SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended April 3, 1999 Commission File No. 0-6882
URT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1167907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 East Hallandale Beach Boulevard, Hallandale, Florida 33009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES ___ NO _X_
The aggregate market value (based on the average closing bid and asked prices)
of the voting stock held by non-affiliates of the registrant was, as of June 1,
1999, approximately $460,000.
As of June 2, 1999, the registrant's transfer agent reported as issued and
outstanding:
10,857,068 Shares of Class A Common Stock
1,348,141 Shares of Class B Common Stock
<PAGE>
PART I
Item 1. BUSINESS
URT Industries, Inc. ("URT" or the "Company"), a Florida corporation, began
business in 1967. Since 1981, it has been engaged in the operation of retail
stores which sell prerecorded music, videos, and related products (the "Retail
Business") in the Southeastern part of the United States under the name
"PEACHES". Such business is operated by its subsidiary, Peaches Entertainment
Corporation ("PEC"), a Florida corporation. URT and certain of its directors and
officers own approximately 93.5% of PEC's issued and outstanding shares of
common stock and all of its issued and outstanding shares of preferred stock.
The remaining approximately 6.5% of PEC's common stock is owned by
non-affiliated persons.
The Peaches Stores
The following table sets forth the number of "Peaches" stores (the
"'Peaches' stores") which were open at the beginning of the year, which opened
during the year, which closed during the year and which were open at the end of
the year, with respect to URT's last five complete fiscal years ending with the
fiscal year ended April 3, 1999 (the "1999 fiscal year"):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of stores:
At beginning of period 12 13 13 19 20
Opened during period 1 0 0 0 1
Closed during period (1) (1) (0) (6) (2)
---- ---- ---- ---- ----
At end of period 12 12 13 13 19
</TABLE>
The twelve "Peaches" stores which are in operation are located in the
following four states: Florida (six stores), Virginia (three stores), North
Carolina (two stores), and Alabama (one store). The utilized space of the stores
ranges from approximately 6,000 square feet to approximately 14,000 square feet.
Each store either has its own parking area or is located in a shopping center
which provides parking. PEC has options to renew most of its leases for various
periods.
Two of the Florida stores, one in Fort Lauderdale and the other in Orlando,
are currently leased from the Chairman of URT and his brother, a former director
of URT. (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
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For information concerning real property owned by PEC, see "Properties".
Trademarks
PEC is the registered owner of and owns nationwide rights to the trade
name, service mark and trademark "PEACHES" (the "Trademarks") in connection with
the operation of the Retail Business.
Operation of the Peaches Stores
The "Peaches" stores are all similar in appearance, except for PEC's
mall-type store. They have distinct, wood paneled interiors, are decorated in a
manner which identifies them as "Peaches" stores and carry a wide selection of
prerecorded music as well as recorded and blank video tapes, accessory items and
specialty items such as T-shirts and crates. Some stores are free standing and
others are contiguous to other stores in shopping centers. At present, each
"Peaches" store is managed by an individual director who is responsible for
re-orders of merchandise and displaying merchandise sold in the store, hiring
and firing personnel and other matters relating to store administration. Certain
other matters, including pricing, relationships with landlords and the purchase
and allocation of new releases, are handled by the home office. PEC has a
computerized inventory control system in place at each of its stores.
As of the last day of the 1999 fiscal year, PEC purchased merchandise from
approximately 60 suppliers, among whom the principal ones during most of fiscal
1999 were BMG, EMI, PGD, SONY, Universal and WEA. Approximately 72% of the
merchandise purchased during the 1999 fiscal year came from such principal
suppliers. In PEC's fourth quarter of fiscal 1999, Seagram Co., Ltd, the owner
of Universal, completed its purchase of PGD. This action has brought PEC's
number of principal suppliers from six to five. Although PEC does not anticipate
an adverse effect as a result of the above, it is unknown what impact, if any,
this acquisition will have on the ongoing results of operations of PEC.
Purchases from given suppliers are, to a great extent, determined by which
of them are manufacturing or distributing the most popular prerecorded music
products at any given time, as well as the credit and other terms on which such
suppliers are willing to sell to PEC. PEC is not obligated to purchase
merchandise from any supplier. It has numerous alternate sources of supply for
inventory. However, a loss of one of its principal suppliers may have a
materially adverse effect on PEC's results of operations.
Merchandise is delivered directly by suppliers to the stores. The usual
terms received by PEC from suppliers provide for payment to be made within 60
days from the end of the month in which a net purchase was made. In addition,
PEC normally receives an additional 30 to 120 days to pay for certain purchases
during the course of the year. Such terms are usual in the industry.
Under current industry practice, PEC is able to return merchandise, subject
to certain limitations, to all of its major suppliers, who charge a penalty if
returns exceed certain percentages of the dollar amounts of
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gross purchases. Such return policies do not have a materially adverse effect on
PEC's business.
Advertising in local newspapers and media is determined by consultation
between each store director and PEC management. PEC also engages in cooperative
advertising with suppliers who pay a portion of the cost. In addition to the
director, each "Peaches" store is staffed with managers, cashiers and sales and
stock room personnel. The stores are open seven days a week.
Quarterly results are affected by the timing of holidays, the timing and
strength of new releases, new store openings/closings and sales performance of
existing stores. During the 1999 fiscal year, sales between April and June were
approximately 22% of total sales; sales between July and September were
approximately 22% of total sales; sales between October and December were
approximately 31% of total sales; and sales between January and March were
approximately 25% of total sales.
Competition
The retail sale of prerecorded music and video products is highly
competitive. There are hundreds of retail, department, discount and variety
stores and supermarkets which offer such merchandise to the public. PEC's share
of the retail market in the Southeastern United States is not significant. In
recent years, in addition to usual competition, there has been a proliferation
of non-traditional music outlets, such as appliance retailers and super book
stores, some of whom have used very aggressive price cutting tactics including
selling some products below actual cost in order to attract customers and sell
non-music and video products. For a discussion of actions taken to address such
competitive factors, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
Employees
As of the last day of the 1999 fiscal year, URT and PEC (hereinafter,
collectively, the "URT Companies") had approximately 239 employees. Neither URT
nor PEC is a party to any collective bargaining agreements. Relations with
employees have been good and there have been no work stoppages.
Intercorporate Agreements
There are three agreements in place pertaining to the management of PEC.
Two of such agreements are between URT and PEC and the third is between URT and
Allan Wolk, URT's Chairman, President and Chief Executive Officer. Pursuant to
such agreements, the following arrangements are in effect: for the period from
January 1, 1996 through March 31, 2000, URT will continue to provide to PEC the
services of Mr. Wolk as PEC's Chairman, President and Chief Executive Officer;
PEC is required to pay to Mr. Wolk during such period, so long as he continues
to provide such services, a salary in the amount described below; the amount so
paid by PEC to Mr. Wolk pursuant to such arrangement shall be credited against
the amount payable by URT to Mr. Wolk pursuant to the employment agreement
between them; and URT and PEC will continue to
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equitably apportion taxes so long as they continue to file a consolidated
federal return. The salary so payable by PEC to Mr. Wolk pursuant to such
arrangements is $500,000 per annum, except that such amount was reduced to
$400,000 per annum, effective March 1, 1997 and continuing until February 28,
1999, and except further that such amount was further reduced to $300,000 per
annum, effective January 1, 1998 and continuing until March 28, 1998, and to
$250,000 per annum, effective April 1, 1998 and continuing until April 3, 1999.
As a result of the above-described arrangements, the portion of Allan
Wolk's total salary from the URT Companies which was assumed by PEC was reduced
from $375,000 during the 1998 fiscal year to $250,000 during the 1999 fiscal
year. During both the 1999 and 1998 fiscal years, Mr. Wolk devoted approximately
75% of his contractual working time to the business of PEC.
Item 2. PROPERTIES
The headquarters for URT and PEC (the "URT Companies") are located in
Hallandale, Florida in a building which is leased by PEC. Such building contains
a total of approximately 6,000 square feet of office space.
PEC owns real property in Mobile, Alabama on which it constructed and
operates a "Peaches" store. Such property is subject to a first mortgage to an
institutional lender.
All "Peaches" stores, other than the Mobile, Alabama store discussed
immediately above, are leased. For information concerning such other stores
operated by PEC, see "BUSINESS--The Peaches Stores".
Item 3. LEGAL PROCEEDINGS
In April, 1999, PEC instituted a legal action in the Circuit Court of the
Ninth Judicial Circuit of Orange County, Florida against the landlord with
respect to one of its Orlando, Florida stores. Among the allegations in the
complaint are fraudulent misrepresentations as to the nature of the landlord's
shopping center. PEC is seeking all available remedies in both law and equity.
The action is presently pending.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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Price Range of Common Stock
URT's Class A and Class B Common Stock are quoted by market makers on the
over-the-counter market. The following table sets forth the closing high and
low, bid and asked quotations for the Class A Common Stock for the calendar
periods indicated, based on information supplied by the National Quotation
Bureau, Incorporated:
<TABLE>
<CAPTION>
Bid Prices Asked Prices
---------- ------------
High Low High Low
<S> <C> <C> <C> <C>
1997
Quarter ended March 31, .04 .03 .05 .05
Quarter ended June 30, .04 .03 .06 .05
Quarter ended Sept. 30, .03 .03 .05 .05
Quarter ended Dec. 31, .03 .03 .05 .05
1998
Quarter ended March 31, .03 .03 .05 .05
Quarter ended June 30, .05 .03 .08 .05
Quarter ended September 30, .05 .05 .08 .07
Quarter ended December 31, .05 .045 .07 .065
1999
Quarter ended March 31, .06 .045 .07 .065
Quarter through June 1, .06 .05 .07 .06
</TABLE>
The following table sets forth the closing high and low, bid and asked
quotations for the Class B Common Stock for the calendar periods indicated,
based on information supplied by the National Quotation Bureau, Incorporated:
<TABLE>
<CAPTION>
Bid Prices Asked Prices
---------- ------------
High Low High Low
<S> <C> <C> <C> <C>
1997
Quarter ended March 31, .03 .03 .12 .12
Quarter ended June 30, .035 .025 .12 .12
Quarter ended Sept. 30, .025 .025 .12 .12
Quarter ended Dec. 31, .025 .025 .12 .12
1998
Quarter ended March 31, .025 .025 .12 .12
Quarter ended June 30, .025 .025 .12 .12
Quarter ended Sept. 30, .025 .025 .12 .12
Quarter ended Dec. 31, .025 .025 .12 .12
1999
Quarter ended March 31, .03 .025 .12 .12
Quarter through June 1, .03 .03 .12 .12
</TABLE>
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The above over-the-counter quotations represent prices between dealers, do
not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
Dividends
There has not been any payment of dividends during the two most recently
completed fiscal years or between such period and the date of this report.
Payment of dividends in the future will depend on URT's earnings and needs.
Approximate Number of Equity Security Holders
The following table indicates the approximate number of holders of record
of each class of URT's equity securities as of June 2, 1999, based on
information supplied by URT's transfer agent:
Number of Record
Title of Class Holders
-------------- -------
Class A Common Stock, $.01 par value 4,547
Class B Common Stock, $.01 par value 1,143
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Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other
operating information of the Company. The selected financial data
should be read in conjunction with the financial statements and
related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
April 3, March 28, March 29, March 30, April 1,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating statement data:
Net sales $ 17,480,467 17,077,501 18,109,119 23,626,489 31,960,986
Net loss (646,684) (874,862) (1,161,786) (2,161,535) (1,759,085)
Basic and diluted earnings per
share (1) (0.05) (0.07) (0.09) (0.17) (0.14)
Weighted average number of
common shares outstanding (1) 12,158,209 12,158,209 12,637,634 12,637,634 12,674,448
Balance sheet data:
Working capital excluding
liabilities subject to compromise
in 1996 $ 957,004 1,531,303 3,174,312 9,188,083 5,168,136
Total assets 5,460,034 6,783,328 8,068,055 12,788,918 14,647,795
Current portion of long-term
obligations 108,280 732,319 730,239 124,774 110,028
Long-term obligations 469,759 578,127 1,337,190 810,367 929,654
Liabilities subject to compromise -- -- -- 5,671,434 --
Shareholders' equity 1,823,328 2,466,753 3,341,615 4,503,401 6,702,841
</TABLE>
There were no cash dividends declared for common stock in any of the periods
presented.
