loss for the year (6,270,000) (6,270,000)
Balance - December 31, 1996 6,914,000 69,000 1,133,000 11,000 23,760,000 (15,690,000) (10,000) 0 8,150,000
Exercise of warrants 3,000 15,000 15,000
Conversion of B shares 119,000 1,000 (119,000) (1,000) 0
Issuance of A shares as
consideration for
consulting services 100,000 1,000 149,000 150,000
Issuance of A shares in
connection with exchange
of Class A and B warrants 6,506,000 65,000 (65,000) 0
Cancellation of warrants (153,000) (153,000)
Net loss for the year (6,187,000) (6,187,000)
Balance - December 31, 1997 13,642,000 $136,000 1,014,000 $10,000 $23,706,000 $(21,877,000) (10,000) $0 $ 1,975,000
========== ======== ========= ======= =========== ============ ======= == ===========
</TABLE>
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Cash Flows
(going concern basis)
Year Ended December 31,
1997 1996
Cash flows from operating
activities:
Net loss $(6,187,000) $(6,270,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 660,000 390,000
Loss on disposal of equipment 26,000
Write-off of transmission
system in progress 205,000
Common stock issued as
consideration for compensation 150,000 28,000
Common stock issued as
consideration for programming 700,000
Warrants issued as consideration
for compensation 161,000 10,000
Changes in:
Other assets 199,000 (211,000)
Accrued expenses and other
liabilities (500,000) 367,000
Net cash used in operating
activities (5,312,000) (4,960,000)
Cash flows from investing activities:
Purchase of equipment (918,000) (1,392,000)
Cash flows from financing activities:
Net proceeds from sale of units of
common stock and warrants 7,659,000
Proceeds from exercise of warrants 15,000
Net cash provided by
financing activities 15,000 7,659,000
Net increase (decrease) in cash and
cash equivalents (6,215,000) 1,307,000
Cash and cash equivalents at
beginning of period 6,499,000 5,192,000
Cash and cash equivalents at end
of period $ 284,000 $ 6,499,000
Supplemental schedule of noncash
financing activities:
Warrants issued (canceled) in
connection with consulting
arrangement $ (153,000) $ 323,000
Warrants exchanged for common
shares 65,000
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Notes to Financial Statements
December 31, 1997
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 plan was 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. The Company's 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.
The Company, which had been a development stage company, has been
unable to market its Cafe USA network to advertisers, has
incurred substantial losses and has been unable to obtain
additional financing. Accordingly, the Company, while
maintaining the operation of its Cafe USA network in twenty malls
and continuing to supply updated programming to the malls each
week, sought a purchaser for its assets and on April 23, 1998 the
Company entered into an agreement, which may be subject to
stockholder approval, to sell substantially all of its assets for
$450,000. As a result of the above, effective December 31, 1997,
the Company changed its basis of accounting from the going
concern basis to a liquidation basis. In connection therewith,
the Company has written down the carrying value of its assets
subject to the sales agreement to their selling price and has
also written off certain other assets and has accrued a liability
for an obligation under an existing employment agreement. These
adjustments are reflected in the statement of changes in net
assets (liabilities) in liquidation.
Note B - Summary of Significant Accounting Policies (Going
Concern Basis)
[1] Depreciation:
Depreciation has been provided using the straight-line
method over the five-year estimated useful life of the
assets.
[2] Revenue recognition:
Revenue has been recognized by the Company when media
placements appeared.
[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] Use of estimates:
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.
[6] Concentration of credit risk:
The Company maintains all of its cash and cash equivalents
in one commercial bank.
[7] Stock-based compensation:
The Company accounts for stock-based employee compensation
under Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations.
[8] Income taxes:
The Company accounts for income taxes using the liability
method as prescribed by SFAS No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax
bases of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits which are not expected to be
realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that
such tax rate changes are enacted.
[9] Loss per share:
The Company calculates its loss per share under the
provisions of SFAS No. 128, "Earnings Per Share." SFAS
No. 128 requires a dual presentation of "basic" and
"diluted" loss per share on the face of the statements of
operations. Basic loss per share is computed by dividing
the loss by the weighted average number of shares of common
stock outstanding during each period exclusive of the
Series B shares in escrow. Diluted loss per share does not
include the effect, if any, from the potential exercise of
stock options and warrants as the effect thereof is
antidilutive.
Note C - Income Taxes
At December 31, 1997, the Company has available net operating
loss carryforwards of approximately $15,300,000, which expire at
various dates through 2012. Under Section 382 of the Internal
Revenue Code of 1986, as amended, the Company is subject to an
annual limitation on the utilization 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 deductible temporary
differences, because a valuation allowance, which increased by
approximately $3,400,000 and $3,558,000 for the years ended
December 31, 1997 and 1996, respectively, has been provided
against the deferred tax asset. The valuation allowance has been
provided as it is more likely than not that the tax benefits will
not be utilized. In addition, the Company is subject to an
annual limitation under Section 382 of the Internal Revenue Code.
At December 31, 1997 the principal components of deferred tax
assets (liabilities) are as follows:
Net operating loss carryforwards $ 6,100,000
Start-up costs 2,600,000
Other 100,000
Write down of fixed assets 800,000
Obligation under employment contract 100,000
9,700,000
Valuation allowance (9,700,000)
Net deferred tax $ 0
Note D - Stockholders' Equity
[1] Capital stock:
At December 31, 1997, there were 636,115 shares of
outstanding Series B common stock held in escrow to be
released based on meeting certain conditions. These
conditions will likely not be met, in which case the escrow
shares will be canceled or deposited in the Company's
treasury.
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 held by the
chairman of the Board and former 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. At December 31, 1997
there were no options available to be granted under the
Plan.
(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.
During the year ended December 31, 1996 options to
purchase 100,000 shares previously granted under the
Employee Plan were canceled 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.
During the year ended December 31, 1997, options to
purchase 308,000 shares of Series A common stock were
granted to employees under the Employee Plan.
(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. In
October 1996, 180,000 options were forfeited due to the
resignation of two members of the Board of Directors.
During the year ended December 31, 1997 options to
purchase 90,000 shares of Series A common stock were
granted to a director.
(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 prior to the adoption of its stock option
plans.
The Company applies APB No. 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 $10,000 and $160,000 in 1996 and 1997,
respectively, related to options and warrants granted
to others.
As discussed in Note A, subsequent to December 31, 1997 the
Company entered into an agreement pursuant to which it will
sell substantially all of its assets and has ceased its
operations. Therefore the disclosures required by SFAS
No. 123 of net loss and net loss per share and the weighted
average fair value of options granted during each year, in
light of the Company's adoption of a liquidation basis of
accounting, are not deemed material to the Company's
financial statements. Accordingly, such items have not been
disclosed for either of the years presented.
A summary of the status of the Company's stock options as of
December 31, 1996 and 1997, and changes during the years
then ended is presented below:
1997 1996
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
Outstanding at
beginning of year 2,093,000 $2.81 311,000 $3.42
Granted 398,000 2.57 2,363,000 3.03
Canceled (390,000) 3.64
Forfeited (418,000) 3.51 (191,000) 4.87
Outstanding at end
of year 2,073,000 2.62 2,093,000 2.81
Options exercisable
at year-end 899,000 2.93 778,000 2.92
The following table summarizes information about fixed stock
options outstanding at December 31, 1997:
<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 1997 Life Price 1997 Price
<S> <C> <C> <C> <C> <C>
$1.75 - $2.83 1,633,000 8 $2.03 609,000 $2.08
$3.87 - $5.00 440,000 8 4.81 290,000 4.71
2,073,000 8 $2.62 899,000 $2.93
</TABLE>
Upon a change in control of the Company, a significant
number of options which are outstanding, but unexercisable
at December 31, 1997 may become exercisable.
[3] Warrants:
Warrants outstanding and exercisable at December 31, 1997
are summarized as follows:
Shares
Covered by Exercise
Warrants Price Expiration
Class A warrants (i) 1,762,000 $5.13 October 2000
Class B warrants 1,382,000 6.85 October 2000
Placement agent's warrants 124,212 2.00 January 1999
Warrants to mall developer 25,000 5.00 October 2000
(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 ("Blair") 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, Blair received an
additional option to purchase up to 999,999 of such units.
Effective December 30, 1997 Blair canceled and terminated
these options.
Note E - Commitments and Other Matters
[1] Employment and consulting agreements:
During the year ended December 31, 1997 two officers
resigned and the employment agreement of one executive
expired. In addition, the Company terminated the employment
of three executives whose employment agreements provide for
severance payments aggregating $181,000, which has been
accrued for in the accompanying statement of operations for
the year ended December 31, 1997. The Company has one
outstanding employment agreement with an officer which
provides for annual compensation of approximately $150,000
and $113,000 in 1998 and 1999, respectively, plus increases
and bonuses as determined by the Board of Directors. The
agreement provides for severance equal to the remaining
payments through the term of the agreement. In addition,
this agreement provides for a three-year extension, at
$150,000 per year, from the date of a change in control of
the Company, as defined in the agreement.
The Company has accrued $263,000 in the accompanying
statement of net liabilities in liquidation as of
December 31, 1997 in connection with this agreement.
[2] Leases:
During the year ended December 31, 1997 the Company was
released from its office space lease obligation and
currently leases its office space on a month-to-month basis.
Rent expense was approximately $122,000 and $89,000 for the
years ended December 31, 1997 and 1996, respectively.
[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 was due on
December 31, 1997 and interest at the prime rate began
accruing on January 1, 1996. The balance of such obligation
at December 31, 1997 is $234,000.
[4] Other commitments:
In December 1996, the Company entered into a financial
advisory agreement with an investment banking firm (the
"Firm"). Pursuant to the agreement, the Firm was to 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 determined the fair value of the warrants to be
$323,000 and recorded deferred consulting fees to be written
off over the 18 month period. In 1997 the agreement was
terminated, the warrants were canceled and the Company
charged the unamortized balance of deferred consulting fees
of $153,000 to additional paid-in capital.
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 58 Chairman of the Board of Directors
James N. Perkins 64 President, Chief Executive Officer
and Director, Treasurer
Gary D. Penisten 66 Director
Robert J. Wussler 59 Director
James N. Galton 74 Director
Eric C. Mendelson 30 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.
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.
James N. Galton,
Director
Mr. Galton has been a director since June 4, 1997. He
is presently retired. He was President and Chief Operating
Officer of Marvel Entertainment, Inc. ("Marvel") from 1974 to
1990. He then worked for Marvel as a consultant from 1991
through 1995.
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, 1997, based solely on a review of the copies of the
Section 16(a) reports furnished to the Company, except as set
forth below, all of the Company's directors, officers and ten
percent stockholders have complied with Section 16(a) of the
Exchange Act. On or about December 29, 1997, director James N.
Galton sold 38,427 shares of the Company's Series A Common Stock
to Eric Mendelson, the Company's secretary in a private sale at
then market value.
ITEM 10 - EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information for each of
the three years ended December 31, 1997, 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 such period (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, 1997.