(1) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128 which requires the disclosure
of basic earnings per share and diluted earnings per share. Earnings per
share for all prior periods have been restated to reflect the provisions of
this Statement.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, URT's management may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe", "anticipate", "estimate",
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as part of other sections of this Annual Report or other filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates, and are subject to
certain risks, uncertainties and assumptions. These risks include, but are not
limited to: changes in the competitive environment for the Company's products,
including the entry or exit of non-traditional retailers of the Company's
products to or from its markets; the release by the music industry of an
increased or decreased number of "hit releases"; general economic factors in
markets where the Company's products are sold; and other factors discussed in
this filing and the Company's other filings. Should one or more of these risks
or uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected.
The results of operations discussed herein are those of the URT Companies on a
consolidated basis. As a result, references in this Section to the "Company"
include both URT and PEC.
Results of Operations
FISCAL YEAR ENDED APRIL 3, 1999 ("1999") COMPARED TO FISCAL YEAR ENDED
MARCH 28, 1998 ("1998")
Net sales for 1999 increased $403,000 or 2.4 percent compared to 1998. The
increase is primarily due to the fact that the Company operated one more store
for a portion of 1999 offset by a comparable store decrease of 1.6 percent.
Cost of sales, as a percentage of net sales, decreased from 61.5 percent in 1998
to 59.3 percent in 1999. Such decrease is primarily attributable to an increase
in certain retail prices and increases in purchase discounts.
Selling, general and administrative expenses, including depreciation, expressed
as a percentage of net sales increased to 44.6 in 1999 compared to 43.8 in 1998.
The increase is primarily attributable to expenses incurred throughout the
Company's first quarter of 1999 relating to the new store that did not actually
open until after the first quarter began.
The Company had a net loss of $647,000 in 1999 compared with a net loss of
$875,000 in 1998. The reduction of net loss is primarily attributable to the
increase in gross profit percentage discussed above, a decrease in interest
expense as well as an approximately $45,000 reduction of net loss due to the
fact that fiscal 1999 was a 53 week year while fiscal 1998 was a 52 week year.
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FISCAL YEAR ENDED MARCH 28, 1998 ("1998") COMPARED TO FISCAL YEAR ENDED
MARCH 29, 1997 ("1997")
Net sales for 1998 decreased by 5.7% compared to 1997. Such decrease is
attributed to a 3.2% decrease in comparable store sales, and a 2.5% decrease in
sales due to one store that closed in 1998.
The cost of sales for 1998 was lower than that for 1997 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales decreased from
63.2% in 1997 to 61.4% in 1998 due principally to the fact that during the first
quarter of 1998 the Company began to receive discounts associated with normal
trade terms as a result of the conclusion of the Chapter 11 proceeding. Such
decrease is also attributed to increases in other purchase discounts and an
increase in certain retail selling prices.
Selling, general and administrative expenses, including depreciation and
amortization ("SG&A") in 1998 decreased by 9.0% compared to 1997. Such decrease
is attributed to a decrease in corporate overhead (6.9%) and a decrease due to
the closing of one of the Company's stores (2.3%), offset by an increase in
comparable store expenses (0.2%). SG&A expenses, as a percentage of net sales,
decreased from 45.3% in 1997 to 43.7% in 1998 due to such overhead reductions.
The Company incurred a net loss of $875,000 in 1998 versus a net loss of
$1,163,000 in 1997. The reduction of net loss is attributed to an increase in
gross profit percentage and a decrease in expenses as discussed above.
The Company's primary suppliers have taken steps to help protect the retail
marketplace from certain low cost retailers of music. These steps have included
not disbursing cooperative advertising funds to retailers which engage in low
cost selling practices in violation of the minimum advertised pricing policies
of such suppliers. Management believes that such initiatives, in combination
with the other factors mentioned immediately below, have helped the Company to
restore itself to a more competitive position. Another factor which has had a
positive effect on the Company's performance is the increase in gross profit
percentage. Also, PEC's Plan of Reorganization was confirmed during the last
quarter of 1997. The benefits of the reorganization included the termination of
the leases associated with the six unprofitable stores which were closed during
1996, the closing of the Company's former headquarters and warehouse, and the
termination of other unprofitable business arrangements. Other competitive
advantages over certain competitors include a large selection of inventory,
convenient store locations, a high level of customer service and the widely
recognized "Peaches" name.
FISCAL YEAR ENDED MARCH 29, 1997 ("1997") COMPARED TO FISCAL YEAR ENDED
MARCH 30, 1996 ("1996")
Net sales for 1997 decreased 23.4% compared to 1996. 13.3% of such decrease is
attributed to the fact that 1996 included sales for stores that had been open
during 1996 and were closed during or near the end of 1996. The balance of such
decrease (10.1%) is attributed to comparable store sales.
The cost of sales for 1997 was lower than that for 1996 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales decreased from
64.8% in 1996 to 63.2% in 1997 due to increased
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purchase discounts in 1997 and the fact that 1996 reflected the effects of
buying a portion of PEC's inventory during the Chapter 11 proceeding from
alternate sources with higher prices.
SG&A expenses in 1997 decreased 21.3% compared to 1996. Such decrease is
attributed to a decrease in store operating expenses of stores that had been
open during 1996, but were closed during or near the end of 1996 (13.9%), a
decrease in corporate overhead (1.9%), and a decrease in comparable store
expenses (5.5%). SG&A expenses, as a percentage of net sales, increased from
43.7% in 1996 to 45.3% in 1997 due to the fixed nature of certain expenses and
the decrease in net sales in addition to the aforementioned items.
The Company incurred a net loss of approximately $1,163,000 in 1997 versus a net
loss of approximately $2,162,000 in 1996. The significant reduction of net loss
is attributed to the benefits of the Chapter 11 proceeding. However, such
benefits were offset by professional fees and lost gross profits as a result of
not obtaining similar terms from trade creditors to those that existed prior to
the Chapter 11 proceeding until approximately the first quarter of 1998, at
which time the Company's primary suppliers provided terms with respect to
purchases and returns that were the same as those in place prior to the Petition
Date. Also, further overhead reductions were not evident until 1998.
Liquidity and Capital Resources
Cash generated from operations and cash equivalents are the Company's primary
source of liquidity. Management anticipates that the cash generated from
operations, cash equivalents on hand and financing will provide sufficient
liquidity to maintain adequate working capital for operations. Management used
cash on hand as well as funds received from its landlord for the building of the
new store which opened in May 1998. For a discussion of uncertainties affecting
the Company's liquidity and capital resources, see note 3 to the financial
statements accompanying this Form 10-K.
At April 3, 1999, the Company had long-term obligations of $469,759. Management
anticipates that its ability to repay its long-term obligations will be
satisfied primarily through funds generated from its operations or from possible
financing.
For a discussion of URT's guaranty of certain PEC obligations to creditors in
connection with the Chapter 11 proceeding and for a discussion of URT's
agreement with PEC to take any necessary action to see that funds are available
to cover any shortfalls up to April 2, 2000, see "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".
Although the Company cannot accurately determine the precise effect of inflation
on its operations, management does not believe inflation has had a material
effect on the results of operations in the last three fiscal years. When the
cost of merchandise items has increased, the Company has been able to pass the
increase on to its customers.
The Company's business is seasonal in nature, with the highest sales and
earnings historically occurring in the third fiscal quarter, which includes the
Christmas selling season.
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have data-sensitive
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software may recognize a date using "00" as year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations. The Company has assessed that it is required to upgrade portions of
its software which was originally purchased from outside vendors, so that its
computer systems will properly utilize dates beyond December 31, 1999. The
Company has purchased its upgraded software and expects that testing and
implementation will be completed by August, 1999. The total anticipated cost of
the upgrade of the Company's software is approximately $20,000. However, there
can be no absolute assurance that the Company can successfully implement the
necessary upgrades to its computer systems. Additionally, the Company is
dependent on basic public infrastructure, such as telecommunications and
utilities, in order to function normally. Significant long-term interruptions of
this infrastructure could have an adverse effect on the operations of the
Company. Additionally, the Company must rely on assurances from suppliers and
vendors that their information systems and key services will be Year 2000
compliant, and the Company currently has no practical alternatives if these
major suppliers experience problems. Therefore, even if the Company, in a timely
manner, successfully implements the necessary changes to its computer systems,
some problems may not be identified or corrected in time to prevent material
adverse consequences or business interruptions to the Company, and there can be
no absolute assurance that there will not be a material adverse effect on the
Company's operations, liquidity or financial condition as a result of the Year
2000 issue.
New Accounting Policies
In June, 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 31, 1997. Adoption of
Statement 130 did not have a material effect on the Company's financial
position, results of operations or cash flows.
In 1997, the FASB issued Statement of Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("Statement
131"). Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that these enterprises report selected information about
operating segments in interim financial reports to shareholders. Statement 131
is effective for financial statements for the periods beginning after December
15, 1997. The Company operates as one segment.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company owns no derivative financial instruments or derivative
commodity instruments. The Company's exposure to changes in interest rates is
limited to cash, cash equivalents, investments and long-term debt. Changes in
interest rates by 10% would not have a material impact on the Company's
financial position or results of operations.
Item 8. FINANCIAL STATEMENTS
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
April 3, 1999 and March 28, 1998
(With Independent Auditors' Report Thereon)
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URT INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of April 3, 1999 and March 28, 1998 F-3
Consolidated Statements of Operations and Comprehensive Income for each of the years in
the three-year period ended April 3, 1999 F-4
Consolidated Statements of Shareholders' Equity for each of the years in the three-year F-6
period ended April 3, 1999
Consolidated Statements of Cash Flows for each of the years in the three-year period F-7
ended April 3, 1999
Notes to Consolidated Financial Statements F-9
</TABLE>
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Independent Auditors' Report
Directors and Shareholders
URT Industries, Inc. and Subsidiaries
Hallandale, Florida:
We have audited the accompanying consolidated balance sheets of URT Industries,
Inc. and subsidiaries (the "Company") as of April 3, 1999 and March 28, 1998,
and the related consolidated statements of operations and comprehensive income,
shareholders' equity and cash flows for each of the years in the three-year
period ended April 3, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of URT Industries, Inc.
and subsidiaries as of April 3, 1999 and March 28, 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 3, 1999 in conformity with generally accepted accounting
principles.
May 28, 1999 KPMG LLP
Ft. Lauderdale, Florida
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(F-2)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
April 3, 1999 and March 28, 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 927,982 1,281,098
Marketable investment securities 439,640 1,032,740
Inventories 2,309,600 2,433,433
Current portion due from officers/shareholders 42,769 45,302
Prepaid expenses and other current assets 291,809 387,048
----------- -----------
Total current assets 4,011,800 5,179,621
Property and equipment, net 1,249,289 1,364,333
Due from officers/shareholders 3,385 37,722
Other assets 195,560 201,652
----------- -----------
$ 5,460,034 6,783,328
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations $ 108,280 732,319
Accounts payable 2,240,109 2,014,674
Accured liabilities 706,407 901,325
----------- -----------
Total current liabilities 3,054,796 3,648,318
Long-term obligations 469,759 578,127
Deferred rent 63,030 62,834
Minority interest in a subsidiary 49,121 27,296
----------- -----------
Total liabilities 3,636,706 4,316,575
----------- -----------
Shareholders' equity:
Common stock, $.01 par value; 30,000,000 shares
authorized; 15,317,454 shares issued 153,175 153,175
Additional paid-in capital 5,542,152 5,542,152
Retained deficit (2,856,923) (2,210,239)
Accumulated other comprehensive income - net unrealized
appreciation on investment securities 3,259 --
----------- -----------
2,841,663 3,485,088
Treasury stock, 3,159,245 common shares at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 1,823,328 2,466,753
Commitments and contingencies
----------- -----------
$ 5,460,034 6,783,328
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-15-
(F-3)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For each of the years in the three-year period ended April 3, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 17,480,467 17,077,501 18,109,119
------------ ------------ ------------
Cost and expenses:
Cost of sales 10,361,351 10,501,123 11,453,125
Selling, general and administrative expenses 7,488,565 7,200,524 7,762,242
Depreciation and amortization 305,226 274,943 454,047
------------ ------------ ------------
18,155,142 17,976,590 19,669,414
------------ ------------ ------------
Loss from operations (674,675) (899,089) (1,560,295)
------------ ------------ ------------
Other (expense) income:
Interest expense (101,174) (167,085) (88,345)
Interest income 45,052 105,614 155,888
Other income 57,938 99,264 108,957
------------ ------------ ------------
1,816 37,793 176,500
------------ ------------ ------------
Loss before reorganization costs, income taxes,
minority interest and extraordinary gain (672,859) (861,296) (1,383,795)
------------ ------------ ------------
Reorganization costs:
Professional fees -- (44,000) (379,645)
------------ ------------ ------------
-- (44,000) (379,645)
------------ ------------ ------------
Loss before income taxes, minority interest and
extraordinary gain (672,859) (905,296) (1,763,440)
Provision for income taxes -- -- --
------------ ------------ ------------
Loss before minority interest and extraordinary gain (672,859) (905,296) (1,763,440)
Minority interest in net loss of consolidated subsidiary (26,175) (30,434) (115,275)
------------ ------------ ------------
Loss before extraordinary gain (646,684) (874,862) (1,648,165)
Extraordinary gain due to reorganization (note 2) -- -- 486,379
------------ ------------ ------------
Net loss $ (646,684) (874,862) (1,161,786)
============ ============ ============
Other comprehensive income:
Net unrealized appreciation on investment securities, net
of tax 3,259 -- --
------------ ------------ ------------
Comprehensive loss $ (643,425) (874,862) (1,161,786)
============ ============ ============
Basic and diluted earnings per common share:
Loss before extraordinary gain $ (0.05) (0.07) (0.13)
Extraordinary gain -- -- 0.04
------------ ------------ ------------
Net loss $ (0.05) (0.07) (0.09)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
(F-4)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended April 3, 1999
Common stock issued
------------------------------------
Shares
------------------------------------
Class "A" Class "B" Amount
---------- ---------- ----------
Balance, March 30, 1996 13,764,588 1,552,866 $ 153,175
Net loss -- -- --
---------- ---------- ----------
Balance, March 29, 1997 13,764,588 1,552,866 153,175
Net loss -- -- --
---------- ---------- ----------
Balance, March 28, 1998 13,764,588 1,552,866 153,175
Net loss -- -- --
Net unrealized appreciation -- -- --
---------- ---------- ----------
Balance, April 3, 1999 13,764,588 1,552,866 $ 153,175
========== ========== ==========
See accompanying notes to consolidate financial statements.