<PAGE>
<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................ 1997 $ 70,833 $ N/A $ N/A $ N/A N/A $ N/A $ N/A
Chairman of the 1996 100,000 N/A N/A N/A 600,000 N/A N/A
Board and Director 1995 82,083 N/A N/A N/A N/A N/A N/A
James N. Perkins.............. 1997 135,000 N/A N/A N/A N/A N/A N/A
President and Chief 1996 151,667 N/A N/A N/A 500,000 N/A
Executive Officer 1995 N/A N/A N/A N/A N/A N/A N/A
Darren M. Sardoff............. 1997 56,827 N/A N/A N/A N/A N/A N/A
Chief Financial Officer 1996 155,000 N/A N/A N/A 100,000 N/A N/A
1995 29,583 N/A N/A N/A N/A N/A N/A
Stephen G. Bowen.............. 1997 N/A N/A N/A N/A N/A N/A N/A
Former President and 1996 175,000 N/A N/A N/A 100,000 N/A N/A
Chief Executive Officer 1995 165,208 N/A N/A N/A N/A N/A N/A
H. Scott Phillips............. 1997 135,000 N/A N/A N/A 150,000 N/A N/A
Executive Vice President,
Operations
Mark Chalom 1997 135,000 N/A N/A N/A N/A N/A N/A
Senior Vice President, 1996 N/A N/A N/A 50,000 N/A N/A
Programming & Production
_______________
</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.
(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 $50,000 or 10% of the
total of annual salary and bonus reported in the columns
above.
(2) Indicates number of shares for which options were granted
during the applicable periods.
The following table sets forth information concerning grants
of stock options for the fiscal year ended December 31, 1997 to
the Named Executives.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/ Number of
Underlying SARs Shares/
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price(2) Expiration
(#)(1) Year ($/Sh) Date
<S> <C> <C> <C> <C>
H. Scott Phillips.... 150,000 150,000 $1.37 2/6/01
_______________
</TABLE>
(1) All amounts represent stock options to purchase shares of
Series A Common Stock granted under the terms of the 1995
Employee Stock Option Plan (the "Plan"). No SARs or SARs
granted in tandem with options were granted during 1997.
Options terminate three months (but not later than the
scheduled termination date) after the date on which
employment is terminated (whether such termination be
voluntary or involuntary) other than by reason of death or
disability. The option terminates one year from the date of
termination due to death or disability (but not later than
the scheduled termination date).
(2) Under the terms of the Plan, the exercise price per share
must equal the fair market value on the date the option is
granted. Certain options granted to Messrs. Perkins and
Sardoff were repriced. See " -- Compensation Committee
Report on Option Repricing," herein. The exercise price may
be paid in cash, in shares of Series A Common Stock valued
at fair market value on the date of exercise, or in any
combination of cash and shares of Series A Common Stock.
The following table sets forth information concerning
the exercise of options to purchase shares of Series A Common
Stock by the Named Executives during the fiscal year ended
December 31, 1997, as well as the number of securities underlying
unexercised options and potential value of unexercised options
(both options which are presently exercisable and options which
are not presently exercisable) as of December 31, 1997.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Value(1)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End
(#) ($)(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
H. Scott Phillips.... 0 0 100,000/50,000 0/0
Mark Chalom.......... 0 0 12,500/12,500 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 1997 or
outstanding at fiscal year-end 1997.
(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,
1997. 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, 1997.
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.
On September 10, 1997, Mr. Lenz terminated his employment
contract with the Company but remained Chairman of the Board of
Directors.
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 Mr. Lenz and 300,000 of the
options granted to Mr. 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. On May 25, 1997, Mr. Sardoff terminated his employment
with the Company.
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 received severance pay of $175,000 which is
payable by the Company in 52 weekly installments from October 1,
1996 through September 30, 1997. 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.
Directors' Compensation
In 1997, 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 1997, the Company granted options
to purchase 90,000 shares of Series A Common Stock at an exercise
price of $1.625 to James N. Galton 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, 1998,
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 Voting
Name(1) Owned(1) Owned Owned(1)(2)(3) Owned(4) Control
- -------------------------------- ------------ ------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Robert H. Lenz................. 703,772(5) 4.9% 440,748(6) 43.5% 13%
Stephen G. Bowen............... 234,615(7) 1.7% 206,545(8) 20.4% 5.6%
Joseph Mercaldo................ 158,787(9) 1.1% 158,787(8) 15.6% 4.2%
Gary Penisten.................. 90,000(10) * -0- -0- *
Robert S. Wussler.............. 190,000(10) * -0- -0- *
James Perkins.................. 234,427(11) 1.6% -0- -0- *
James E. Galton................ 30,000(12) * -0- -0- *
Eric Mendelson................. 38,427 * -0- -0- *
All Officers and Directors
as a Group (8 persons)....... 1,680,028(13) 10.7% 806,080 79.5% 23%
</TABLE>
_______________
* Denotes less than 1%
(1) 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.
(2) 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").
(3) 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.
(4) Excludes 10,135 shares of Series B Common Stock held in
treasury.
(5) Includes warrants to purchase 229,518 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 600,000 shares of Series A Common
Stock underlying unvested options.
(6) Includes 241,180 Escrow Shares.
(7) Includes 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.
(8) Includes 106,545 Escrow Shares.
(9) Includes 158,787 shares of Series A Common Stock which may
be acquired upon the conversion of Series B Common Stock.
(10) Represents 90,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options and warrants. Does not include 60,000 shares of
Series A Common Stock underlying unvested options.
(11) 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. [?]
(12) Represents 30,000 shares of Series A Common Stock which may
be acquired upon exercise of currently exercisable options.
Does not include 60,000 shares of Series A Conversion Stock
underlying unvested options.
(13) Includes 764,518 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options and warrants and 806,080 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
2.1 Purchase and Sale Agreement between Company and Prime
Spot Media USA, Inc.
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**
10.9* 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
None
<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: May 6, 1998
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 May 5, 1998
James N. Perkins Officer, Director (Principal
Executive Officer)
/s/ Robert H. Lenz Chairman of the Board of May 5, 1998
Robert H. Lenz Directors
/s/ Gary D. Penisten Director May 5, 1998
Gary D. Penisten
/s/ James E. Galton Director May 5, 1998
James E. Galton
/s/ Robert S. Wussler Director May 5, 1997
Robert S. Wussler
</TABLE>
<PAGE>
EXHIBIT INDEX
Number Title
2.1 Purchase and Sale agreement between the Company and
Prime Spot Media USA, Inc.
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**
10.9* 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.
ASSET PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
FOOD COURT ENTERTAINMENT NETWORK, INC., as Seller
and
PRIME SPOT MEDIA U.S.A., INC., as Purchaser
Dated: April , 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS.......................................... 2
1.1 "Affiliate"....................................... 2
1.2 "Agreement"....................................... 2
1.3 "Assignable Contracts"............................ 2
1.4 "Assumed Liabilities"............................. 2
1.5 "Business"........................................ 2
1.6 "Closing"......................................... 2
1.7 "Closing Date..................................... 2
1.8 "Consent Contracts"............................... 3
1.9 "Contracts........................................ 3
1.10 "Disclosure Schedule.............................. 3
1.11 "Documents"....................................... 3
1.12 "Equipment........................................ 3
1.13 "Escrow Agent".................................... 3
1.14 "Escrow Closing".................................. 3
1.15 "Escrowed Funds".................................. 3
1.16 "Excluded Assets............................ 3
1.17 "Excluded Liabilities"............................ 4
1.18 "Intangible Assets................................ 4
1.19 "Inventory........................................ 4
1.20 "Mall Operators".................................. 4
1.21 "Mall Operating Agreements"....................... 5
1.22 "Mall Payments"................................... 5
1.23 "Marks"........................................... 5
1.24 "Material Adverse Effect"......................... 5
1.25 "Miscellaneous Assets"............................ 5
1.26 "Permits"......................................... 5
1.27 "Person".......................................... 6
1.28 "Purchase Price".................................. 6
1.29 "Purchased Assets"................................ 6
1.30 "Rejected Agreement".............................. 6
1.31 "Subcontract"..................................... 6
1.32 "Taxes"........................................... 6
1.33 "Transaction"..................................... 7
1.34 "Unassignable Contract"........................... 7
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS........................ 7
2.1 Purchase of Assets................................ 7
2.3 Purchase Price.................................... 7
2.4 Payment of Purchase Price......................... 7
2.5 Expenses of Transfer and Taxes.................... 8
2.6 Escrow Funds...................................... 8
ARTICLE III
ASSUMED LIABILITIES.......................................... 11
3.1 Assumption of Liabilities......................... 11
3.2 Excluded Liabilities.............................. 11
ARTICLE IV
THE CLOSING.................................................. 12
4.1 Time and Place.................................... 12
4.2 Deliveries by Food Court.......................... 13
4.3 Deliveries by Prime Spot.......................... 14
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FOOD COURT................. 14
5.1 Organization and Good Standing.................... 14
5.2 Corporate Authority............................... 15
5.3 No Breach......................................... 15
5.4 Valid Agreement................................... 15
5.5 Financial Data.................................... 16
5.6 Operation of Business............................. 16
5.7 Contracts......................................... 17
5.8 Compliance with Applicable Law.................... 18
5.9 Legal Proceedings................................. 18
5.10 Labor Matters..................................... 18
5.11 Taxes............................................. 19
5.12 Purchased Assets.................................. 19
5.13 Intangible Assets................................. 19
5.14 Environment, Health and Safety.................... 20
5.15 Absence of False or Misleading Information........ 21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PRIME SPOT................. 21
6.1 Organization and Good Standing.................... 21
6.2 Corporate Authority............................... 21
6.3 No Breach......................................... 22
6.4 Valid Agreement................................... 22
6.5 Legal Proceedings................................. 22
6.6 Compliance with Applicable Law.................... 23
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS.......................... 23
7.1 Conduct of Food Court's Business.................. 23
7.2 Investigation by Prime Spot....................... 24
7.3 Consents.......................................... 24
7.4 Regulatory Authorization.......................... 25
7.5 Fulfillment of Conditions......................... 25
7.6 Announcements..................................... 26
7.7 Employees......................................... 26
(a) Employment Offers........................... 26
(b) Benefits.................................... 26
7.8 Transition and Post-Closing Cooperation........... 26
7.9 Allocation of Consideration....................... 27
7.10 Bulk Sales Act.................................... 27
7.11 Further Assurances and Access to Records.......... 28
7.12 Approval of Transactions.......................... 29
7.13 Subcontract....................................... 29
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIME SPOT........ 30
8.1 Representations and Warranties True............... 31
8.2 Covenants Performed............................... 31
8.3 Resolutions of Directors.......................... 31
8.4 Litigation........................................ 32
8.5 Mall Operating Agreements......................... 32
8.6 Opinion........................................... 32
8.7 Government Approval............................... 32
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FOOD COURT........ 33
9.1 Representations and Warranties True............... 33
9.2 Covenants Performed............................... 33
9.3 Resolutions of Directors.......................... 33
9.4 Litigation........................................ 34
9.5 Opinion........................................... 34
9.6 Government Approval............................... 34
ARTICLE X
SURVIVAL AND INDEMNIFICATION................................. 34
10.1 Survival of Representations, Etc.................. 34
10.2 Indemnification by Food Court..................... 35
10.3 Indemnification by Prime Spot..................... 36
10.4 Indemnification Procedures........................ 36
ARTICLE XI
GENERAL...................................................... 39
11.1 Termination....................................... 39
11.2 Books and Records................................. 39
11.3 Notices........................................... 39
11.4 Integration and Modification...................... 40
11.5 Governing Law..................................... 41
11.6 Binding Effect; No Assignment..................... 41
11.7 Counterparts...................................... 41
11.8 Miscellaneous Rules of Construction............... 42
11.9 Expenses.......................................... 42
11.10 Waiver............................................ 42
<PAGE>
EXHIBITS
4.2(i) Bill of Sale
4.2(ii) Assignment of Intangible Assets
4.1(iii) Assignment and Assumption Agreement
4.1(iv) Assignment of Marks
SCHEDULES
1.9 Contracts
1.12 Equipment
1.23 Marks
Article V Disclosure Schedule
5.5 Financial Statements
7.9 Section 1060 Allocation
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into as of this
day of April, 1998 by and between FOOD COURT ENTERTAINMENT
NETWORK, INC., a Delaware corporation with its principal place of
business at 220 East 42nd Street, New York, NY 10017, USA, ("Food
Court"), and PRIME SPOT MEDIA U.S.A., INC., a New York
corporation with its principal place of business in care of
Satterlee Stephens Burke & Burke LLP, 230 Park Avenue, New York,
NY 10169 ("Prime Spot").
W I T N E S S E T H:
WHEREAS, Food Court owns and operates a television
network and related equipment and transmits and displays
television programming within shopping malls; and
WHEREAS, Prime Spot desires to purchase certain Food
Court assets and is willing to assume certain Food Court
liabilities associated therewith and Food Court is willing to
sell such assets and assign such liabilities to Prime Spot, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the
representations and warranties hereinafter set forth, the
covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Prime Spot and Food Court hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the
following meanings:
1.1 "Affiliate" means as to any Person, each other
Person that directly or indirectly controls, or is controlled by
or under common control with such Person.
1.2 "Agreement" means this Agreement and all
exhibits, schedules or other documents which are annexed hereto
and made a part hereof.
1.3 "Assignable Contracts" means those Mall
Operating Agreements that are assignable without consent of the
Mall Operator party.
1.4 "Assumed Liabilities" means the liabilities to
be assumed by Prime Spot pursuant to Section 3.1.
1.5 "Business" means the business, as currently
conducted by Food Court, of owning and operating a television
network and related equipment and transmitting and displaying
television programming within shopping malls.
1.6 "Closing" means the meeting of the parties at
which the Purchased Assets are transferred to, and the Assumed
Liabilities are assumed by, Prime Spot and the Purchase Price is
paid to Food Court.
1.7 "Closing Date" means 10:00 A.M., on May ,
1998, or such other date as Prime Spot and Food Court may agree
upon in writing.
1.8 "Consent Contracts" means those Mall Operating
Agreements that require the consent of the Mall Operator party
prior to assignment.
1.9 "Contracts" means all contracts, licenses and
agreements between Food Court and third parties relating to the
Business that are listed on Schedule 1.7 other than Rejected
Contracts.
1.10 "Disclosure Schedule" means the attached
schedule of exceptions to Seller's representations and warranties
that is attached as Schedule Article V.
1.11 "Documents" means the documents described in
Sections 4.2 and 4.3.
1.12 "Equipment" means all of the tangible personal
property listed on Schedule 1.9.
1.13 "Escrow Agent" means Prime Spot's counsel,
Satterlee Stephens Burke & Burke LLP.
1.14 "Escrow Closing" has the meaning set forth in
Section 2.2.
1.15 "Escrowed Funds" means the money that has been
deposited in escrow by Prime Spot with the Escrow Agent as
described in Section 2.3(a).
1.16 "Excluded Assets" means:
(a) all cash or cash equivalents on hand or on
deposit as of the Closing Date;
(b) all accounts receivable generated by the
Business prior to the Closing Date;
(c) all real property or interests in real
property;
(d) all Rejected Agreements and all Equipment
and Permits that are specifically related to Rejected Agreements;
and
(e) all other properties and assets that do
not constitute part of the Purchased Assets.
1.17 "Excluded Liabilities" has the meaning set forth
in Section 3.2.
1.18 "Intangible Assets" means (a) the Marks; (b) all
of Food Court's rights in computer software, operating systems
and applications owned by Food Court or used in the Business;
(c) all of Food Court's rights to all programming and graphics
owned or licensed by Food Court or used in the Business; and
(d) all of Food Court's rights in slogans, technology, know-how,
trade secrets, logos, copyright interests, service marks, trade
names and rights to trade dress and designs relating to the
Business.
1.19 "Inventory" means all (a) hardcopy, film,
videotape, audio tape and other electronic versions of materials
that have been or could be incorporated in television
programming; (b) all manuals, reference works and other print or
electronic materials relating to the production or transmission
of television programming; and (c) all raw materials, work-in-
process and supplies on hand or on order as of the Closing Date.
1.20 "Mall Operators" means all operators of shopping
malls that are parties to Mall Operating Agreements.
1.21 "Mall Operating Agreements" means those
Contracts listed as Mall Operating Agreements on Schedule 1.9.
1.22 "Mall Payments" has the meaning set forth in
Section 7.13.
1.23 "Marks" means the trademarks appearing on
Schedule 1.23, and all of Food Court's rights under the
registrations and applications in respect of such trademarks and
the goodwill associated therewith.
1.24 "Material Adverse Effect" means an effect that
is, or could be, materially adverse to all or a substantial
portion of the Purchased Assets, to the financial or other
condition or prospects of the Business, or to the consummation of
the Transaction.
1.25 "Miscellaneous Assets" means the following
assets to the extent that they are related to the Business:
sales, promotion and advertising materials; business records
(including data processing records) and books of account; records
relating to the research and development of products, processes
or services for the Business; records relating to electronic
media; and Food Court's customer lists and files.
1.26 "Permits" means all government licenses that are
required to permit transmission of television signals in the
manner that Food Court now transmits television signals and all
other permits, licenses, orders and approvals of all federal,
state and local governmental agencies or regulatory bodies
required for Food Court's conduct of the Business.
1.27 "Person" means any individual or partnership,
corporation, association, trust or other entity.
1.28 "Purchase Price" means the price set forth in
Section 2.2.
1.29 "Purchased Assets" means all of Food Court's
rights owned on the Closing Date in:
(i) the Marks and other Intangible Assets;
(ii) the Contracts;
(iii) the Equipment;
(iv) the Inventory;
(v) the Permits; and
(vi) the Miscellaneous Assets;
exclusive of the Excluded Assets.
1.30 "Rejected Agreement" means an Unassignable
Contract that Prime Spot elects at Closing not to assume.
1.31 "Subcontract" means the agreement as described
in Section 7.13 that is executed by Prime Spot and Food Court
concurrently with this Agreement.
1.32 "Taxes" means all federal, state, local or
foreign taxes, including, without limitation, income, gross
receipts, value added, ad valorem, profits, payroll, stamp,
occupational, premium, severance, property, production, sales,
use, license, excise, franchise, employment, withholding or
similar taxes, together with any interest, additions or penalties
with respect thereto and any interest in respect of such
additions or penalties.
1.33 "Transaction" means the transaction contemplated
by this Agreement.
1.34 "Unassignable Contract" means a Consent Contract
for which Food Court does not obtain the Mall Operator's consent
required by Section 7.3.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
2.1 Purchase of Assets. Subject to the terms and
conditions herein set forth, on the Closing Date, Prime Spot will
purchase and acquire the Purchased Assets from Food Court and
Food Court will sell, assign, convey and transfer the Purchased
Assets to Prime Spot.
2.2 Escrow Closing. This Transaction shall close in
escrow (the "Escrow Closing") concurrent with the execution of
this Agreement. At the Escrow Closing, all funds required to be
paid pursuant to Section 2.4 and all fully-executed Documents
shall be delivered to the Escrow Agent which, at the appropriate
time, shall distribute all such funds and Documents as provided
in Section 2.6.
2.3 Purchase Price. The purchase price for the
Purchased Assets and Food Court's other obligations under this
Agreement shall be $450,000.00.
2.4 Payment of Purchase Price. Prime Spot has
heretofore paid $45,000 of the Purchase Price to the Escrow
Agent. At the Escrow Closing, Prime Spot shall pay to the Escrow
Agent $405,000.
2.5 Expenses of Transfer and Taxes. All sales or
use Taxes arising out of the sale of the Purchased Assets to
Prime Spot, all costs and expenses attributable to the transfer
of title to the Intangible Assets, including without limitation
all filing, recording and registration fees, costs and expenses
relating thereto and all costs of packing and delivering
Equipment, Inventory and Miscellaneous Assets to Prime Spot shall
be paid by Prime Spot.
2.6 Escrow Funds. Escrow Agent acknowledges that it
has received the Escrowed Funds and the Documents in escrow.
Escrow Agent, Food Court and Prime Spot agree that Escrow Agent
is to hold and disburse or distribute the Escrowed Funds and the
Documents as follows:
2.6.1 Escrow Agent shall hold the Escrowed Funds
in its IOLA ("Interest on Lawyer Account") account which, Food
Court and Prime Spot acknowledge, does not pay any interest on
deposited funds.
2.6.2 In the event that the parties notify the
Escrow Agent that the Transaction is completed, the Escrow Agent
shall immediately pay the Escrowed Funds to Food Court and shall
immediately distribute each of the Documents to the appropriate
party.
2.6.3 Notwithstanding Section 2.6.2, Escrow
Agent shall (a) as agent for the parties, strike from the
Assignment and Assumption Agreement (as that term is defined in
Section 4.2 (iii)) all references to each Rejected Contract, and
(b) reduce the amount payable to Food Court by, and return to
Prime Spot, an amount equal to $22,500 for each Rejected
Contract.
2.6.4 If Escrow Agent receives notice from Prime
Spot that an Escrow Return Event has occurred, Escrow Agent shall
so notify Food Court which may, within the succeeding ten days,
notify Escrow Agent that Escrow Agent, at their option, shall
either (a) continue to hold the Escrow Funds and the Documents
until it receives instructions jointly from the parties or
(b) pay the Escrow Funds, and deliver the Documents, into court
pursuant to Section 2.6.5. An "Escrow Return Event" means that
the Transaction will not be completed because (c) Food Court has
misrepresented or omitted a material fact with respect to the
Mall Operating Agreements or the Equipment, (d) this Agreement
has been terminated pursuant to Section 11.1, (e) the transaction
contemplated by this Agreement requires the approval of Food
Court's shareholders but such approval has not been obtained and
Food Court has not otherwise been authorized to complete this
Transaction in a manner for which Food Court counsel has
furnished an opinion reasonably satisfactory to Prime Spot
counsel, or (h) any other Article VIII condition has neither been
satisfied or waived.