-17-
(F-5)
<PAGE>
<TABLE>
<CAPTION>
Treasury stock
------------------------------------ Accumulated
Shares Capital Other
------------------------------------ in excess Retained Comprehensive
Class "A" Class "B" Amount of par deficit Income Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 30, 1996 2,907,520 251,725 (1,018,335) 5,542,152 (173,591) -- 4,503,401
Net loss -- -- -- -- (1,161,786) -- (1,161,786)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 29, 1997 2,907,520 251,725 (1,018,335) 5,542,152 (1,335,377) -- 3,341,615
Net loss -- -- -- -- (874,862) -- (874,862)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 28, 1998 2,907,520 251,725 (1,018,335) 5,542,152 (2,210,239) -- 2,466,753
Net loss -- -- -- -- (646,684) -- (646,684)
Net unrealized appreciation -- -- -- -- -- 3,259 3,259
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, April 3, 1999 2,907,520 251,725 (1,018,335) 5,542,152 (2,856,923) 3,259 1,823,328
========== ========== ========== ========== ========== ========== ==========
</TABLE>
-18-
(F-6)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended April 3, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (646,684) (874,862) (1,161,786)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Extraordinary gain -- -- (486,379)
Depreciation and amortization 305,226 274,943 454,047
Deferred rent 196 (93,202) (44,687)
Minority interest in net loss of consolidated
subsidiary 21,825 (30,434) (115,275)
Changes in assets and liabilities affecting cash
flows from operating activities:
(Increase) decrease in:
Inventories 123,833 422,061 25,200
Prepaid expenses and other current assets 95,239 (54,094) 271,492
Refundable income taxes -- -- 9,136
Other assets 6,092 (20,362) 10,589
Increase (decrease) in:
Accounts payable 225,435 642,805 1,268,831
Accrued liabilities (194,918) (172,051) (128,800)
Liabilities subject to compromise -- -- (1,854,514)
----------- ----------- -----------
Net cash (used in) provided by operating
activities (63,756) 94,804 (1,752,146)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable investment securities (1,469,002) (2,624,119) --
Sale of marketable investment securities 2,065,361 1,591,379 1,761,336
Purchases of property and equipment (190,182) (180,192) (44,885)
Due from officers/shareholders 36,870 25,693 32,837
----------- ----------- -----------
Net cash provided by (used in) investing
activities 443,047 (1,187,239) 1,749,288
----------- ----------- -----------
</TABLE>
(Continued)
-19-
(F-7)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended April 3, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term obligations $ (732,407) (756,983) (124,687)
----------- ----------- -----------
Net cash used in financing activities (732,407) (756,983) (124,687)
----------- ----------- -----------
Net decrease in cash and cash equivalents (353,116) (1,849,418) (127,545)
Cash and cash equivalents, beginning of year 1,281,098 3,130,516 3,258,061
----------- ----------- -----------
Cash and cash equivalents, end of year $ 927,982 1,281,098 3,130,516
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 101,173 167,085 88,345
=========== =========== ===========
</TABLE>
Supplemental schedule of non-cash operating and investing activities relating to
the reorganization:
Liabilities subject to compromise, March 30, 1996 $5,671,434
Less:
Inventory returns for credit 2,073,566
Cash paid 1,854,514
Extraordinary gain [(primarily as a result of lease
rejection claims (note 2)] 486,379
----------
Long-term obligations, March 29, 1997 $1,256,975
==========
See accompanying notes to consolidated financial statements.
-20-
(F-8)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(1) Organization and Basis of Presentation
URT Industries, Inc. and subsidiaries (the "Company") is engaged in the
business of retailing prerecorded music, video and accessory items,
principally in the Southeastern United States. The Company operates in a
single-industry segment, the operation of a chain of retail entertainment
stores. The consolidated financial statements include the accounts of URT
Industries, Inc. (the "Parent" or "URT") and its wholly owned nonoperating
subsidiary, whose business was discontinued in 1984, and its 87.5
percent-owned subsidiary, Peaches Entertainment Corporation ("Peaches").
(2) Confirmation of Amended Plan of Reorganization
On January 16, 1996 (the "Petition Date"), Peaches commenced reorganization
proceedings under Chapter 11 of the United States Bankruptcy Code. An
amended plan of reorganization was confirmed by the Bankruptcy Court on
January 17, 1997 (the "confirmation date"), and became effective February
3, 1997 (the "effective date"), subject to satisfaction of certain
conditions which were satisfied February 19, 1997. All trade and nontrade
suppliers received 100 percent of their allowed claims which were either
paid on the effective date or are reflected in current and long-term
obligations in the financial statements, payable primarily over a two-year
period from the effective date. As of April 3, 1999, all trade and
non-trade suppliers have been paid 100 percent of their allowed claims. The
mortgage holder will receive 100 percent of the allowed claim, with
interest, except the balloon payment was extended from September 1997 to
September 2002. Landlords, under the leases rejected by Peaches, in
connection with the bankruptcy filing, were entitled to 30 percent of the
allowed claims with respect to such leases, all of which were paid on the
effective date. Peaches recorded in 1997 an extraordinary gain of $486,379
primarily as a result of the settlement of lease rejection claims.
(3) Liquidity
As of April 3, 1999, the Company has a net worth of approximately $1.8
million. Since 1993, the Company has incurred operating losses and has an
accumulated deficit balance of approximately $2.9 million at April 3, 1999.
In 1996, Peaches commenced reorganization proceedings under Chapter 11 and
in the last quarter of 1997 Peaches plan of reorganization was confirmed.
The Company believes that it has benefited from the reorganization, which
includes the termination of the leases associated with the six unprofitable
stores which were closed during 1996, the closing of the Company's former
headquarters and warehouses, and the termination of other unprofitable
business arrangements.
Additionally, the Company's primary suppliers have taken steps to help
protect the retail marketplace from certain low-cost retailers of music
including non-traditional music outlets such as appliance retailers and
super book stores, some of whom have used very aggressive price cutting
tactics including selling some products below actual cost in order to
attract customers and sell non-music and video products. These steps have
included not disbursing cooperative advertising funds to retailers which
engage in low-cost selling practices in violation of the minimum advertised
pricing policies of such suppliers. Management believes that such
initiatives, in combination with the other factors mentioned immediately
above, have helped the Company to restore itself to a more competitive
position. Other
(Continued)
-21-
(F-9)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
factors which have had a positive effect on the Company's performance are
the increase in gross-profit percentage and reduction of certain expenses.
The Company's ability to achieve sustained profitable operations is
dependent on continuing to obtain products at competitive prices,
restructuring operations to minimize cash expenditures and successfully
competing with larger retailers with greater capital resources than the
Company. Management believes that cash flow from operations or additional
financing available from other sources will be sufficient to fund
operations during the next fiscal year. There is no assurance that such
events will occur or such financing will be available.
(4) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of URT
Industries, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. Reference to the
Company encompasses any or all of the aforementioned entities.
(b) Fiscal Year
The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to the end of March. The fiscal year ended April 3,
1999, consisted of 53 weeks. The fiscal years ended March 28, 1998 and
March 29, 1997 consisted of 52 weeks, respectively.
(c) Cash Equivalents
The Company considers highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Cash equivalents totaled $345,528 and 407,499 at April 3, 1999 and
March 28, 1998, respectively. The carrying amount of cash and cash
equivalents approximates fair market value because of the short-term
maturity of these investments. The fair values are estimated based on
quoted market prices for these or similar instruments.
(d) Marketable Investment Securities
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, effective April 3, 1994. Securities consisting of
Treasury bills and equity investments are considered
available-for-sale at April 3, 1999 with cost approximating fair
market value. Securities classified as available-for-sale are reported
at fair market value with unrealized gains and losses included in
shareholders' equity. Realized gains and losses are included in
interest and other income.
(e) Inventories
Inventories, comprised of compact discs, cassettes, digital video
disks, videos and accessories, are stated at the lower of cost
(principally average) including freight-in, or market.
(Continued)
-22-
(F-10)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(f) Property and Equipment
Property and equipment are stated at cost. The assets are depreciated
over their estimated useful lives ranging from 5 to 31.5 years using
both straight-line and accelerated methods. The Company's policy is to
retire assets from its accounts as they become fully depreciated.
(g) Income Taxes
The Company files a consolidated income tax return with its
subsidiaries. Provision is made for deferred income taxes which result
from certain items of income and expense being reported for tax
purposes in periods different than those reported for financial
reporting purposes. These items relate principally to the methods of
accounting for store leases with future scheduled rent payment
increases, inventory and the utilization of different methods of
depreciation for financial statement and income tax purposes.
The Company accounts for income taxes under the provisions of
Financial Accounting Standards Board's ("SFAS") No. 109, which
generally requires recognition of deferred tax liabilities and assets
for the future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined on differences between the
financial reporting and tax bases of assets and liabilities and are
measured by applying enacted tax rates and laws for the taxable years
in which those differences are expected to reverse. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
(h) Reorganization Costs
Reorganization costs include professional fees relating to legal,
accounting and consulting services provided in connection with the
Chapter 11 proceedings.
(i) Use of Estimates by Management
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 revenue
and expenses during the reported period. Actual results could differ
from those estimates.
-23-
(F-11)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(j) Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
(k) Comprehensive Income
On March 29, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net
income and net unrealized gains (losses) on securities and is
presented in the consolidated statement of operations and
comprehensive income. The Statement requires only additional
disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations.
Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
(l) Reclassifications
Certain amounts in the 1998 and 1997 consolidated financial statements
have been reclassified to conform with the 1999 presentation.
(5) Earnings Per Share
In December 1997, the Company adopted the provisions of SFAS No. 128,
Earnings Per Share which establishes new standards for computing and
presenting earnings per share. Earnings per share for all prior periods
have been restated to reflect the provisions of this Statement.
Basic and diluted earnings per share have been computed by dividing net
loss by the weighted average number of shares outstanding during the
period. The two-class method of computing earnings per share was not
utilized as both classes of the Company's common stock are identical,
except that each class votes separately so that all matters requiring the
vote of stockholders require the approval of both classes of common stock
voting as separate classes. Accordingly, earnings per share is identical
for each class of stock.
(Continued)
-24-
(F-12)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share computations for net loss for each of
the years in the three-year period ended April 3, 1999.
Basic and diluted earnings per share were calculated as follows:
April 3, March 28, March 29,
1999 1998 1997
------------- ------------ -----------
Basic and diluted:
Net loss $ (646,684) (874,862) (1,161,786)
============= ============ ===========
Weighted average shares 12,158,209 12,158,209 12,637,634
============= ============ ===========
Net loss per share $ (.05) (.07) (.09)
============= ============ ===========
(6) Due From Officers/Shareholders
Due from officers/shareholders consist of the following at April 3, 1999
and March 28, 1998:
April 3, March 28,
1999 1998
-------- --------
Unsecured loans made to one
officer/shareholder and one former
officer/shareholder; proceeds of
the loans were used to purchase
shares of the Company's Class A and
Class B common stock in the open
market from an unrelated party,
interest 8 percent $ 46,154 83,024
Less current portion (42,769) (45,302)
-------- --------
$ 3,385 37,722
======== ========
The promissory note agreements with the two officers/shareholders are
payable with interest at 8 percent in 96 equal, consecutive monthly
installments through March 31, 2000.
Under amended and restated employment agreements with these
officers/shareholders [(note 10(c)], the required loan payments will be
credited as compensation for the officer/shareholder. Effective March 1996,
a former officer/shareholder is required to repay the loan in consecutive
monthly installments of $471.
(Continued)
-25-
(F-13)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(7) Property and Equipment, Net
Property and equipment consist of the following at April 3, 1999 and March
28, 1998:
1999 1998
----------- -----------
Land $ 421,860 395,570
Building 538,093 538,093
Leasehold improvements 1,194,053 1,483,791
Furniture and equipment 652,180 710,229
Building under capitalized lease 206,964 206,964
----------- -----------
3,013,150 3,334,647
Less accumulated depreciation and amortization (1,763,861) (1,970,314)
----------- -----------
$ 1,249,289 1,364,333
=========== ===========
(8) Long-Term Obligations
Long-term obligations consists of the following at April 3, 1999 and March
28, 1998:
1999 1998
----------- -----------
Capital lease obligation, due in monthly
installments of $3,382, including
interest at 17.5%; final payment
due March 2005 $ 150,137 163,178
Mortgage payable, due in equal
installments of $2,981 per month,
plus interest at prime plus 0.5%;
collateralized by the mortgaged
property with depreciated cost of
$768,088; final balloon payment of
$245,700 due September 2002 (note 2) 370,912 406,688
Settlement agreement with former
officer/shareholder, due in monthly
installments of $5,699, final
payments due January 2000 56,990 125,465
Promissory notes, due in installments of
$26,744 for 21 months and one
payment of $347,675 (paid in
February 1999), plus interest at
prime; collateralized by inventory
and guaranteed by the Parent (note 2) -- 615,115
----------- -----------
578,039 1,310,446
Less current portion (108,280) (732,319)
----------- -----------
$ 469,759 578,127
=========== ===========
(Continued)
-26-
(F-14)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
The capital lease pertains to the building portion of property owned by one
director and one former director. The rent expense on the land portion of
this lease was approximately $113,000 for 1999, 1998 and 1997.
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year Amount
- ------------------------------------------------------ --------
2000 $ 40,600
2001 40,600
2002 40,600
2003 40,600
2004 40,600
Thereafter 40,600
--------
Total minimum lease payments 243,600
Less amount representing interest 93,463
--------
Present value of minimum lease payments $150,137
========
Maturities of long-term obligations, excluding the capital lease
obligation, to maturity, are as follows:
Fiscal year Amount
- ------------------------------------------------------ --------
2000 $ 92,765
2001 35,775
2002 35,775
2003 263,587
2004 --
Thereafter --
--------
$427,902
========
The Company has a standby letter of credit of $75,600 available to a
landlord that was not drawn upon as of April 3, 1999. The standby letter of
credit is fully collateralized by a certificate of deposit, which is
included in other assets. In addition, one of the Company's banks is
obligated to provide an irrevocable letter of credit of $150,000. No
letters of credit were drawn upon as of April 3, 1999.
(Continued)
-27-
(F-15)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(9) Accrued Liabilities
Accrued liabilities consist of the following at April 3, 1999 and March 28,
1998:
1999 1998
-------- --------
Gift certificate and credit slip liability $156,818 155,873
Payroll and related benefits 42,670 102,244
Sales and real estate taxes payable 131,556 141,446
Accrued overhead expenses 255,916 343,814
Other 119,447 157,948
-------- --------
$706,407 901,325
======== ========
(10) Commitments and Contingencies
(a) Leases
The Company is a lessee under various operating leases, several of
which provide for percentage rent. An insignificant amount of
percentage rent was incurred in each of the years in the three-year
period ended April 3, 1999. Most of the leases contain renewal
options.
The aggregate minimum rental commitments under all noncancelable
operating leases at April 3, 1999 are as follows:
Fiscal year Amount
- ------------------------------------------------------ ----------------
2000 $ 1,229,827
2001 1,148,775
2002 986,891
2003 948,733
2004 901,761
Thereafter 5,246,565
----------------
$ 10,462,552
================
Rental expense under noncancelable operating leases, included in
selling, general and administrative expenses in the accompanying
consolidated statements of operations, amounted to approximately
$1,417,000, $1,175,000 and $1,248,000, respectively, for each of the
years in the three-year period ended April 3, 1999.
Rental expense on stores owned by two directors and/or their relatives
was $164,062, $131,250 and $131,250, respectively, for each of the
years in the three-year period ended April 3, 1999.
(Continued)
-28-
(F-16)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(b) Legal Matters
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of its business. In the
opinion of management, all such matters are without merit or involve
such amounts that an unfavorable disposition will not have a material
impact on the financial position or results of operations of the
Company.
(c) Employment Agreements
As amended January 1, 1996, the Company entered into an amended and
restated employment agreement with an officer, through March 31, 2000,
with an aggregate annual average base compensation of approximately
$720,000, including amounts payable by Peaches to such officer under
the revised Management Agreement [see note 10(d)]. In October 1997,
the annual base compensation was reduced by $150,000. In addition, the
officer shall be credited, as compensation, with the monthly amounts
payable by him to the Company under promissory note (note 6).
The respective employment agreement provides the officer with the use
of an automobile, full medical coverage, reimbursement for life
insurance policies, paid vacations and severance pay if the Company
refuses to renew the employment agreement upon expiration, or in the
event of termination upon mutual consent or termination in certain
other events.
On March 18, 1996, the United States Bankruptcy Court Southern
District of Florida approved the settlement of an employment agreement
with one of its former officers. The Company is to pay an amount of
$273,550 over a period of four years (note 8). Under the original
terms of employment, the officer would have been entitled to in excess
of $870,000 in aggregate.
(d) Management Agreement
On March 29, 1993, as amended, URT entered into a management and
intercorporate agreement (the "Management Agreement") with Peaches
whereby Peaches was required to pay URT an annual fee; URT was
required to provide Peaches with the services of the person who is the
president and chairman; URT was required to pay Peaches for certain
accounting and administrative services performed by Peaches; and so
long as URT and Peaches filed consolidated income tax returns, their
respective liabilities for such taxes would be equitably apportioned
as provided in such agreement. These transactions were eliminated in
the consolidation. Effective as of the close of business on December
31, 1995, the Management Agreement was terminated and replaced with
three new agreements which became effective January 1, 1996 through
March 31, 2000. In lieu of paying a management fee to URT, the three
new agreements require payment to URT's president and chairman as long
as he continues to provide services similar to those performed under
the original Management Agreement of $500,000 per annum, except that
such amount has been reduced to $400,000 per annum, effective March 1,
1997 and continuing until February 28, 1999, and except further that
such amount was further reduced to $250,000 per annum, effective
January 1, 1998 and continuing until April 3, 1999.
(Continued)
-29-
(F-17)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(11) Shareholders' Equity
Authorized shares of common stock as of April 3, 1999 and March 28, 1998
were 20,000,000 Class A and 10,000,000 Class B shares, both classes having
a par value of $.01. The two classes of the Company's common stock are
identical except that each class votes separately so that all matters
requiring the vote of stockholders require the approval of both classes of
common stock voting as separate classes.
(12) Income Taxes
The provision for income taxes consists of:
1999 1998 1997
---- ---- ----
Current:
Federal $-- -- --
State -- -- --
---- ---- ----
-- -- --
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
---- ---- ----
-- -- --
$-- -- --
==== ==== ====
Reasons for differences between income tax provision and the amount
computed by applying the statutory federal income tax rate of 34 percent
to loss before income taxes and minority interest were:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at applicable statutory
tax rate of loss before income taxes
$(220,000) (308,000) (395,000)
Add:
State income tax benefit, net of
federal benefit (36,000) (34,000) (43,000)
Change in valuation allowance 225,000 707,000 282,000
Capitalized reorganization expenses
and other permanent differences -- -- 52,000
Adjustments to net operating loss
carryovers and other deferred tax
assets 24,000 (387,000) 78,000
Other 7,000 22,000 26,000
--------- --------- ---------
Income tax provision for the year $ -- -- --
========= ========= =========
</TABLE>
(Continued)
-30-
(F-18)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at April 3, 1999 and March 28, 1998 are
presented below.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
capitalized for tax purposes $ 64,000 80,000
Property and equipment, net, principally due to
differences in depreciation 296,000 249,000
Accrued rent, principally due to accrual for
financial reporting purposes 25,000 31,000
NOL carryforward 2,497,000 2,282,000
Accrued expenses 48,000 65,000
Other 38,000 36,000
----------- -----------
Total gross deferred tax assets 2,968,000 2,743,000
Less valuation allowance (2,968,000) (2,743,000)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
</TABLE>
At April 3, 1999, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $6,325,276 which is available
to offset future federal taxable income, if any, through 2013.
A valuation allowance is provided to reduce deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets
reflect management's estimate of the amount which will be realized from
future profitability which can be predicted with reasonable certainty. The
valuation allowance for deferred tax assets as of April 3, 1999 and March
28, 1998 was $2,968,000 and $2,743,000, respectively. The net change in the
total valuation allowance for the years ended April 3, 1999 and March 28,
1998 was an increase of approximately $225,000 and $707,000, respectively.
(13) Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated by discounting
the future cash flows for each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities, which
approximates the carrying value.
The fair value of due from officers/shareholders was determined using
interest rates based on the credit worthiness of the note holders; the fair
values approximate carrying values.
(Continued)
-31-
(F-19)
<PAGE>
URT INDUSTRIES, INC. AND SUBSDIARIES
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(14) Business and Credit Concentrations
The retail sale of prerecorded music and video products is highly
competitive. The Company's share of the retail market in the Southeastern
United States is not significant. The number of stores and types of
competitors faced by the Company's stores increased significantly,
including non-mall discount stores, consumer electronics superstores and
other mall-based music, video and book specialty retailers expanding into
non-mall multimedia superstores of their own. The Company's stores operate
in a retail environment in which many factors that are difficult to predict
and outside the Company's control can have a significant impact on store
and Company sales and profits. These factors include the timing and
strength of new product offerings and technology, pricing strategies of
competitors, openings and closings of competitors' stores, the Company's
ability to continue to receive adequate product from its vendors on
acceptable credit terms, effects of weather and overall economic
conditions, including inflation, consumer confidence, spending habits and
disposable income.
Peaches purchased approximately 77 percent and 74 percent of its
merchandise from seven principal suppliers during the fiscal year ended
April 3, 1999 and March 28, 1998, respectively. Purchases from given
suppliers are, to a great extent, determined by which of them are
manufacturing or distributing the most popular prerecorded music products
at a given time, as well as the credit and other terms on which such
suppliers are willing to sell to the Company. The Company is not obligated
to purchase merchandise from any supplier. However, if the Company was to
lose one of its principal suppliers, it may have a material adverse effect
on the Company's results of operations and financial position.
-32-
(F-20)
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date of this filing, the directors and executive officers of URT
are:
Name Position Age
---- -------- ---
Allan Wolk Chairman of the Board,
President (Chief Executive
Officer) and Director 61
Brian Wolk Executive Vice-President, Chief Legal 34
Officer and Director
Jason Wolk Executive Vice-President, Chief
Financial Officer (Principal Financial
and Accounting Officer), Treasurer and Director 32
Allan Wolk has been the Chief Executive Officer and a director of URT and
PEC since their formation. He has been engaged in the prerecorded music business
for more than 40 years, principally in the rack merchandising and retail
segments thereof.
Brian Wolk, an attorney, has been employed by the URT Companies in various
capacities and at various times since 1982 and has been employed by them, full
time, since 1992. He is a son of Allan Wolk. He has been a director of URT and
PEC since 1994 and a vice-president of both companies since June, 1995. He was
appointed Executive Vice-President and Chief Legal Officer of both companies in
March, 1996.
Jason Wolk, a certified public accountant, has been employed by the URT
Companies in various capacities and at various times since 1983 and has been
employed by them, full time, since 1994. He is a son of Allan Wolk. Prior to his
full time employment by the URT Companies, he had been employed as an accountant
by KPMG Peat Marwick LLP. He has been a director of URT and PEC since 1994 and a
vice-president and the secretary of both companies since June, 1995. He was
appointed Treasurer and Chief Financial Officer (Principal Financial and
Accounting Officer) of both companies in September, 1995, and was appointed
Executive Vice-President of both companies in March, 1996.
The term of office of each director continues until the next annual meeting
of the stockholders and until his or her successor is elected. Mr. Wolk has an
employment agreement with URT (See "EXECUTIVE COMPENSATION--Employment
Contracts").