2.6.5 With respect to the duties of the Escrow
Agent, the parties acknowledge:
(i) The Escrow Agent accepted the Escrowed
Funds merely to act as an escrow agent and solely to
accommodate the parties. Accordingly, the Escrow
Agent is not assuming nor guaranteeing the performance
of either of the parties' obligations hereunder.
Neither of the parties, nor any of their respective
agents or assignees, shall make any claim against the
Escrow Agent relating to the Escrowed Funds or the
Documents, except for claims arising from Escrow
Agent's willful misconduct or gross negligence.
(ii) Escrow Agent may act or refrain from
acting in respect of any matter referred to herein in
full reliance upon and with the advice of counsel
which may be selected by it (including any member of
its firm) and shall be fully protected in so acting or
refraining from acting upon the advice of such
counsel.
(iii) Escrow Agent or any member of its firm
shall be permitted to act as counsel for Prime Spot in
any dispute between the parties whether or not Escrow
Agent continues to act as Escrow Agent.
2.6.6 The parties to this Agreement, jointly and
severally, agree to hold Escrow Agent harmless from and against
all costs, claims and expenses (including reasonable attorneys'
fees) incurred in connection with the performance of Escrow
Agent's duties hereunder, except to the extent that it is finally
determined by any court of competent jurisdiction that any
actions or omissions of Escrow Agent were taken or suffered by
Escrow Agent constitute wilful misconduct or gross negligence on
the part of Escrow Agent. If a dispute should arise among the
parties or with any other Person as to proper disbursement of
Escrowed Funds or proper distribution of the Documents, the
Escrow Agent may commence an interpleader action in any court
having jurisdiction and deposit with the court some or all of the
Escrowed Funds and Documents. Upon the commencement of any such
interpleader action, the Escrow Agent shall be absolved from any
claim or liability with respect thereto.
ARTICLE III
ASSUMED LIABILITIES
3.1 Assumption of Liabilities. On the Closing Date,
Prime Spot shall assume and agree to perform and discharge when
due all of Food Court's obligations thereafter arising under the
Assignable Contracts and under each Consent Contract for which
the consent of the relevant Mall Operator has been obtained.
3.2 Excluded Liabilities. Notwithstanding anything
to the contrary contained herein, Prime Spot is not assuming, and
does not have any responsibility or liability for the following
debts, liabilities and obligations (the "Excluded Liabilities"):
(a) Any liabilities arising out of or relating
to the Excluded Assets;
(b) Any liabilities for Taxes relating to the
Business imposed with respect to taxable periods, or portions
thereof, ending on or before the Closing Date;
(c) Any intercompany or intracompany accounts
payable or any other claims by or amounts due to any shareholder,
officer or director of Food Court;
(d) Any of Food Court's accounts payable or
trade obligations that arose prior to the Closing Date;
(e) Any pension, welfare, severance or other
obligations to Food Court's employees;
(f) Any other debts, liabilities and
obligations for which Prime Spot has not expressly assumed
responsibility pursuant to this Agreement; and
(g) Any debts, liabilities or obligations
whatsoever, whether arising before or after the Closing and
whether known or unknown, fixed or contingent, that are not
Assumed Liabilities.
ARTICLE IV
THE CLOSING
4.1 Time and Place. The Closing shall take place on
the Closing Date at the offices of Satterlee Stephens Burke &
Burke LLP, 230 Park Avenue, New York, New York 10169, or at such
other place as Prime Spot and Food Court may agree in writing.
The Closing Date shall occur within three days after the earliest
of (a) the closing of an acquisition by Food Court of assets or
of one or more companies whereby the Purchased Assets will not be
"substantially all of [Food Court's] property and assets", as
that term is used in Section 271 of the Delaware General
Corporation Law, (b) the approval of the Transaction by Food
Court shareholders, or (c) the occurrence of such other event or
action that provides Food Court with legal authorization to
complete the Transaction.
4.2 Deliveries by Food Court. At the Escrow
Closing, Food Court shall deposit in escrow with the Escrow
Agent, in order to sell, assign, convey and transfer the
Purchased Assets or cause the same to be assigned, conveyed and
transferred to Prime Spot, all such executed bills of sale,
deeds, endorsements, assignments and other good and sufficient
instruments of transfer and conveyance in form reasonably
satisfactory to Prime Spot and its counsel, including, but not
limited to:
(i) the Bill of Sale in substantially the form
attached as Exhibit 4.2(i) hereto fully
executed by Food Court;
(ii) The Assignment of Intangible Assets in
substantially the form attached as Exhibit
4.2(ii) hereto fully executed by Food
Court;
(iii) An instrument, fully executed by Food
Court, by which Food Court assigns the
Contracts including at least twelve
Assignable Contracts and Prime Spot
assumes the Assumed Liabilities as of the
Closing Date, in the form attached hereto
as Exhibit 4.2(iii) (the "Assignment and
Assumption Agreement");
(iv) The Assignment of Marks in the form
attached as Exhibit 4.2(iv) hereto fully
executed by Food Court;
(v) The consents referred to in Section 7.3(a)
for each Consent Contracts for which such
a consent has been obtained.
(vi) The assignment of all Permits if any, in
such form as is appropriate, together with
the consent of each government agency that
may be required to permit Prime Spot to
succeed Food Court in conducting the
Business as it has been conducted by Food
Court.
(vii) Such other duly executed instruments of
conveyance and transfer of the Purchased
Assets (including notices to third
parties) as Prime Spot may reasonably
request; and
(viii) The documents referred to in
Sections 8.1, 8.2, 8.3 and 8.7.
4.3 Deliveries by Prime Spot. At the Escrow
Closing, Prime Spot shall deliver in escrow to the Escrow Agent
either a check, or written confirmation of the wire transfer to
the Escrow Agent at such bank account as the Escrow Agent shall
have designated in writing to Prime Spot prior to the Escrow
Closing, in the amount payable to Food Court pursuant to
Section 2.4(b) and shall execute and deliver to the Escrow Agent
the following instruments and documents in form reasonably
satisfactory to Food Court and its counsel:
(i) The Assignment and Assumption Agreement
fully executed by Prime Spot;
(ii) The documents referred to in Sections 9.1,
9.2 and 9.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF FOOD COURT
Food Court represents and warrants to Prime Spot as
follows:
5.1 Organization and Good Standing. Food Court is a
corporation, validly existing and in good standing under the laws
of the State of Delaware; it is qualified to do business in each
other state where its assets or activities require such
qualification; and it has all requisite corporate power and
authority to own, lease and operate the Purchased Assets.
5.2 Corporate Authority. Food Court has full
corporate authority and power to execute, deliver and perform
this Agreement in accordance with its terms; this Agreement and
the Transaction on Food Court's part to be performed have been
duly authorized by Food Court's directors and on the Closing Date
no further authorization or approval of Food Court's
stockholders, directors or creditors or from any court or
administrative agency will be necessary therefor or to permit
Prime Spot to operate the Business.
5.3 No Breach. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby will not result in a breach, violation or default or give
rise to an event which, either with or without notice or the
passage of time, or both, would result in a breach or violation
of any of the terms or provisions of Food Court's Certificate of
Incorporation or By-Laws, as amended through the date hereof, or
constitute or result in a breach, violation or default under any
applicable statute, governmental regulation or rule, or any
Contract or other note, bond, mortgage, lease, license, permit,
indenture, agreement, judgment, decree, order or other
instrument, obligation or restriction to which Food Court is a
party or by which Food Court or any of the Purchased Assets is
bound.
5.4 Valid Agreement. This Agreement constitutes a
valid and binding obligation of Food Court, enforceable against
Food Court in accordance with its terms, except that enforcement
may be subject to applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws
affecting the rights and remedies of creditors generally.
5.5 Financial Data. Within two days after Food
Court makes any filing (including its December 31, 1997 Form
10KSB) with the Securities and Exchange Commission it shall
furnish a copy thereof to Prime Spot. All financial statements
in such filing will be, and all financial statements set forth in
Schedule 5.5 (collectively, the "Financial Statements"), have
been prepared by Food Court's independent auditors from Food
Court's books and records in accordance with generally accepted
accounting practices, consistently applied, and fairly present
the financial condition and results of operations of Food Court
and the Business as of such dates and for the periods then ended.
5.6 Operation of Business. Except as and to the
extent disclosed in the Disclosure Schedule, since June 30, 1997,
(a) Food Court has:
(i) not incurred any obligations or
liabilities, absolute or contingent, for which Prime
Spot will be liable or otherwise responsible except
obligations under the Contracts incurred in the
ordinary course of business;
(ii) not mortgaged, pledged or subjected any of
the Purchased Assets to any lien, charge or any other
encumbrance, except for minor imperfections of title
and liens and encumbrances not otherwise identified in
the Disclosure Schedule which do not affect the
Transaction or detract from the value of or impair the
use of the Purchased Assets as such assets are
currently utilized by Food Court;
(iii) not created, incurred, assumed, guaranteed
or otherwise become liable with respect to any
material indebtedness for money borrowed relating to
or otherwise affecting any of the Purchased Assets;
(iv) not experienced any change in its
relationships with Mall Operators, except for changes
in the ordinary course of business; and
(b) Food Court has not received any written or
oral notice from any Mall Operator that it intends to cease doing
business with Food Court; and Food Court has no reason to believe
that any such event will occur.
5.7 Contracts. The Contracts constitute all Mall
Operator Agreements, and license agreements and maintenance
agreements, if any, relating to the Equipment or otherwise
relating to the Purchased Assets that are necessary or material
to the Business. All of the Contracts are in full force and
effect as of the date hereof, and to Food Court's knowledge, the
parties thereto are in compliance with the material terms
thereof. Except as otherwise noted or in the Disclosure
Schedule, no event exists which, after the passage of time or the
giving of notice, or both, would give rise to a material breach,
violation or default by Food Court under any of the Contracts and
no Mall Operator has informed Food Court that it intends to
terminate a Mall Operating Agreement before the agreement by its
terms would expire.
5.8 Compliance with Applicable Law.
(a) Food Court is in compliance with all
applicable U.S. federal, state, local or municipal laws,
ordinances, certificates of occupancy, rules or regulations,
except to the extent that noncompliance therewith would not have
a Material Adverse Effect. Food Court is not presently subject
to, in violation of or in default with respect to, any judgment,
order, writ, injunction or decree of any U.S. federal, state,
municipal, or other court or governmental department, commission,
board, agency or instrumentality.
(b) No Permits have been required for Food
Court's conduct of the Business and no approval or authorization
of or filing with any federal, state or local governmental
authority is required as a condition to the execution and
delivery of this Agreement, the consummation of the Transaction
or the operation of the Business by Prime Spot.
5.9 Legal Proceedings. Except as disclosed in the
Disclosure Schedule, there are no civil, criminal, administrative
or other legal proceedings or investigations pending or, to Food
Court's knowledge, threatened, against it relating to the
Business which, if adversely determined, would have a Material
Adverse Effect or which question or challenge the validity of
this Agreement, the Transactions or any action taken or to be
taken by it in connection therewith, or its ability to perform
its obligations hereunder.