Item 11. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by the URT
Companies for
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<PAGE>
services rendered in all capacities during the 1999 fiscal year and the two
prior fiscal years to (i) URT's chief executive officer ("CEO") and (ii) each of
the other most highly compensated executive officers of the URT Companies whose
cash compensation exceeded $100,000 and who served as executive officers during
the 1999 fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Payouts
-------
Long
Options/ Term
Stock Incen.
Other Restricted App. Plan All
Name and Fiscal Salary Bonus Annual stock Rights Pay-outs Other
position Year ($) ($) Compensation($) award(s)($) (#) ($) Compensation($)
- -------- ---- --- --- --------------- ----------- --- --- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan Wolk, 1999 546,849 -0- 100,169(1) -0- -0- -0- -0-
Chairman, 1998 679,474 -0- 110,358(1) -0- -0- -0- -0-
Pres. & CEO 1997 616,714 -0- 101,446(1) -0- -0- -0- -0-
</TABLE>
- -------------
(1) Such amounts include life insurance premiums ($66,457 for the 1999 fiscal
year) and amounts credited to Mr. Wolk under his employment agreement
against amounts owed to URT.
Employment Contracts
Mr. Wolk is employed under an employment agreement dated October 1, 1994
(the "1994 Agreement"), which was amended as described below. The term of Mr.
Wolk's employment under the 1994 Agreement, as so amended, continues until March
31, 2000. The 1994 Agreement reduced the annual rate of his base salary to
$725,380 for the period from October 1, 1994 through March 31, 1995, to $575,380
for the next eighteen month period ending September 30, 1996 and to $784,048 for
the balance of the term of employment (as compared to an annual base salary at
the rate of $834,048 under the March 31, 1992 employment agreement (the "1992
Agreement") which the 1994 Agreement replaces). A 1997 amendment to the 1994
Agreement further reduced Mr. Wolk's annual compensation by an additional
$150,000 per year, to $634,048 per year, effective as of October 1, 1997 and
continuing through the balance of the term of employment. During the 1998 fiscal
year, Mr. Wolk agreed to forego $16,667 in salary compensation due to him with
respect to the six month period ended September 30, 1997 and agreed to forego an
additional $21,012 in salary compensation due to him with respect to the three
month period ended March 28, 1998, thereby reducing his salary compensation with
respect to such year by a total additional $37,679. During the 1999 fiscal year,
Mr. Wolk agreed to forego an additional $37,203 in salary compensation due to
him with respect to the nine month period ended December 31, 1998, thereby
reducing his salary compensation with respect to such year by such amount.
Pursuant to the arrangements described above under "BUSINESS - Management
Agreements between URT and PEC", PEC pays a salary to Mr. Wolk in the amount
described in such section, and such amount is credited against the compensation
payable by URT to Mr. Wolk pursuant to the 1994 Agreement, as so amended
-34-
<PAGE>
(hereinafter referred to, with the above-described amendments, as the "1994
Agreement").
The 1994 Agreement eliminated provisions contained in the 1992 Agreement
under which Mr. Wolk was entitled to cost of living increases based on increases
in the consumer price index and changes in U. S. individual income tax rates. It
reduced certain monthly credits to which he was entitled under the 1992
Agreement effective October 1, 1994 from $5,435 per month to $2,935 per month
but retained the provision that if he died or became disabled during the term of
such agreement, the credits which he would have received through March 31, 2000
(but in the reduced amount under the 1994 Agreement) if he had survived and not
become disabled would be accelerated to the date of death or disability. The
1994 Agreement also provided that URT would pay or reimburse him for the
premiums on term or other life insurance coverage to be selected by URT and
payable to his designee in the amount of $2,600,000 for the duration of his life
(rather than being reduced to $1,500,000 after age 70 as provided in the 1992
Agreement). Mr. Wolk was also permitted under the 1994 Agreement (as he had been
under the 1992 Agreement) to repay certain loans which are hereinafter described
in "Certain Relationships and Related Transactions"), over the term of his
employment.
The 1994 Agreement also continued to provide (as had the 1992 Agreement)
that during his employment period URT would furnish Mr. Wolk with an automobile,
reimburse him for business expenses, including socially related business
expenses incurred by him, and provide him with hospital and medical benefits;
that upon termination of his employment, he would not compete with the URT
Companies for a period of three years and for the additional period during which
he accepted severance payments; that upon the termination of his period of
employment and URT's refusal to continue to employ him on terms no less
favorable than those contained in his employment agreement or in the event of
the earlier termination of his employment for any reason other than death, URT
was required to pay him as severance payments, an amount equal to his annual
base salary which was in effect at the time of termination and thereafter, upon
each anniversary of the termination date until his death, 50% of such annual
base salary (except for the elimination of provisions which had been in the 1992
Agreement under which he could have been entitled to additional amounts if
adjustments were made due to increases in the consumer price index, changes in
the income tax laws or certain other contingencies), as reduced by any payments
he received under any pension or profit sharing plan of the URT Companies and if
applicable, any disability insurance policy; that so long as he was entitled to
receive severance payments, URT was required to continue to furnish him with an
automobile, pay the premiums on the above described life insurance coverage and
provide medical insurance coverage for him and his family which would continue
during his lifetime and that of his wife, if she survived him; that as a
condition of receiving such severance payments and benefits, he was required to
be available to the URT Companies as a consultant; that if any persons,
excluding officers and directors of URT, should acquire effective control of URT
while he was in its employ, he would be entitled to receive, in addition to all
other payments required to be made to him under his employment agreement, an
amount equal to the maximum amount permitted to be paid by URT without such
payment being considered a "parachute payment" under the Internal Revenue Code;
that such provision was designed to deter corporate raiders and would require
that a substantial payment be made to him in the event that any such persons
acquired effective control of URT. The amount to which Mr. Wolk would be
entitled under the circumstances described above would depend on his
compensation during the five tax years immediately preceding any such change in
control. If, for illustrative purposes, a change in control had occurred between
-35-
<PAGE>
the end of the 1999 fiscal year and the date of this filing, the payment to Mr.
Wolk would have been approximately $2 million.
The 1994 Agreement also permits Mr. Wolk to obtain a loan from URT on a
single occasion not to exceed $400,000 for a period of up to five years at an
interest rate of 3% per annum, which is required to be collateralized by
adequate security and made upon such other terms and conditions as URT's
directors with the advice of counsel deem necessary to protect URT.
Compensation Committee Interlocks
and Insider Participation
URT does not have a compensation committee or other board committee
performing equivalent functions. During the 1999 fiscal year, all deliberations
concerning executive officer compensation or any other arrangements between URT
and any executive officers were conducted by URT's full board of directors,
provided, however, that no director voted on compensation payable to him as an
executive officer or any other arrangement between him and URT.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table contains information concerning the number of shares of
each class of URT's common stock which was owned by each person who, on June 2,
1999, owned, beneficially, more than 5% thereof, and the number of shares of
each class of such stock owned beneficially, directly or indirectly, by each
executive officer and director and by all directors and executive officers as a
group on such date:
-36-
<PAGE>
<TABLE>
<CAPTION>
Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------- --------
Class A Common Executive Officers
Stock, par value and Directors
$.01 per share ------------------
<S> <C> <C> <C>
Allan Wolk 3,194,186(1) 29.4%
Allan Wolk and
Lawrence Strauss,
as Trustees 33,072(2) *
Brian Wolk 12,980(3) *
Jason Wolk 17,480(3) *
----------
All officers and
directors as a
group (3 persons) 3,257,718 30.0%
Other
-----
Scorpio Music, Inc.
P. O. Box A
Trenton, N.J. 08691 1,195,550(4) 11.0%
Class B Common Executive Officers
Stock, par value and Directors
$.01 per share -------------------
Allan Wolk 786,6545 58.4%
---------------
All officers and
directors as a
group (1 person) 786,654 58.4%
* Less than one percent.
</TABLE>
- --------
(1) Includes 3,150,786 shares owned by Allan Wolk, 25,920 shares owned by
his wife and 17,480 shares held by him for his daughter. However, Mr. Wolk has
renounced all voting and investment power with respect to those shares of URT
which are held by him for his daughter. He believes that his wife will vote the
shares owned by her in favor of proposals which he favors, but disclaims
beneficial ownership of any shares owned by her or held for the benefit of his
daughter.
(2) Such shares are held by Lawrence Strauss and Allan Wolk as trustees for
the benefit of children of Sheffield Wolk, Mr. Wolk's brother. Allan Wolk has
renounced all voting and investment power with respect to those shares of URT
which are so held in trust for the benefit of children of Mr. Wolk's brother.
All such powers as trustee are exercised exclusively by the co-trustee, and Mr.
Wolk disclaims beneficial ownership of such shares.
(3) Such shares are held in the name of Allan Wolk, as custodian. However,
Mr. Wolk has renounced all voting and investment power with respect to those
shares of URT which are held by him for his two sons, and disclaims beneficial
ownership of such shares. Such shares, being listed separately here, are not
included under the shares listed as beneficially owned by Allan Wolk.
(4) Based on information supplied by URT's transfer agent. Does not include
160,000 shares reported in a Schedule 13D, dated June 14, 1989, as owned by John
T. Gervasoni, Scorpio Music, Inc.'s reported president and 100% shareholder, as
to which no confirmation of ownership has been made by URT's transfer agent. The
total of such 160,000 shares reported as owned by John T. Gervasoni and the
1,195,550 shares reported as owned by Scorpio Music Inc. is 1,355,550, or
approximately 12.5% of the outstanding URT Common A shares.
(5) Includes 780,174 shares owned by Allan Wolk and 6,480 shares owned by
his wife. Mr. Wolk believes that his wife will vote the shares owned by her in
favor of proposals which he favors, but disclaims beneficial ownership of such
shares.
-37-
<PAGE>
As set forth in the above table and footnotes, Allan Wolk and members of
his immediate family own approximately 30% or URT's Class A common stock and
approximately 58% of URT's Class B common stock. The two classes of URT's common
stock are identical except that each class votes separately so that all matters
requiring the vote of stockholders require the approval of both classes of
common stock voting as separate classes. By reason of such ownership and his
position as Chairman of URT, Mr. Wolk may be deemed to have effective control of
URT.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their purchase in 1983 from an unaffiliated third party
seller, Allan Wolk and his brother, Sheffield Wolk, a former director of URT,
are the owners of the land and building on which the PEC store in Fort
Lauderdale, Florida is located. Such property was and continues to be subject to
a lease with PEC as tenant, which had been negotiated by the prior owner. During
the 1995 fiscal year, PEC made and paid for certain renovations to the premises.
Based on the provisions of the lease, the owners agreed to be responsible for
$26,225 of the cost of such renovations and such costs were deducted, with
interest, over the next three years, from the amounts paid by PEC to the owners
under the lease. In September 1998, PEC entered in an addendum to lease with
Allan Wolk and Sheffield Wolk under which the following lease changes were
agreed to: the expiration date of such lease was extended for a period of five
years, until March 31, 2008, at an increased rental rate during such five year
period; PEC obtained an option to renew the lease for up to two successive
five-year renewal terms (until March 31, 2018), at further increased rental
rates, if such options are exercised; and the repair and fire insurance
provisions were modified. The lease addendum was approved by the directors who
had no direct personal interest in the transaction. In the opinion of
management, the terms were as reasonable as those which could have been obtained
from unaffiliated third parties.
In December, 1984, PEC entered into a long-term lease with Allan Wolk and
Sheffield Wolk for premises owned by them in Orlando, Florida. The lease term
commenced in December, 1984, and is for a period of twenty years with two
additional five year terms. The lease is a triple net lease. The lease provides
for a net minimum rental rate of $160,000 during the five year period ending
March 31, 2000; and increases of $5,000 during every five year period
thereafter. Notwithstanding the foregoing, commencing with the sixth rental
year, if net sales at the store during any rental year are less than a specified
amount, the annual net minimum rental rate for such year will be the same as
that which had been in effect during the preceding five year period. The lease
was approved by disinterested directors and, in the opinion of management, is as
reasonable as those which could have been obtained from unaffiliated third
parties.
In March, 1992, URT, as consideration, in part, for the agreement of Allan
Wolk to reduce the amount of compensation which would have been payable to him
under the employment agreement with him which was then in effect, agreed to
refinance certain indebtedness which was then outstanding from Mr. Wolk to URT,
by replacing the promissory notes with respect to such indebtedness by a new
promissory note in the original principal amount of $207,640. The replacement
promissory note permits such indebtedness to be repaid over a period of eight
years,
-38-
<PAGE>
from April 1, 1992 through March 31, 2000, with interest at the rate of 8.0% per
annum, in 96 consecutive monthly installments in the amount of $2,935 each. The
loan is unsecured. Mr. Wolk used the funds lent to him to purchase shares of
URT's Class A and Class B Common Stock from independent third parties. The
disinterested directors authorized URT to finance such purchases as
above-described, because they believed that such action would give Mr. Wolk
continued incentive to remain with URT and to work to increase the value of its
shares. Under the above-described provisions of Mr. Wolk's 1994 Agreement (which
took effect on October 1, 1994), he is entitled to be credited, as additional
compensation the amount of $2,935 per month during the period of his employment
until the amount owed is paid.
As a result of the arrangements described in the preceding paragraph,
during the 1999 fiscal year, Mr. Wolk was credited with a total of $35,220 with
respect to the above-described indebtedness. As of April 3, 1999, the
outstanding principal amount of Mr. Wolk's loan was $29,682 and the highest
amount outstanding on Mr. Wolk's loan during the 1999 fiscal year was $64,907.
In April, 1989, URT's board of directors authorized URT to enter into
agreements with its officers and directors under which they would be entitled to
be indemnified by URT and have their expenses advanced to them in the event of
any claim against them in their capacities as officers and directors. Such
agreements were entered into with all then-existing officers and directors of
URT on or about May 22, 1989. On or about July 14, 1995, and pursuant to the
further authorization of the board of directors on such date, URT entered into
indemnification agreements with the two additional officers and directors, Brian
Wolk and Jason Wolk, who were appointed to their respective positions subsequent
to 1989. The indemnification agreements so entered into with Brian Wolk and
Jason Wolk are in the same form as the indemnification agreements entered into
in 1989 with the then-existing officers and directors.
In order to enable PEC to effect its Chapter 11 Plan of Reorganization in
February, 1997, URT, in exchange for the issuance to it of 20,000,000 shares of
PEC's authorized common stock (including 218,730 treasury shares), took the
following steps: contributed $350,000 to the capital of PEC; waived an aggregate
of $75,000 of dividends payable by PEC to URT with respect to the period running
from January 1, 1996 to March 31, 1997; loaned $700,000 to PEC; and agreed that,
subject to the terms of the Plan of Reorganization, it would guarantee the
approximately $1,284,000 then payable to PEC's principal suppliers. In order to
facilitate the issuance of such shares to URT, URT also waived its right to
convert to common stock the Series A preferred stock of PEC which is owned by
URT. The loan from URT was required to be paid back by PEC with interest at the
prime rate charged by Chase Manhattan Bank, N.A.
On or about November 29, 1997, URT, in order to further strengthen PEC's
financial condition, agreed to forgive repayment of one-half of the $700,000
which was loaned by URT to PEC, together with the interest then accrued on the
$350,000 so forgiven. On or about March 31, 1999, URT, in order to further
strengthen PEC's financial condition, agreed to forgive the remaining $350,000
principal balance, excluding interest. Such interest is required to be repaid in
accordance with the terms of the original loan documents described above.
On or about July 10, 1998, URT and its Chairman, Allan Wolk, agreed that,
effective as
-39-
<PAGE>
of October 1, 1997, Alan Wolk would be authorized to associate with other
companies, whether as director, officer, shareholder, employee or otherwise,
provided, however, that no such other company competes or transacts any material
amount of business with URT or its affiliates, and he continues to devote so
much of his working time to the business affairs of URT and PEC as may be
required to properly perform his duties to URT and PEC. Such arrangements were
approved by the directors (Allan Wolk abstaining).
On or about September 15, 1998, URT loaned the sum of $150,000 to PEC. Such
amounts were repaid by PEC to URT on or about December 24, 1998. On or about
April 20, 1999, URT loaned the sum of $275,000 to PEC. Such amounts are required
to be repaid on or before December 29, 1999.
On or about July 9, 1998, URT and PEC entered into an agreement under which
URT agreed that in the event that funds generated from PEC's operations and the
proceeds of any debt financing which may be obtained are insufficient to meet
PEC's then current projected operating requirements for fiscal 1999, then URT
would take any necessary action to see that funds are available to cover any
shortfalls up to April 3, 1999. An agreement containing the same operative
provisions as the above-described agreement with respect to a fiscal 1999
shortfall was entered into between URT and PEC as of May 28, 1999 with respect
to the then current projected operating requirements for the fiscal year ending
April 2, 2000.
On or about July 22, 1998, two of the directors and officers of URT and
PEC, Brian Wolk and Jason Wolk, each received from URT, in recognition of
substantial services provided to URT and PEC, 1,200,000 shares of the PEC common
stock owned by URT. Such shares were transferred subject to the condition that
if either such individual should voluntarily leave the employ of PEC, or his
employment is terminated by PEC for cause, during the 24 month period ending
July 21, 2000, then such individual would be required to sell his 1,200,000
shares back to URT for the amount which the parties agreed to be the value of
such 1,200,000 shares upon execution of the agreement. Such arrangements were
approved by the directors of URT (with the affected individual abstaining as to
the vote with respect to the arrangements with him).
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report.
Page
1. Consolidated Financial Statements ----
Table of Contents ................................13
Independent Auditors' Report .....................14
URT Industries, Inc. and Subsidiaries
Consolidated Financial Statements:
Consolidated Balance Sheets as
-40-
<PAGE>
of April 3, 1999 and March 28, 1998. ............................15
Consolidated Statements of Operations and Comprehensive
Income for each of the years in the three year period
ended April 3, 1999. ............................................16
Consolidated Statements of Shareholders' Equity for each
of the years in the three year period ended April 3, 1999........17
Consolidated Statements of Cash Flows for each of the
years in the three year period ended April 3, 1999. .............19
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Schedules have been omitted which are not applicable or
where the required information is shown in the financial
statements or the notes thereto.
3. Exhibits.
Exhibit No.
- -----------
3.1 Articles of Incorporation of URT Industries, Inc. ("URT") and all
amendments thereto through January 11, 1973, incorporated by
reference to Exhibit No. 3.1 to URT's Registration Statement No.
2-36263.
3.1-1 Amendment to URT's Articles of Incorporation dated January 2,
1975, incorporated by reference to Exhibit No. 3.1-1 to URT's
Registration Statement No. 2-59153.
3.1-2 Amendment to URT's Articles of Incorporation dated November 10,
1976, incorporated by reference to Exhibit No. 3.1-2 to URT's
Registration Statement No. 2-59153.
3.1-3 Amendment to URT's Articles of Incorporation dated September 21,
1979, incorporated by reference to Exhibit No. 3.1-3 to URT's
Registration Statement No. 2-63747.
10(mm) Lease dated December 13, 1984 between Allan Wolk and Sheffield
Wolk and PEC applicable to Orlando, Florida premises,
incorporated by reference to Exhibit No. 13.47 to URT's
Registration Statement No. 2-63747.
10(ss) Amendment to Lease dated February 25, 1986 between Allan Wolk and
Sheffield Wolk and PEC applicable to Orlando, Florida premises
incorporated by reference to
-41-
<PAGE>
Exhibit 10(ss) to URT's Form 10-K Annual Report filed on June 27, 1986.
10(kkk) Indemnification Agreement dated May 22, 1989 between Allan Wolk
and URT, incorporated by reference to Exhibit 10(kkk) to URT's
Form 10-K Annual Report dated June 27, 1989.
10(ppp) By-Laws of URT, as amended and restated, incorporated by
reference to Exhibit 10 (ppp) to URT's Form 10-K Annual Report
dated June 28, 1990.
10(xxx) Promissory Note dated March 31, 1992 made by Allan Wolk to URT,
as payee, incorporated by reference to Exhibit 10(xxx) to URT's
Form 10-K Annual Report dated June 25, 1992.
10(eeee) Amended and Restated Employment Agreement, dated October 1, 1994,
between Allan Wolk and URT, incorporated by reference to Exhibit
10(eeee) to URT's 10-K Annual Report dated June 29, 1995.
10(jjjj) Letter Agreement dated January 1, 1996 between URT and PEC
pertaining to termination of Management and Intercorporate
Agreement dated March 29, 1993.
10(kkkk) Letter Agreement dated January 1, 1996 between URT and PEC
pertaining to services of Allan Wolk, incorporated by reference
to Exhibit 10(kkkk) to URT's 10- K Annual Report dated April 25,
1997.
10(llll) Letter Agreement dated January 1, 1996 between Allan Wolk and
URT, incorporated by reference to Exhibit 10(llll) to URT's, 10-K
Annual Report dated April 25, 1997.
10(mmmm) Indemnification Agreement dated July 14, 1995 between Brian Wolk
and URT, incorporated by reference to Exhibit 10(mmmm) to URT's
10-K Annual Report dated April 25, 1997.
10(nnnn) Indemnification Agreement dated July 14, 1995 between Jason Wolk
and URT, incorporated by reference to Exhibit 10(nnnn) to URT's
10-K Annual Report dated April 25, 1997.
10(oooo) PEC's Amended Plan of Reorganization, dated October 23, 1996,
incorporated by
-42-
<PAGE>
reference to Exhibit 1 to PEC's Form 8-K dated April 7, 1997.
10(pppp) Order Confirming PEC's Amended Plan or Reorganization, as
Modified, dated January 17, 1997, incorporated by reference to
Exhibit 2 to PEC's Form 8-K dated April 7, 1997.
10(qqqq) URT Promissory Note dated January 27, 1997 made by PEC to URT,
incorporated by reference to Exhibit 10.66 of PEC's 10-K Annual
Report dated April 25, 1997.
10(rrrr) Security Agreement dated January 27, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.67 of PEC's 10-K Annual
Report dated April 25, 1997.
10(ssss) Mortgage Agreement with Assignment of Rents, Security Agreement
and Fixture Filing dated January 27, 1997 by PEC in favor of URT,
incorporated by reference to Exhibit 10.68 of PEC's 10-K Annual
Report dated April 25, 1997.
10(tttt) Reimbursement Agreement dated January 27, 1997 between URT and
PEC, incorporated by reference to Exhibit 10.69 of PEC's 10-K
Annual Report dated April 25, 1997.
10(uuuu) Subordination Agreement dated January 27, 1997 between URT, PEC
and selected creditors, incorporated by reference to Exhibit
10.70 of PEC's 10-K Annual Report dated April 25, 1997.
10(vvvv) Subordination Agreement dated January 27, 1997 between URT, PEC
and creditor, incorporated by reference to Exhibit 10.71 of PEC's
10-K Annual Report dated April 25, 1997.
10(wwww) Surrender and Waiver Agreement dated January 27, 1997 between URT
and PEC, incorporated by reference to Exhibit 10.72 of PEC's 10-K
Annual Report dated April 25, 1997.
10(xxxx) Waiver Agreement dated March 1, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.73 of PEC's 10-K Annual
Report dated April 25, 1997.
10(yyyy) Stock Purchase Agreement dated March 24, 1997 between URT and
PEC, incorporated by reference to Exhibit 10.74 of PEC's 10-K
Annual Report dated April 25, 1997.
10(zzzz) Letter agreement dated March 17, 1997 between URT and PEC
pertaining to salary of Allan Wolk, incorporated by reference to
Exhibit 10(zzzz) of URT's 10-K Annual Report dated July 13, 1998.
10.1 Letter Agreement dated October 1, 1997 between URT and Allan Wolk
pertaining to services and salary of Allan Wolk, incorporated by
reference to Exhibit 10.1 of URT's 10-K Annual Report dated July
13, 1998.
-43-
<PAGE>
10.2 Loan Forgiveness Agreement dated November 29, 1997 between URT
and PEC, incorporated by reference to Exhibit 10.2 of URT's 10-K
Annual Report dated July 13, 1998.
10.3 Letter Agreement dated May 26, 1998 between URT and PEC
pertaining to salary of Allan Wolk, incorporated by reference to
Exhibit 10.3 of URT's 10-K Annual Report dated July 13, 1998.
10.4 Letter Agreement dated May 26, 1998 between URT and Allan Wolk
pertaining to salary of Allan Wolk, incorporated by reference to
Exhibit 10.4 of URT's 10-K Annual Report dated July 13, 1998.
10.5 Letter Agreement dated July 9, 1998 between URT and PEC
pertaining to operating requirements during fiscal 1999,
incorporated by reference to Exhibit 10.5 of URT 10-K Annual
Report dated July 13, 1998.
10.6 Stock Acquisition Agreement dated July 22, 1998 between URT and
Brian Wolk pertaining to shares acquired by Brian Wolk.
10.7 Stock Acquisition Agreement dated July 22, 1998 between URT and
Jason Wolk pertaining to shares acquired by Jason Wolk.