5.10 Labor Matters. Food Court is not a party to any
collective bargaining agreement or labor or employee-related
agreements with respect to the Business to which Prime Spot will
become subject by reason of its terms or by reason of law.
5.11 Taxes. All federal, state, and local Tax
returns and reports which are required by law to be filed by Food
Court have been filed and all Taxes shown thereon to be due and
payable by it have been paid or an adequate reserve therefor
established by Food Court.
5.12 Purchased Assets.
(a) Food Court has good and marketable title to
the Purchased Assets free and clear of all mortgages, liens,
pledges, charges, encumbrances or restrictions of any nature
whatsoever, except for Permitted Liens.
(b) Except as disclosed on the Disclosure
Schedule:
(i) The Purchased Assets constitute all the
assets that are used in connection with or are
necessary to conduct the Business as it is currently
being conducted by Food Court.
(ii) Except for normal wear and tear, the
Equipment is in good working order and in satisfactory
condition for use in the ordinary course of the
Business consistent with Food Court's past practice,
and in material compliance with all applicable fire,
zoning, building, safety and other similar laws,
ordinances and codes.
5.13 Intangible Assets. Food Court is the sole
owner of the Intangible Assets. The Intangible Assets include
all trademarks and other intellectual property interests that are
used in connection with or are necessary for the operation of the
Business as presently conducted by Food Court. All registrations
of the Marks listed on Schedule 1.19 are in full force and
effect. There are no infringement, interference opposition,
cancellation or misappropriation claims threatened or any
proceedings pending relating to any of the Intangible Assets.
Except as shown on the Disclosure Schedule, Food Court is not a
licensor or licensee in respect of any Intangible Assets, nor has
it granted any rights thereto or interests therein to any Person.
5.14 Environment, Health and Safety.
(i) Food Court has complied fully and continues
to be in full compliance with all Environmental, Health, and
Safety Laws (as defined below). No action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or
notice has been filed, commenced or, to Food Court's knowledge,
threatened against Food Court in connection with its conduct of
the Business alleging any failure so to comply and Food Court has
received no notice of and neither knows of nor suspects, nor has
any reason to know of or suspect, any fact relating to the
present or prior use, ownership or occupancy of the Purchased
Assets which might constitute a violation of any Environmental,
Health or Safety Law.
(ii) For purposes of this Section 5.14,
"Environmental, Health and Safety Laws" means all laws (including
rules, regulations, building and safety codes, plans,
injunctions, judgments, orders, decrees, rulings and charges
thereunder) of federal, state and local governments (and all
agencies thereof) applicable to Food Court, the Purchased Assets
or the Business concerning pollution or protection of the
environment, public health and safety or employee health and
safety.
5.15 Absence of False or Misleading Information. No
representation or warranty of Food Court contained herein, or
information with respect to Food Court contained herein, or in
the Schedules, Disclosure Schedule or in any written statement,
certificate or other schedule furnished or to be furnished to
Prime Spot by Food Court pursuant hereto or in connection with
the Transaction, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact
necessary to make the statement herein or therein not false or
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF PRIME SPOT
Prime Spot hereby represents and warrants to Food
Court as follows:
6.1 Organization and Good Standing. Prime Spot is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New York.
6.2 Corporate Authority. Prime Spot has full
authority and power to execute and to perform this Agreement in
accordance with its terms; this Agreement and all transactions
contemplated hereby have been duly authorized by all requisite
corporate action of Prime Spot and no further authorization or
approval of the shareholders or directors of Prime Spot is
necessary therefor or to permit Prime Spot to operate the
Business.
6.3 No Breach. The Transaction will not result in a
breach, violation or default or give rise to an event which,
either with or without notice or the passage of time, or both,
would result in a breach, violation or default of any of the
terms or provisions of Prime Spot's Charter or Articles of
Association, or of any statute, governmental rule or regulation,
note, bond, mortgage, license, permit, indenture, agreement,
judgment, decree or other instrument or restriction to which
Prime Spot is a party or by which it is bound, except that
consent to this Transaction must be granted by the Vancouver
Stock Exchange.
6.4 Valid Agreement. This Agreement constitutes a
valid and binding obligation of Prime Spot, enforceable against
Prime Spot in accordance with its terms, except that enforcement
may be subject to applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws
affecting the rights and remedies of creditors generally.
6.5 Legal Proceedings. There are no civil,
criminal, administrative or other proceedings or investigations
pending, or to Prime Spot's knowledge, threatened against it
which question or challenge the validity of this Agreement, any
of the transactions contemplated hereby or any action taken or to
be taken by it in connection therewith, or its ability to perform
its obligations hereunder.
6.6 Compliance with Applicable Law. To the best of
its knowledge, Prime Spot is in compliance with all U.S. federal,
state, local and municipal laws, ordinances, certificates of
occupancy, rules or regulations, except to the extent that
noncompliance therewith would not have a Material Adverse Effect.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
7.1 Conduct of Food Court's Business. During the
period from the date hereof through the Closing Date, except as
otherwise agreed to by Prime Spot:
(a) Food Court shall conduct the Business in
the ordinary and usual course, consistent with past practice;
shall maintain its financial books and records in accordance with
generally accepted accounting principles, consistently applied
and shall keep its other books, records and files current and
complete; shall maintain its relationships with and the goodwill
of Persons doing business with it; and shall take such actions as
may be necessary to protect and preserve the Purchased Assets, or
any part thereof.
(b) Except in the ordinary course of the
Business, Food Court shall not:
(i) mortgage, pledge or otherwise encumber any
of the Purchased Assets, or subject them to any lien,
except for Permitted Liens;
(ii) sell or transfer any of the Purchased
Assets; or
(iii) make any commitment or incur any
obligation that constitutes an Assumed Liability.
(c) Food Court will not cause any Contract to
lapse, expire or otherwise terminate, and will comply with all
laws and agreements applicable to the conduct of the Business but
this covenant shall not be deemed to have been breached if a
Contract is terminated by reason of Prime Spot's misperformance
of the Subcontract.
7.2 Investigation by Prime Spot. During the period
from the date hereof through the Closing Date, Prime Spot and its
authorized representatives shall, upon reasonable notice and at
Prime Spot's cost, have access during normal business hours to
all employees, properties, books, records, contracts and
documents relating to the Business and Food Court shall furnish
or cause to be furnished to Prime Spot and its authorized
representatives at its cost such information relating to the
Business as Prime Spot may reasonably request. No investigation
pursuant to this Section 7.2 shall affect any representation or
warranty made by Food Court hereunder.
7.3 Consents. (a) As soon as practicable after the
date hereof, Food Court shall use its best efforts (and Prime
Spot shall provide reasonable cooperation) to obtain such
consents, waivers and approvals, in form and substance reasonably
acceptable to Prime Spot, from Mall Operators and any other
parties to Consent Contracts as may be necessary to permit the
assignment of Consent Contracts and the transfer of the Purchased
Assets to Prime Spot.
(b) This Agreement shall not constitute an
assignment to Prime Spot of any Consent Contract or of any other
Contract that may not be assigned without the consent of another
Person or of Prime Spot's assumption of Food Court's obligations
thereunder if such assignment or attempted assignment and
assumption would constitute a breach thereof. If any such
consent cannot be obtained, Food Court shall use its best efforts
to secure for Prime Spot the benefits heretofore available to
Food Court under the relevant Contract.
7.4 Regulatory Authorization. Food Court and Prime
Spot shall use their best efforts to obtain as soon as
practicable all consents, waivers, and approvals of and by all
courts and governmental authorities that are necessary, if any,
for this Transaction and for the conduct of the Business by Prime
Spot.
7.5 Fulfillment of Conditions. Each of Food Court
and Prime Spot will take all actions within its control to
fulfill as soon as practicable the conditions set forth in
Articles VIII and IX hereof, respectively.
7.6 Announcements. No announcement or press release
shall be made by either Food Court or Prime Spot relating to this
Transaction unless approved in writing in advance by the other
party hereto, except that any party hereto may make such
announcement, press release or other report as may be required by
any applicable provincial, federal or state law or regulation or
by the rules of any stock exchange or other market in which the
party's securities are traded.
7.7 Employees of the Business.
(a) Employment Offers. Prime Spot may, but
shall not be obligated to, offer employment to any employee of
Food Court.
(b) Benefits. Prime Spot shall not be
obligated to maintain any Food Court employee benefit plan or to
pay any benefit to any Food Court employee. In the event that
Prime Spot employs any Food Court employee, it shall not be
required to recognize any years of service recognized under Food
Court employee welfare plans for purposes of determining
eligibility for participation or benefits under Prime Spot
welfare plans.
7.8 Transition and Post-Closing Cooperation. After
the Closing Date, Food Court will cooperate with Prime Spot to
assist in effecting an orderly transfer of the operations of the
Business, including but not limited to reasonable assistance in
transferring accounting and operational information, establishing
relationships with Mall Operators, advertisers and creators of
programming, and notifying third parties that all Purchased
Assets have been conveyed to Prime Spot. Subject to the terms
and conditions hereof, each party shall use all reasonable
efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make the
Transaction effective.
7.9 Allocation of Consideration. The parties hereby
allocate the total consideration transferred by Prime Spot to
Food Court pursuant to this Agreement (the "Consideration") in
accordance with provisions of Section 1060 of the Code as set
forth in Schedule 7.9. Food Court and Prime Spot agree to
prepare, or cause to be prepared, and file, or cause to be filed,
an IRS Form 8594 in a timely fashion in accordance with the rules
under Section 1060 of the Code. The determination and allocation
of the Consideration derived pursuant to this subsection shall be
binding on Prime Spot and Food Court for all tax reporting
purposes.
7.10 Bulk Sales Act. At least 20 days before the
Closing Date, Food Court shall furnish to Prime Spot a sworn list
of all of Food Court's creditors as required by, and with the
detail provided in, Section 6-104 of the New York Uniform
Commercial Code so that Prime Spot can give timely notice of this
Transaction to all of Food Court's creditors. Food Court shall
cooperate with Prime Spot in providing such additional
information as may be necessary to comply with the bulk sales
provisions of the New York Uniform Commercial Code.
Nevertheless, Prime Spot, by notice to Food Court, may waive Food
Court's compliance with this Section 7.10.
7.11 Further Assurances and Access to Records.
(a) Food Court hereby agrees that it will at any
time and from time to time following the Closing Date, upon
request of Prime Spot, execute, acknowledge and deliver, or will
cause to be executed, acknowledged and delivered, all such
further acknowledgments, deeds, assignments, transfers,
conveyances and assurances as may be reasonable and necessary to
further confirm the assignments and conveyances to Prime Spot, or
to assist in collecting and taking possession of any Purchased
Assets.