10.8 Letter Agreement dated as of October 1, 1997 between URT and
Allan Wolk pertaining to services of Allan Wolk.
10.9 Promissory Note dated September 15, 1998 made by PEC to URT, as
payee.
10.10 First Addendum to Lease dated September 30, 1998 between Allan
Wolk and Sheffield Wolk, as Landlord, and PEC, as tenant,
pertaining to Ft. Lauderdale Store.
10.11 Loan Forgiveness Agreement dated November 29, 1998 between URT
and PEC.
10.12 Letter Agreement dated December 23, 1998 between URT and PEC
pertaining to services of Allan Wolk.
10.13 Letter Agreement dated December 23, 1998 between URT and Allan
Wolk pertaining to services of Allan Wolk.
10.14 Letter Agreement dated May 28, 1999 between URT and PEC
pertaining to operating requirements during fiscal 2000.
10.15 Promissory Note dated April 19, 1999 made by PEC to URT, as
payee.
10.16 Letter Agreement dated July 9, 1999 between URT and PEC
pertaining to salary of Allan Wolk.
22 Subsidiaries of URT.
-44-
<PAGE>
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on or about February 16,
1999 for the purpose of reporting a filing delay with respect to
a Report on Form 10-Q which has since been filed.
-45-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereon to duly authorized.
URT INDUSTRIES, INC.
By: /s/Allan Wolk
----------------------------
Allan Wolk,
Chairman of the Board
Dated: July 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Title Date
----- ----
By: /s/Allan Wolk July 26, 1999
--------------------------------
Allan Wolk,
Chairman of the Board,
President (Principal
Executive Officer) and Director
By: /s/Brian Wolk July 26, 1999
--------------------------------
Brian Wolk, Executive
Vice President, Chief Legal
Officer and Director
By: /s/Jason Wolk July 26, 1999
--------------------------------
Jason Wolk, Executive
Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer), Treasurer,
Secretary and Director
-46-
EXHIBIT 10.6
STOCK ACQUISITION AGREEMENT
AGREEMENT dated this 22nd day of July, 1998 between URT Industries, Inc.
(the "Corporation"), whose address is 1180 East Hallandale Beach Boulevard,
Hallandale, Florida 33009, and Brian Wolk ("Wolk"), with an address at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009.
WHEREAS, the Corporation, in recognition of the substantial services
provided by Wolk to the Corporation and its subsidiary, Peaches Entertainment
Corporation ("PEC"), has offered to transfer to Wolk certain shares of PEC's
common stock which are owned by the Corporation, upon the terms and conditions,
and subject to the restrictions, contained herein, and Wolk has agreed to
acquire such shares upon such terms and conditions, and subject to such
restrictions;
IT IS, THEREFORE, AGREED:
1. Issuance of Shares to Wolk
(a) The Corporation agrees to and does hereby transfer to Wolk, and Wolk
agrees to and does hereby acquire from the Corporation, one million two hundred
thousand (1,200,000) shares (the "Shares") of the Common Stock of PEC which are
owned by the Corporation.
(b) Simultaneously herewith, the Corporation hereby delivers to Wolk a duly
executed stock power with respect to the Shares, and agrees, at its own expense,
to take any and all further action which may reasonably be required in order for
PEC's transfer agent to register the Shares in Wolk's name.
<PAGE>
2. Escrow; Conditional Surrender of Shares
(a) The parties agree that PEC's transfer agent shall be instructed to
deliver to the Corporation (or its attorneys on the Corporation's behalf) the
stock certificate ("Stock Certificate") in the name of Wolk with respect to the
Shares. The Corporation shall hold such Stock Certificate in escrow upon the
terms and conditions contained herein. Wolk hereby further delivers to the
Corporation, in escrow, an executed and undated stock power ("Stock Power") with
respect to the Shares, assigning and transferring the Shares back to the
Corporation. The Corporation agrees to hold the Stock Certificate and Stock
Power in escrow and, provided that Wolk does not voluntarily leave the employ of
PEC, and his employment by PEC is not terminated for cause, during the
twenty-four (24) month period commencing with the date of this Agreement, then
the Corporation, at the conclusion of such 24 month period (or such earlier date
when by reason of death or termination without cause both of the above-described
conditions shall have been prevented from occurring), shall destroy the Stock
Power, and treat it of no force and effect, and return the Stock Certificate to
Wolk (or his authorized representative). In the event that Wolk should
voluntarily leave the employ of PEC, or his employment is terminated by PEC for
cause, during the 24 month period commencing with the date of this Agreement,
then Wolk shall sell to the Corporation and the Corporation shall purchase the
Shares in accordance with the following: the Corporation shall release from
escrow to itself the Stock Certificate and Stock Power; the Corporation shall
arrange for cancellation of the Stock Certificate and reissuance of the Shares
in the Corporation's name; and the Corporation shall pay to
2
<PAGE>
Wolk, as payment for the Shares so sold by him back to the Corporation, the sum
of $24,000, which the parties agree to be the value of the Shares upon execution
of this Agreement.
(b) For purposes of subparagraph (a) above, the term "cause" shall mean
commission of any of the following acts by Wolk in connection with the
performance of his duties to the Corporation: fraud, embezzlement, theft or
conviction of a crime.
(c) For purposes of subparagraph (a) above, Wolk shall not be deemed to
have voluntarily left the employ of PEC, and shall be deemed to have been
terminated without cause, if he leaves such employ because the salary and
benefits offered to him are less than the salary and benefits paid and provided
to him at the time of execution of this Agreement.
3. Acknowledgments, Representations, Warranties and Covenants
(a) Wolk acknowledges, represents, warrants and covenants as follows:
(i) Wolk is an employee at will of PEC and nothing contained herein
shall be deemed to create any agreement on the part of the Corporation
or PEC to employ Wolk for any given term;
(ii) Without limitation of any applicable legal requirements, Wolk
will not transfer, assign, pledge, hypothecate or otherwise encumber
any of the Shares before the date, if any, on which the Stock
Certificate may be returned to him in accordance with
3
<PAGE>
paragraph 2(a) above; and
(iii) The Shares have not been registered or qualified for public
offering or sale under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws. The Corporation has no present
intention of authorizing any such public offering with respect to the
Shares, or any other PEC shares, and there is no assurance that any
such public offering will be conducted in the future. Wolk is
acquiring the Shares for investment only and solely for his own
account, and not with a view to, or for sale in connection with, any
distribution thereof. Without limitation of the other provisions of
this Agreement, Wolk will not sell, transfer or otherwise dispose of
any of the Shares except in compliance with the Act and the rules and
regulations promulgated thereunder or pursuant to an exemption from
registration thereunder and except in compliance with applicable state
securities laws.
(b) The Corporation represents, warrants and covenants:
(i) The execution, delivery and performance of this Agreement by the
Corporation, and the transactions contemplated hereby, will not, with
or without the giving of notice, the passage of time or both: (a)
violate any provision of law; or (b) conflict with, result in the
breach of any provision of or termination of, or constitute a default
under, any corporate charter, by-laws, indenture, agreement or
instrument to which the Corporation is a party or by
4
<PAGE>
which the Corporation or any of its assets or properties is or may be
bound;
(ii) This agreement constitutes a valid and binding obligation of the
Corporation, enforceable in accordance with its terms, subject only to
bankruptcy, insolvency, moratorium and similar laws affecting the
rights and remedies of creditors generally; and
(iii) The Shares are owned by the Corporation free and clear of any
liens, claims or encumbrances, and upon payment therefor by Wolk and
delivery of the Stock Certificates to Wolk pursuant to paragraph 2(a)
above, will be owned by Wolk free and clear of any such liens, claims
or encumbrances.
4. Legend
Each certificate representing shares of stock of the Corporation which may
be issued to Wolk shall bear the following legend upon its face:
"The shares represented by this Certificate are subject to the
provisions of a Stock Acquisition Agreement between the Corporation
and Shareholder, a copy of which is on file at the offices of the
Corporation. In addition, such shares have not been registered under
the U.S. Securities Act of 1933, as amended, or the securities laws of
any state, and may not be sold, hypothecated or otherwise disposed of
except in accordance with the registration requirements of said Act
and the laws of any state with jurisdiction over the matter, or
pursuant to an exemption from such requirements."
5. Notices
All notices and communications required or permitted to be given or sent
under this Agreement shall be in writing and hand delivered against a receipt or
5
<PAGE>
sent by certified or registered mail, return receipt requested, to the
Corporation and to Wolk at his above-described address, or to such other address
or addresses as any party may, from time to time, designate by notice in
accordance with the above requirements. Notices sent by hand delivery shall be
deemed given upon receipt and notices sent by certified or registered mail,
return receipt requested, shall be deemed given upon mailing.
6. Miscellaneous
(a) This Agreement shall be governed by the laws of the State of Florida.
(b) This Agreement may not be modified, changed or altered in any manner
except by written agreement of all of the parties. No waiver of the terms,
conditions and covenants of this Agreement shall be binding or effective unless
such waiver shall be in a writing signed by the parties hereto.
(c) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective heirs, legal representatives and assigns, but shall
not be assignable by Wolk.
(d) The captions contained in this Agreement are for convenience of
reference only and shall not be given any consideration in the construction of
this Agreement.
(e) If any provision or any portion of any provision of this Agreement
shall be held to be void or unenforceable, the remaining provisions of this
Agreement and the remaining portion of any provision held void or unenforceable
in part shall continue in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
date and year first above written.
URT INDUSTRIES, INC.
By: /s/ Jason Wolk
-----------------------------------
/s/ Brian Wolk
-----------------------------------
7
EXHIBIT 10.7
STOCK ACQUISITION AGREEMENT
AGREEMENT dated this 22nd day of July, 1998 between URT Industries, Inc.
(the "Corporation"), whose address is 1180 East Hallandale Beach Boulevard,
Hallandale, Florida 33009, and Jason Wolk ("Wolk"), with an address at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009.
WHEREAS, the Corporation, in recognition of the substantial services
provided by Wolk to the Corporation and its subsidiary, Peaches Entertainment
Corporation ("PEC"), has offered to transfer to Wolk certain shares of PEC's
common stock which are owned by the Corporation, upon the terms and conditions,
and subject to the restrictions, contained herein, and Wolk has agreed to
acquire such shares upon such terms and conditions, and subject to such
restrictions;
IT IS, THEREFORE, AGREED:
1. Issuance of Shares to Wolk
(a) The Corporation agrees to and does hereby transfer to Wolk, and Wolk
agrees to and does hereby acquire from the Corporation, one million two hundred
thousand (1,200,000) shares (the "Shares") of the Common Stock of PEC which are
owned by the Corporation.
(b) Simultaneously herewith, the Corporation hereby delivers to Wolk a duly
executed stock power with respect to the Shares, and agrees, at its own expense,
to take any and all further action which may reasonably be required in order for
PEC's transfer agent to register the Shares in Wolk's name.
<PAGE>
2. Escrow; Conditional Surrender of Shares
(a) The parties agree that PEC's transfer agent shall be instructed to
deliver to the Corporation (or its attorneys on the Corporation's behalf) the
stock certificate ("Stock Certificate") in the name of Wolk with respect to the
Shares. The Corporation shall hold such Stock Certificate in escrow upon the
terms and conditions contained herein. Wolk hereby further delivers to the
Corporation, in escrow, an executed and undated stock power ("Stock Power") with
respect to the Shares, assigning and transferring the Shares back to the
Corporation. The Corporation agrees to hold the Stock Certificate and Stock
Power in escrow and, provided that Wolk does not voluntarily leave the employ of
PEC, and his employment by PEC is not terminated for cause, during the
twenty-four (24) month period commencing with the date of this Agreement, then
the Corporation, at the conclusion of such 24 month period (or such earlier date
when by reason of death or termination without cause both of the above-described
conditions shall have been prevented from occurring), shall destroy the Stock
Power, and treat it of no force and effect, and return the Stock Certificate to
Wolk (or his authorized representative). In the event that Wolk should
voluntarily leave the employ of PEC, or his employment is terminated by PEC for
cause, during the 24 month period commencing with the date of this Agreement,
then Wolk shall sell to the Corporation and the Corporation shall purchase the
Shares in accordance with the following: the Corporation shall release from
escrow to itself the Stock Certificate and Stock Power; the Corporation shall
arrange for cancellation of the Stock Certificate and reissuance of the Shares
in the Corporation's name; and the Corporation shall pay to
2
<PAGE>
Wolk, as payment for the Shares so sold by him back to the Corporation, the sum
of $24,000, which the parties agree to be the value of the Shares upon execution
of this Agreement.
(b) For purposes of subparagraph (a) above, the term "cause" shall mean
conviction for fraud, embezzlement or theft in connection with the performance
of his duties to the Corporation.