(b) After the Closing Date, Food Court, its
authorized representatives, and representatives of federal and
state taxing authorities shall have full access to inspect and
copy during normal business hours all books and records delivered
to Prime Spot by Food Court pursuant to Section 11.2 or which
otherwise concern the Business prior to the Closing Date. Prime
Spot shall maintain such books and records for a period of not
less than two (2) years following the Closing. Prime Spot will
cooperate with Food Court and will, at Food Court's cost, produce
such personnel, documents and other data at its disposal which
Food Court may reasonably request pertinent to any claim or
action by or against Food Court relating to the Business.
7.12 Approval of Transactions.
(a) Food Court represents that it has entered
into a letter of intent to acquire shares of certain operating
companies in exchange for Food Court common shares (the "Food
Court Acquisitions") and that in the event that transaction is
completed the Purchased Assets would no longer constitute
substantially all of the property and assets of Food Court. If
the Food Court Acquisition is closed on or before May 31, 1998,
Food Court shall so notify Prime Spot and Closing of this
Transaction shall occur within three business days after that
notice.
(b) In the event that the Food Court
Acquisition does not close by May 31, 1998, Food Court shall
solicit its shareholders for their approval of this Agreement at
the earliest possible time thereafter, in which solicitation Food
Court shall notify its shareholders that Food Court's directors
have approved, and recommend shareholder approval of, this
Agreement. Prime Spot shall pay 50% of the cost of proxy
solicitation up to $7,500 which amount shall be paid immediately
to Food Court upon presentation of the vendor's invoice and proof
of payment thereof by Food Court.
7.13 Subcontract. Concurrent with the execution of
this Agreement by the parties, Food Court and Prime Spot will
enter into a further agreement (the "Subcontract") by which:
(a) During the period between the date of this
Agreement and the Closing Date Prime Spot will undertake to
perform, to its reasonable ability and as Food Court's
subcontractor, Food Court's obligations under those Mall
Operating Agreements for which Prime Spot is willing to perform
those services ("Subcontract Services");
(b) Food Court shall make available to Prime
Spot free of charge such Food Court assets that Prime Spot
requires to perform Subcontract Services and that would be
Purchased Assets if the Closing had then occurred and shall allow
Prime Spot employees access to Food Court's South Carolina
facility in order to perform Subcontract Services;
(c) Prime Spot shall, at its expense, maintain
the Equipment to the extent necessary to perform Subcontract
Services and bear the other costs of providing Subcontract
Services; and
(d) All revenue generated by Prime Spot from
Mall Operating Agreements shall belong to Prime Spot from which
Prime Spot shall pay to each Mall Operator the portion of the
revenue that Food Court was obligated to pay under the relevant
Mall Operating Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIME SPOT
The obligation of Prime Spot to consummate the
Transaction is, at the option of Prime Spot, subject to the
fulfillment prior to or on the Closing Date of each of the
following conditions, any one or more of which may be waived in
writing by Prime Spot:
8.1 Representations and Warranties True. All the
representations and warranties of Food Court contained in this
Agreement and in the Disclosure Schedule shall be true and
correct as of the Closing Date as if made at and as of the
Closing Date, subject to such changes or exceptions as may be
contemplated by this Agreement; and Prime Spot shall have
received one or more certificates to such effect executed by the
President or the Treasurer of Food Court dated the Closing Date
and the confirmation of Prime Spot counsel that Food Court has
taken all corporate action required, and received all consents
necessary, to empower Food Court to perform this Agreement.
8.2 Covenants Performed. Food Court shall have
performed and complied or shall have caused the performance and
compliance with all covenants and agreements required by this
Agreement on its part to be performed or complied with prior to
or on the Closing Date, and Prime Spot shall have received a
certificate to such effect executed by the President or the
Treasurer of Food Court dated the Closing Date.
8.3 Resolutions of Directors. Food Court shall have
delivered to Prime Spot copies of resolutions of its Board of
Directors and, if necessary, of its shareholders authorizing or
ratifying the execution, delivery and performance by it of this
Agreement, certified by its corporate Secretary.
8.4 Litigation. There shall be no injunction,
restraining order, or other order of any nature issued by a court
of competent jurisdiction, or any attachment or lis pendens filed
in any jurisdiction with respect to all or any material portion
of the Purchased Assets or which shall direct that this Agreement
or any of the transactions contemplated hereby not be consummated
as herein provided.
8.5 Mall Operating Agreements. Food Court shall
assign to Prime Spot at least 16 Mall Operating Agreements, all
of which may be Assignable Contracts or some of which may be
Consent Contracts for which Mall Operators have consented to
assignment as contemplated by Section 7.3.
8.6 Opinion. Food Court shall have delivered to
Prime Spot the opinion of Food Court counsel that Food Court has
full corporate authority and power to execute, deliver and
perform this Agreement in accordance with its terms and that no
further authorization or approval of Food Court's stockholders,
directors or creditors or from any court or administrative agency
will be necessary therefor.
8.7 Government Approval. Approval of this
Transaction shall have been granted by the Vancouver Stock
Exchange.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FOOD COURT
The obligations of Food Court to consummate the
transactions contemplated hereby are, at the option of Food
Court, subject to the fulfillment prior to or on the Closing Date
of each of the following conditions, any one or more of which may
be waived in writing by Food Court:
9.1 Representations and Warranties True. All the
representations and warranties of Prime Spot contained in this
Agreement shall be true and correct as of the Closing Date
subject to such changes or exceptions as may be contemplated by
this Agreement; and Food Court shall have received a certificate
to such effect executed by the President or a Vice President and
the Secretary or Treasurer of Prime Spot.
9.2 Covenants Performed. Prime Spot shall have
performed and complied with or shall have caused the performance
and compliance with all covenants and agreements required by this
Agreement to be performed or complied with by Prime Spot prior to
or on the Closing Date, and Food Court shall have received a
certificate to such effect executed by the President or a Vice
President and the Secretary or Treasurer of Prime Spot dated the
Closing Date.
9.3 Resolutions of Directors. Prime Spot shall have
delivered to Food Court copies of the resolutions of its Board of
Directors authorizing or ratifying the execution, delivery and
performance of this Agreement, certified by the corporate
Secretary of Prime Spot.
9.4 Litigation. There shall be no injunction,
restraining order, or other order of any nature, issued by a
court of competent jurisdiction, which shall direct that this
Agreement or any of the transactions contemplated hereby not be
consummated as herein provided.
9.5 Opinion. Prime Spot shall have delivered to
Food Court the opinion of Prime Spot counsel that Prime Spot has
full corporate authority and power to execute, deliver and
perform this Agreement in accordance with its terms and no
further authorization or approval of Prime Spot's shareholder,
directors or creditors or from any court of administrative agency
will be necessary therefor.
9.6 Government Approval. Approval of this
Transaction shall have been granted by the Vancouver Stock
Exchange.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival of Representations, Etc. All
representations, warranties and indemnities made by a party in
this Agreement or pursuant hereto shall not be affected by any
investigation at any time made by or on behalf of any other party
hereto and shall survive the Closing hereunder, but shall
terminate and expire on December 31, 2000, except as otherwise
specifically provided herein and except that each party's
warranties shall survive until December 31, 2003 and Food Court's
representations and warranties made in Sections 5.12(a), 5.13 and
5.14 shall survive indefinitely.
10.2 Indemnification by Food Court. Food Court
hereby agrees, jointly and severally, to indemnify and hold Prime
Spot harmless from and against any and all damages, losses,
settlement payments, liabilities, judgments, penalties, interest
and reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) (collectively,
"Losses") suffered, asserted against or required to be paid by
Prime Spot arising out of or in connection with:
(a) the assertion against Prime Spot or the
Purchased Assets of any claim arising in connection with the
conduct of the Business prior to the Closing Date, or the
ownership, operation or use of the Purchased Assets by Food Court
prior to the Closing Date;
(b) any product liability or other tort
liability claim by a third party relating to operation of the
Business prior to the Closing Date;
(c) the claims of brokers or finders hired by
or claiming to have been hired by Food Court;
(d) noncompliance with Section 6-104 of the
New York Uniform Commercial Code (unless compliance therewith has
been waived by Prime Spot pursuant to Section 7.10); or
(e) breach of any representation, warranty or
covenant of Food Court hereunder.
10.3 Indemnification by Prime Spot. Prime Spot
hereby agrees to indemnify and hold Food Court harmless from and
against any and all Losses suffered, asserted against or required
to be paid by Food Court arising out of or in connection with:
(a) the assertion against Food Court of any
claim arising in connection with the conduct of the Business by
Prime Spot after the Closing Date, or the ownership, operation or
use of the Purchased Assets by Prime Spot after the Closing Date;
(b) claims arising in connection with the
Assumed Liabilities;
(c) any product liability or other tort
liability claim by a third party relating to operation of the
Business after the Closing Date;
(d) the claims of brokers or finders hired by
or claiming to have been hired by Prime Spot; or
(e) the breach by Prime Spot of any of its
representations, warranties or covenants hereunder.
10.4 Indemnification Procedures.
(a) A party seeking indemnification hereunder
("Indemnitee") shall give written notice to the party from which
indemnification is sought (the "Indemnitor") of any matter with
respect to which Indemnitee seeks to be indemnified (a "Claim")
within thirty (30) days after Indemnitee first has knowledge of
such Claim, unless such Claim results from any action, suit or
proceeding against the Indemnitee (a "Litigation"), in which case
such notice shall be given promptly following Indemnitee's
receipt of service of process in such Litigation, stating in such
notice the nature of the Claim, all facts known to Indemnitee
giving rise to such Claim, the amount or an estimate of the
amount of the liability arising therefrom and the status of
settlement or other negotiations, if any.
(b) A claim for indemnification may, at the
option of the Indemnitee, be asserted as soon as any Claim has
been asserted by a third party in writing, regardless of whether
actual harm has been suffered or out-of-pocket expenses incurred,
provided that the Indemnitee shall have reasonably determined
that it may be entitled to indemnification hereunder in respect
to such Claim.
(c) After a Claim is made, the Indemnitee
shall permit the Indemnitor, at Indemnitor's option and expense,
to assume the defense of such action, suit, proceeding, claim,
demand or assessment with full authority to conduct such defense
and the Indemnitee will cooperate fully in such defense.
Indemnitor and Indemnitee shall cooperate with each other in the
defense of any Claim and each shall have notice of, and access
to, all discovery, trial or other proceedings and all documents
relating to any such Claim.
(d) Any delay or failure to notify the
Indemnitor shall relieve the Indemnitor of its obligations
hereunder only to the extent, if at all, that it is or may be
prejudiced by reason of such delay or failure. The Indemnitee
shall have the right to employ separate counsel in any of the
foregoing actions, claims or proceedings and to participate in
the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee. In the event that the
Indemnitor fails to assume the defense of any Claim within thirty
(30) days after the Indemnitee's notice of the Claim, the
Indemnitee shall have the right to undertake the defense,
compromise or settlement of such action, claim or proceeding for
the account of the Indemnitor, subject to the right of the
Indemnitor to assume the defense of such action, claim or
proceeding with counsel reasonably satisfactory to the Indemnitee
at any time prior to the settlement, compromise or final
determination thereof. Anything in this Section 10.4 to the
contrary notwithstanding, the Indemnitor shall not, without the
Indemnitee's prior written consent, settle or compromise any
action or claim or proceeding or consent to entry of any judgment
with respect to any such action or claim unless such settlement
or compromise requires solely the payment of money damages by the
Indemnitor and includes as an unconditional term thereof the
release by the claimant or the plaintiff of the Indemnitee from
all liability in respect of such action, claim or proceeding.
ARTICLE XI
GENERAL
11.1 Termination. This Agreement may be terminated
at any time prior to the Closing Date (a) by the written
agreement of the parties; (b) by Prime Spot or Food Court if
before June 30, 1998 a condition precedent to the performance by
the other party, shall become impossible to be fulfilled on or
before June 30, 1998 through no fault of the party seeking to
terminate; or (c) by Food Court or Prime Spot, if the Closing
shall not have occurred by June 30, 1998, unless such date has
been extended by written agreement signed by the parties or has
been delayed to that date by inaction of the party seeking to
terminate. Termination of this Agreement pursuant to clause (b)
or (c) of this Section 11.1 shall be effective upon the giving of
written notice of such termination by the terminating party to
the other party.
11.2 Books and Records. Promptly following the
Closing Date, Food Court shall deliver to Prime Spot all of Food
Court's books, records, and other information in its custody or
control Related to the Business.
11.3 Notices. All notices under this Agreement shall
be in writing and shall be effective (i) upon personal delivery
against receipt therefor, (ii) if sent by mail, three business
days after deposit in the United States or the Canadian Postal
Service, first class, postage prepaid, registered or certified,
return receipt requested, (iii) upon dispatch by facsimile but
only if a copy of the notice is sent by mail on the same day, or
(iv) if sent by overnight courier, two business days after
delivery to the courier. All notices given hereunder shall be
addressed
in the case of
Food Court, to: Food Court Entertainment, Inc.
220 East 42nd Street
New York, NY 10017
U.S.A.
with a copy to: Stevens & Lee
One Glenhardie Center
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087-0236
U.S.A.
Attention: Stephen F. Ritner
Fax No.: 610-687-1384
or
in the case of
Prime Spot, to: Prime Spot Media, Inc.
Suite 270
4936-87 Street
Edmonton, Alberta T6E 5W3
Canada
Fax No.: 403-462-8659
with a copy to: Satterlee Stephens Burke &
Burke LLP
230 Park Avenue
New York, New York 10169
Attention: Seth H. Dubin, Esq.
Fax No.: 212-818-9606
or to such other address or to such other person as any party
hereto shall have last designated by notice to the other parties
hereto in accordance with this Section 11.3.
11.4 Integration and Modification. This Agreement
contains the entire agreement among the parties hereto with
respect to the Transaction and there are no agreements,
warranties or representations which are not set forth herein.
All prior negotiations, agreements and understandings, whether
oral or written, are superseded hereby. This Agreement may not
be modified or amended except by an instrument in writing signed
by the party against which such modification or amendment is
sought to be enforced.
11.5 Governing Law. This Agreement shall be governed
by a 2nd construed and enforced in accordance with the laws of
the State of New York, without giving effect to the principles of
conflicts of laws thereof.
11.6 Binding Effect; No Assignment. This Agreement
shall be binding upon and inure exclusively to the benefit of the
parties and the successors, assigns and legal representatives of
the parties hereto and no other Person shall be entitled to claim
the benefit of or the right to enforce any provision of this
Agreement which creates or may create any right or obligation
between the parties hereto; provided, however, that this
Agreement and all rights hereunder may not be assigned by either
party without the consent of the other party except to an
Affiliate of that party.
11.7 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall
be deemed an original but all of which together shall constitute
one and the same instrument.
11.8 Miscellaneous Rules of Construction. The
Article and Section headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or
affect any provision hereof. References in this Agreement to
Sections, Schedules and Exhibits are to Sections of, and
Schedules and Exhibits to, this Agreement, unless otherwise
indicated. Words in the singular include the plural and words in
the plural include the singular.
11.9 Expenses.
(a) Whether or not the Transaction is
consummated, all costs and expenses incurred in connection with
this Agreement and the Transaction contemplated hereby shall be
paid by the party incurring such expenses, except as provided in
Section 7.12(b).
11.10 Waiver. No delay on the part of any party
hereto in exercising any power or right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of
any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. No waiver
shall be enforceable against any party hereto unless in writing,
signed by the party against whom such waiver is claimed, and
shall be limited solely to the one event.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above
written.
FOOD COURT ENTERTAINMENT
NETWORK, INC.
Attest:
____________________________ By:____________________________
Title:_________________________
PRIME SPOT MEDIA (NEW YORK),
INC.
Attest:
____________________________ By:____________________________
Title:_________________________
Agreed as to Section 2.5
Satterlee Stephens Burke &
Burke LLP
By:________________________
Seth H. Dubin,
Partner
<PAGE>
EXHIBIT 4.2(i)
BILL OF SALE
<PAGE>
EXHIBIT 4.2(ii)
ASSIGNMENT OF INTANGIBLE ASSETS
<PAGE>
EXHIBIT 4.1(iii)
ASSIGNMENT AND ASSUMPTION OF OPERATING AGREEMENT
("Assignment") made this day of , 1998, by and
between FOOD COURT ENTERTAINMENT NETWORK, INC., a Delaware
corporation, having an address at 220 East 42nd Street, New York,
New York 10017 (Assignor), and PRIME SPOT MEDIA USA, INC., a New
York corporation, having an address at Suite 270, 4936-87 Street,
Edmonton, Alberta, Canada T6E 5W3 (Assignee").
WITNESSETH:
WHEREAS, Assignor is the holder of all of the right,
title and interest as the Tenant in, to and under agreements (the
"Agreements") between certain Mall Operators and the Assignor
with respect to Assignor's right to install and maintain certain
broadcast equipment, broadcast programming and the operation of a
food court television network at mall locations described in each
Agreement;
WHEREAS, a list of each Agreement, including the name
of the mall operator and the Agreement date of the Agreement, is
attached hereto as Exhibit A and made a part hereof; and
WHEREAS, Assignor desires to assign its entire interest
under each Agreement listed in Exhibit A and Assignee desires to
accept such assignment subject to the terms and conditions set
forth herein.
NOW THEREFORE, for good and valuable consideration paid
by Assignee to Assignor, the receipt and sufficiency of which are
hereby acknowledged by Assignor, Assignor and Assignee agree as
follows:
1. Assignor hereby assigns, sets over and transfers
to Assignee all right, title and interest of Assignor in, to and
under each of the Agreements, effective as of the date hereof
(the "Effective Date"), including, without limitation, all right,
title and interest of Assignor under the Agreement. Assignee
hereby assumes and covenants to perform any and all of the
obligations and performance of the Assignor under the Agreement
arising or accruing on and after the Effective Date, including,
without limitation, the obligations to broadcast programming and
advertisements, maintain the equipment and make certain payments
to mall operator, and agrees to be bound by all of the covenants,
agreements, terms, provisions and conditions applicable to the
Assignor under the Agreement arising or accruing from and after
the Effective Date and agrees to indemnify and hold harmless
Assignor from and against any claims, obligations, liabilities,
causes of action, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) arising
or accruing under the Agreement from and after the date hereof.
2. Assignor represents and warrants to Assignee that
as of the Effective Date:
(a) A true and complete copy of each of the
Agreements listed in Exhibit A has been delivered to Assignee,
the receipt of which is acknowledged by Assignee's execution of
this Assignment;
(b) The Agreement is in full force and effect and
has not been modified;
(c) The Agreement has not heretofore been
assigned or otherwise encumbered by Assignor; and
(d) Assignor has full power and authority to
execute and deliver this Assignment and to carry out its
obligations hereunder and that this Assignment is valid and
binding upon Assignor in accordance with its terms.
3. This Assignment may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all of which, taken together, shall constitute but one and the
same instrument.
4. This Assignment and the obligations of the parties
hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, shall
be governed and construed in accordance with the laws of the
State of New York and may not be modified or amended in any
manner other than by a written agreement signed by the party to
be charged therewith.
FOOD COURT ENTERTAINMENT NETWORK,
INC.
By:________________________________
Name:
Title:
PRIME SPOT MEDIA, INC.
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT 4.1(iv)
ASSIGNMENT OF MARKS
<PAGE>
SCHEDULE 1.9
CONTRACTS
Mall Operating Agreements* with: Agreement Date
Christiana Mall Newark, Delaware April 13, 1995
Haywood Mall, Greenville, South Carolina August 10, 1995
Nanuet Mall, Nyack, New York August 10, 1995
Orland Square, Orland Park, Illinois August 10, 1995
Boulevard Mall, Las Vegas, Nevada March 21, 1996
White Flint Mall, North Bethseda, Maryland June 12, 1996
Springfield Mall, Springfield, Virginia May 28, 1996
Chesterfield Town Center, Richmond, Virginia September 24, 1996
University Mall, Tampa, Florida October 21, 1996
Greenbrier Mall, Chesapeake, Virginia September 5, 1996
The Center at Salisbury, Salisbury, Maryland September 24, 1996
Meriden Square, Meriden, Connecticut October 7, 1996
Eagle Ridge Mall, Lake Wales, Florida January 20, 1997
West Oak Mall, Ocoee, Florida January 20, 1997
River Hills Mall, Mankato, Minnesota January 9, 1997
Coliseum Mall, Hampton, Virginia March 11, 1996
Valley View Center, Dallas, Texas January 14, 1997
North Point Mall, Alpharetta, Georgia January 9, 1997
Connecticut Post Mall, Milford, Connecticut October 7, 1996
Pheasant Lane Mall, Nashua, New Hampshire November 20, 1996
Certain of these agreements are denominated "Lease Agreements",
others "Operating Agreements" and others "Contracts".
<PAGE>
SCHEDULE 1.12
EQUIPMENT
<PAGE>
SCHEDULE 1.23
MARKS
<PAGE>
ARTICLE V
DISCLOSURE SCHEDULE
None
<PAGE>
SCHEDULE 5.5
FINANCIAL STATEMENTS
<PAGE>
EXHIBIT G
EMPLOYMENT AGREEMENT
AGREEMENT made the day of ______________________,
1995 by and between NEWCO, Inc. a Delaware corporation, with its
principal place of business at
(hereinafter the "Company") and Peter
Bolduc residing at
, (hereinafter the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee has on the date hereof resigned
as President of Great Northern Recycling Inc. ("GNR"), a
corporation wholly-owned by the Employee and has caused
GNR to sell to the Company certain assets used by GNR in its
paper recycling business (the "Asset Sale"); and
WHEREAS, the Employee represents that he has extensive
and valuable managerial experience and expertise with respect to
the paper recycling business to be conducted by the Company and
is willing to enter into the employ of the Company in accordance
with the provisions hereinafter set forth; and
WHEREAS, the Company desires to employ the Employee in
accordance with this Agreement;
NOW, THEREFORE, in consideration of the premises and
mutual covenants hereinafter set forth, it is hereby agreed by
and between the parties as follows:
1. Employment. The Company hereby employs the
Employee and the Employee hereby accepts employment upon the
terms and conditions hereinafter set forth.
2. Term. Subject to the provisions for termination
as hereinafter provided, the term of this Agreement shall
commence on ______________________,1995, and shall terminate
______________________, 199___.
3. Duties. The Employee is engaged hereunder as its
President and shall have such duties as are prescribed for such
office in the By Laws of the Company, or as the Board of
Directors of the Company shall specify from time to time.
4. Extent of Services.
(a) The Employee shall devote his entire business
time, attention, knowledge, energy and skill solely to the
business and affairs of the Company and to the promotion of its
interests and will at all times faithfully, industriously, and to
the best of his ability, experience and talents perform all of
the duties that may be required of him hereunder.
(b) The Employee will not take part directly or
indirectly in any activities or conduct which are detrimental to
the best interests of the Company or which, in the reasonable
judgment of the Company, may interfere with the Employee's
ability to devote adequate time and attention to discharge his
duties to the full extent required hereunder and the Company
shall be entitled to all the benefits and profits arising from or
incident to all work, services, and advice of the Employee; and
the Employee will not, without the consent of the Company, engage
in any compensated activity on his own or as employee or
consultant for any person other than the Company.
5. Compensation.
(a) For all of his services, agreements and
covenants hereunder the Employee shall, except as otherwise
provided herein, accept in full compensation therefor a salary,
less withholding in such amounts as are required by law, payable
in appropriate installments to conform with the Company's regular
payroll dates, at the rate of $135,000.00 per calendar year. In
addition, the Employee shall be entitled to receive a bonus for
each calendar year of his employment with the Company hereunder
in the amount of $35,000.00 if the Company shall have net profits
(calculated by the Company's independent auditors in accordance
with generally accepted accounting principles, consistently
applied), for such year of $500,000 or more, plus an additional
bonus in the amount of $30,000.00 if the Company's net profits
(as so calculated) for such year shall be $750,000 or more. All
such bonuses hereunder shall be payable within thirty (30) days
after the calculation of the Company's net profits for the year
by the Company's independent auditors as provided above, which
shall be commenced as promptly as possible after the end of each
such calendar year.
(b) As a further inducement to accept employment
with the Company hereunder, the Company agrees to make a
nonrecourse loan to the Employee on or about April 15, 1996 in
the principal amount of up to $305,000.00 with interest thereon
at the rate of 5% per annum payable in equal installments of
principal and interest over a ten (10) year period, and with the
final such installment to be due and payable on or about
April 15, 2006; such loan to be used by the Employee solely to
pay his 1995 U.S. Federal income tax obligation arising from the
Asset Sale, and to be evidenced by a promissory note reflecting
the foregoing terms and to be secured by the pledge of all shares
of the capital stock of the Company owned by the Employee and
GNR, such promissory note and pledge to be in form and substance
satisfactory to the Company.
6. Employee Benefits. The Company shall provide the
Employee, at its own expense (but in the case of insurance,
subject to the insurability, without penalty, of the person to be
insured) with the health, accident and major medical insurance,
pension and other benefits offered to the employees of the
Company generally.
7. Expenses.
(a) The Company agrees that each month during the
period of his employment under this Agreement, the Employee shall
be reimbursed for any ordinary and necessary business
expenditures made by him in performing his duties hereunder upon
presentation and approval of expense statements, receipts,
vouchers or such other supporting information as may from time to
time be requested by the Company.
(b) Such ordinary and necessary business
expenditures shall include, but not be limited to, business
travel, (other than daily commutation) accommodation and
entertainment (to the extent allowed as a deduction by the
Company under applicable tax laws and regulations) but shall not
include moving costs, costs of living accommodations or other
costs incidental to acceptance of employment under this
Agreement.
8. Vacation. The Employee shall be entitled to (___)
weeks paid vacation for each twelve (12) months he is employed
pursuant to this Agreement.
9. Non-Competition; Confidential Information.
(a) The Employee agrees that during the term of
this Agreement and for one (1) year thereafter, he will not,
within the States of _______________________, directly or
indirectly, (i) own, manage, operate or control; (ii) enter the
employ of; (iii) participate in or render any service to; or
(iv) be in any other way connected with, any "Competitive
Interest" of the Company (herein defined as any person,
partnership, corporation or other entity engaged in any paper
recycling business; provided however that nothing herein shall be
deemed to prevent or limit the right of the Employee to invest in
the securities of any corporation whose stock or securities are
publicly owned or are regularly traded on any public exchange, or
in real estate.
(b) The Employee agrees that he will regard and
preserve as confidential any information that is not public
knowledge concerning the Company or its business which is
obtained by him from any source whatsoever during the course of
his employment hereunder or by GNR and (to the extent that such
information does not become public knowledge other than by his
violation of this Agreement) that he will not, without the prior
written consent of the Company, directly or indirectly, disclose
or communicate to any person, partnership, corporation or other
entity in any manner whatsoever, during his employment or at any
time thereafter, any of such information obtained by him while
employed hereunder. Because of the unique nature of the
Employee's services and because a breach of this Paragraph 9
cannot be adequately compensated by money damages, in the event
of a breach or threatened breach by the Employee of the
provisions of this Paragraph 9, the Company shall be entitled to
an injunction, without having to prove irreparable harm,
restraining the Employee from being in any way (as hereinabove
described) connected with any Competitive Interest, and/or from
disclosing, in whole or in part, any of the above described
information concerning any matters affecting or relating to the
Company, or from rendering any services to any person,
partnership, corporation, or other entity to whom such
information, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach, including
the recovery of damages from the Employee.
10. Termination.
(a) This Agreement shall terminate forthwith upon
the death of the Employee.
(b) This Agreement may be terminated by the
Company by written notice to the Employee
(i) in the event the Employee materially
breaches any of the terms hereof;
(ii) in the event there has been continued
neglect or willful misconduct in connection with the
performance of his duties hereunder by the Employee;
(iii) in the event the Employee has become
"disabled" (herein defined as the failure because of
illness or incapacity to render services of the
character herein contemplated for a period of thirty
(30) consecutive days or for an aggregate period of
sixty (60) business days during the previous twelve
(12) month period);
(iv) in the event the Company (A) mergers or
consolidates with or into another entity; or (B) sells
all or substantially all of its assets to an
unaffiliated third party; or
(v) in the event of disloyal, dishonest or
illegal conduct by the Employee.
(c) The Employee may terminate this Agreement by
written notice to the Company in the event
(i) the Company is declared bankrupt, makes
an assignment for the benefit of creditors or permits
or suffers the appointment of a receiver of all of its
business or assets; or
(ii) the Company materially breaches this
Agreement.
(d) In the event of termination pursuant to any
provision hereof other than Sub-paragraph 10(c), the Company's
obligations hereunder shall cease and terminate as of the date of
such termination, provided that in the event of the termination
hereof pursuant to Sub-paragraph 10(b)(iv), the Company shall pay
the Employee, as a lump-sum severance payment, a sum equal to
_______ weeks salary at the rate then in effect.
11. Representations and Warranties; Indemnification.
(a) The Employee represents and warrants to the
Company this his employment by the Company does not and will not
violate any provision of law or any duty by which he is bound and
will not conflict with or result in a breach of any agreement,
instrument, or other understanding to which he is a party or by
which he is bound, and the Employee agrees that he will indemnify
and hold harmless the Company, its directors, officers and
employees against any claims, damages, liabilities and expenses
which may be incurred (including reasonable expenses of
investigation or of defending against the same and amounts paid
in settlement) by any of them in connection with any claim based
upon or related to a breach of the Employee's representation and
warranty set forth above.
(b) The Company represents and warrants to the
Employee that the execution and performance hereof does not and
will not violate any provision of any law or any duty by which it
is bound and will not conflict with or result in a breach of any
agreement, instrument, or other understanding to which it is a
party or by which it is bound and agrees to indemnify and hold
harmless the Employee against any claims, damages, liabilities
and expenses which he may incur (including reasonable expenses of
investigation or defending against the same and amounts paid in
settlement) in connection with any claim based upon or related to
a breach of its representation and warranty set forth above.
12. Arbitration. Any controversy or claim arising out
of, under, or in connection with this Agreement or any breach
thereof, shall be settled by arbitration in the City of New York
State of New York in accordance with the rules then obtaining of
the American Arbitration Association and judgment upon the award
of the arbitrators may be entered in the Courts of any state
having jurisdiction hereof.
13. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of New York.
14. Partial Invalidity. If any provision of this
Agreement shall contravene or be invalid under the laws of any
jurisdiction in which this Agreement shall be performed or
enforced, then such provision or invalidity shall be deemed to be
modified to the extent necessary to render it valid and
enforceable, and if no such modification shall render it valid
and enforceable, then the Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced
accordingly.
15. Waiver, Modification, Amendment, Termination.
Except where specific time limits are herein provided, no delay
on the part of either party hereto in exercising any power or
right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any power or right. No wavier,
modification, or amendment of this Agreement or any provision
hereof, shall be enforceable against either party hereto unless
in writing, signed by the party against whom such waiver,
modification, amendment or termination is claimed, and with
regard to any waiver, shall be limited solely to the one event.
16. Integration. This Agreement contains the entire
Agreement between the parties hereto with respect to the subject
matter hereof and replaces any and all prior agreements or
understandings, whether written or oral; and neither party shall
be bound by, or shall be deemed to have made, any representations
and/or warranties except those expressly contained herein.
17. Notices. All notices in connection herewith shall
be validly given or made, only if in writing and delivered
personally or by registered or certified mail return receipt
requested, with postage prepaid to the party entitled or required
to receive the same at the address first above given or at such
other address as either party may designate to the other by
notice as herein provided.
18. Successors and Assigns. None of the rights,
benefits or obligations of the Employee under this Agreement
shall be transferred or assigned without the prior written
consent of the Company. The Company shall not transfer or assign
any of its rights, benefits or obligations hereunder, except in
connection with the merger or consolidation of the Company,
without the prior written consent of the Employee into or with
any other corporation or other entity or entities or in
connection with the transfer of all or substantially all of its
assets. Except as hereinabove otherwise provided, this Agreement
shall inure to and be binding upon the parties hereto and their
respective successors, assigns and legal representatives.
19. Captions. The captions or headings of the
Paragraphs herein are inserted only as a matter of convenience,
and in no way define, limit or in any other way describe the
scope of this Agreement or the intent of any provisions hereof.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its officers thereunto duly
authorized and its corporate seal to be hereunto affixed, and the
Employee has hereunto set his hand as of the day and year first
above written.
___________________________________
Peter Bolduc
NEWCO, INC.
By:________________________________
Title: Chairman
<PAGE>
SCHEDULE 7.9
SECTION 1060 ALLOCATION
Allocation of Purchase Price:
Equipment: $225,000
Mall Operating Agreements 225,000
$450,000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 305,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 305,000
<PP&E> 450,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 705,000
<CURRENT-LIABILITIES> 1,060,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (305,000)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 20,000
<CGS> 0
<TOTAL-COSTS> 6,300,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,187,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,187,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,187,000)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