(c) For purposes of subparagraph (a) above, Wolk shall not be deemed to
have voluntarily left the employ of PEC, and shall be deemed to have been
terminated without cause, if he leaves such employ because the salary and
benefits offered to him are less than the salary and benefits paid and provided
to him at the time of execution of this Agreement.
3. Acknowledgments, Representations, Warranties and Covenants
(a) Wolk acknowledges, represents, warrants and covenants as follows:
(i) Wolk is an employee at will of PEC and nothing contained herein
shall be deemed to create any agreement on the part of the Corporation
or PEC to employ Wolk for any given term;
(ii) Without limitation of any applicable legal requirements, Wolk
will not transfer, assign, pledge, hypothecate or otherwise
3
<PAGE>
encumber any of the Shares before the date, if any, on which the Stock
Certificate may be returned to him in accordance with paragraph 2(a)
above; and
(iii) The Shares have not been registered or qualified for public
offering or sale under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws. The Corporation has no present
intention of authorizing any such public offering with respect to the
Shares, or any other PEC shares, and there is no assurance that any
such public offering will be conducted in the future. Wolk is
acquiring the Shares for investment only and solely for his own
account, and not with a view to, or for sale in connection with, any
distribution thereof. Without limitation of the other provisions of
this Agreement, Wolk will not sell, transfer or otherwise dispose of
any of the Shares except in compliance with the Act and the rules and
regulations promulgated thereunder or pursuant to an exemption from
registration thereunder and except in compliance with applicable state
securities laws.
(b) The Corporation represents, warrants and covenants:
(i) The execution, delivery and performance of this Agreement by the
Corporation, and the transactions contemplated hereby, will not, with
or without the giving of notice, the passage of time or both: (a)
violate any provision of law; or (b) conflict with, result in the
breach of any provision of or termination of, or constitute a
4
<PAGE>
default under, any corporate charter, by-laws, indenture, agreement or
instrument to which the Corporation is a party or by which the
Corporation or any of its assets or properties is or may be bound;
(ii) This agreement constitutes a valid and binding obligation of the
Corporation, enforceable in accordance with its terms, subject only to
bankruptcy, insolvency, moratorium and similar laws affecting the
rights and remedies of creditors generally; and
(iii) The Shares are owned by the Corporation free and clear of any
liens, claims or encumbrances, and upon payment therefor by Wolk and
delivery of the Stock Certificates to Wolk pursuant to paragraph 2(a)
above, will be owned by Wolk free and clear of any such liens, claims
or encumbrances.
4. Legend
Each certificate representing shares of stock of the Corporation which may
be issued to Wolk shall bear the following legend upon its face:
"The shares represented by this Certificate are subject to the
provisions of a Stock Acquisition Agreement between the Corporation
and Shareholder, a copy of which is on file at the offices of the
Corporation. In addition, such shares have not been registered under
the U.S. Securities Act of 1933, as amended, or the securities laws of
any state, and may not be sold, hypothecated or otherwise disposed of
except in accordance with the registration requirements of said Act
and the laws of any state with jurisdiction over the matter, or
pursuant to an exemption from such requirements."
5
<PAGE>
5. Notices
All notices and communications required or permitted to be given or sent
under this Agreement shall be in writing and hand delivered against a receipt or
sent by certified or registered mail, return receipt requested, to the
Corporation and to Wolk at his above-described address, or to such other address
or addresses as any party may, from time to time, designate by notice in
accordance with the above requirements. Notices sent by hand delivery shall be
deemed given upon receipt and notices sent by certified or registered mail,
return receipt requested, shall be deemed given upon mailing.
6. Miscellaneous
(a) This Agreement shall be governed by the laws of the State of Florida.
(b) This Agreement may not be modified, changed or altered in any manner
except by written agreement of all of the parties. No waiver of the terms,
conditions and covenants of this Agreement shall be binding or effective unless
such waiver shall be in a writing signed by the parties hereto.
(c) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective heirs, legal representatives and assigns, but shall
not be assignable by Wolk.
(d) The captions contained in this Agreement are for convenience of
reference only and shall not be given any consideration in the construction of
this Agreement.
(e) If any provision or any portion of any provision of this
6
<PAGE>
Agreement shall be held to be void or unenforceable, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
date and year first above written.
URT INDUSTRIES, INC.
By: /s/ Brian Wolk
----------------------------
/s/ Jason Wolk
----------------------------
7
EXHIBIT 10.8
[Letterhead of URT Industries, Inc.]
As of October 1, 1997
Mr. Allan Wolk
1180 East Hallandale Beach Blvd.
Hallandale, FL 33009
Dear Mr. Wolk:
It is the purpose of this letter agreement to confirm the understanding
between you and URT Industries, Inc. ("URT") that you may associate yourself
with other companies, whether as director, officer, shareholder, employee or
otherwise, provided that no such other company competes with or transacts any
material amount of business with URT and that you continue to devote so much of
your working time to the business affairs of URT and its affiliates as my be
required to properly perform your duties under the Amended and Restated
Employment Agreement between URT and yourself dated as of October 1, 1994, as
heretofore amended (the "Employment Agreement").
In order to formally carry out such understanding, subparagraph "(b)" of
paragraph "2" of the Employment Agreement shall be deleted and the following new
subparagraph (b) is hereby substituted:
"(b) he will not directly or indirectly be associated (as an owner,
partner, shareholder, director, officer, employee, officer, agent,
consultant, adviser or in any other capacity) with any person, firm,
corporation, enterprise or entity other than the Company.
Notwithstanding the foregoing, nothing contained herein shall be
construed to prevent the Employee from becoming associated (whether as
owner, partner, shareholder, director, officer, employee, agent,
consultant, advisor or in any other capacity) with any person, firm,
corporation, enterprise or entity, provided that such association does
not involve a company or entity which competes or transacts any
material amount of business with the Company and he continues to
devote so much of his working time to the business affairs of the
Company as may be required to properly perform his duties to the
Company. In addition, the foregoing shall not in any event be
construed to prevent the Company from leasing any real property in
which the Employee has an interest provided that all requirements of
fiduciary duty are satisfied."
<PAGE>
As of October 1, 1997
Page 2
The amendment contained herein shall be deemed to be effective as of
October 1, 1997.
Except as set forth above, the Employment Agreement shall remain in full
force and effect.
Please sign below to confirm your agreement to the foregoing.
Very truly yours,
URT INDUSTRIES, INC.
By: /s/ Brian Wolk
---------------------------------
Executive Vice-President
AGREED TO AND APPROVED:
/s/ Allan Wolk
- -----------------------------------
Exhibit 10.9
PROMISSORY NOTE
Hallandale, Florida
$150,000.00 September 15, 1998
FOR VALUE RECEIVED, PEACHES ENTERTAINMENT CORPORATION ("Borrower'), a
Florida corporation whose principal place of business is located at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009, does hereby promise to
pay to the order of URT INDUSTRIES, INC. (the "Payee"), whose address is 1180
East Hallandale Beach Boulevard, Hallandale, Florida 33009, the sum of ONE
HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00) on December 25, 1998, with
interest on such principal amount at the prime rate then charged by Barnett
Bank, at the time of repayment, to its best commercial customers, plus a margin
of 2% per annum. Payment of this Note shall be made at the Payee's
above-described address in such currency of the United States of America as at
the time of payment shall constitute legal tender for the payment of public and
private debts.
Upon the occurrence of an event of default, as hereinafter defined, the
principal amount of this Note shall be due and payable immediately, in full,
together with interest accrued to the date of payment. The term "event of
default" as used herein means any one of the following occurrences:
(a) In the event that the Borrower should become insolvent, or make an
assignment for the benefit of creditors or apply for the appointment of a
receiver; or in the event of the appointment of a receiver or trustee in
bankruptcy for the Borrower; or in the event that the Borrower shall file a
petition under the U.S. Bankruptcy Code or any amendment thereof or file a
petition or seek other relief under any insolvency law providing
<PAGE>
for the relief of debtors; or in the event that any such petition is filed
against the Borrower and not dismissed within sixty (60) days; or
(b) In the event of the liquidation or dissolution of the Borrower; or
(c) In the event of the cessation of the business activities for which the
Borrower was organized.
The Borrower does hereby waive presentment, protest, demand for payment,
notice of dishonor, notice of protest and all other notices or demands of any
kind in connection with the delivery, acceptance, performance or default under
this Note.
No act, delay, extension, omission or indulgence on the part of the Payee
or any other holder of this Note shall be deemed a waiver of any of the rights
of such holder against the Borrower hereunder, nor shall the failure to exercise
any such right or remedy when available on any occasion be constructed as a bar
to or waiver of any such rights on any future occasion.
If there should be a default by the Borrower in the payment of this Notice
or an event of default, as defined herein, and if the Payee or any other holder
of this Notice shall incur any reasonable expenses in connection with the
collection of any amount payable hereunder, including without limitation, all
reasonable legal fees and expenses, the Borrower hereby agrees to pay all such
expenses, including all such legal fees and expenses.
This Note shall be governed by and constructed in accordance with the law
of the State of Florida. It may be prepaid by Borrower in whole or in part at
any time upon payment of the interest then accrued on the principal amount so
prepaid.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the above date.
PEACHES ENTERTAINMENT CORPORATION
By: /s/ Jason Wolk
-----------------------------------
Name: Jason Wolk
Title: Executive Vice President
3
EXHIBIT 10.10
FIRST ADDENDUM TO LEASE
(Peaches Music & Video Store No. 7)
AGREEMENT made and entered into this 30th day of September, 1998 by and
between ALLAN WOLK and SHEFFIELD WOLK, with an address at 1180 East Hallandale
Beach Boulevard, Hallandale, Florida 33009 (hereinafter collectively referred to
as "Landlord") and PEACHES ENTERTAINMENT CORPORATION, a Florida corporation
whose address is 1180 East Hallandale Beach Boulevard, Hallandale, Florida 33009
(hereinafter referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant are the landlord and tenant respectively under
a Lease Agreement dated March 21, 1978 (the "Lease") between Nehi Record
Distributing Corp. ("Nehi") as landlord, and Peaches Records and Tapes, Inc.
("PRT"), as tenant, with respect to the Peaches Music and Video store and
surrounding property at 1500 Sunrise Boulevard, Ft. Lauderdale, Florida 33304
(the "Premises"), due to the assignment by PRT to Tenant of its interest as
tenant under an Assignment of Lease dated March 31, 1982, and the sale of the
Premises by Nehi to Landlord in or around 1983; and
WHEREAS, the third and final renewal term of the Lease is due to expire on
March 31, 2003; and
WHEREAS, Tenant desires to extend the current term of the Lease for an
additional five year period ending March 31, 2008, and to acquire the option of
extending the term of the Lease for up to two additional successive five-year
periods, and the parties agree to provide such extension and options to Tenant
on the terms and conditions described below;
IT IS, THEREFORE, AGREED:
1. Pursuant to Paragraphs 2 and 19 of the Lease (before the amendments set
forth below), the Lease will expire on March 31, 2003. The provisions of such
Paragraphs 2 and 19 of the Lease are hereby amended as follows: by amending
existing sub-paragraph 19.3 such that the Lease extension being effected
pursuant to such subparagraph shall be a period ten (10) years
<PAGE>
commencing April 1, 1998 and ending March 31, 2008, at the rental rate set
forth elsewhere herein; and by adding the following two sub-paragraphs to such
Paragraph 19 (to follow immediately after existing sub-paragraph 19.3):
"19.4 Provided that Tenant shall then not be in default under this
Lease, the term shall be automatically extended for five (5) calendar
years next following the expiration of the third extended term hereof
(i.e. from April 1, 2008 to March 31, 2013); PROVIDED, however, that
the right and option is hereby granted to Tenant to cancel such
automatic extension by giving Landlord any form of written notice of
such extension cancellation at least one hundred eighty (180) days
prior to the expiration of the third such extended term. Any such
fourth extended term shall be upon all of the same terms and
conditions as apply under the Lease, as amended, except that regular
monthly rent during said fourth extended term, if any, shall be in
accordance with Paragraph 4.4 hereof.
19.5 Provided that Tenant shall then not be in default under this
Lease, the term shall be automatically extended for five (5) calendar
years next following the expiration of the fourth extended term hereof
(i.e. from April 1, 2013 to March 31, 2018); PROVIDED; however, that
the right and option is hereby granted to Tenant to cancel such
automatic extension by giving Landlord any form of written notice of
such extension cancellation at least one hundred eighty (180) days
prior to the expiration of the fourth such extended term. Any such
fifth extended term shall be upon all of the same terms and conditions
as apply under the Lease, as amended, except that regular monthly rent
during said fifth extended term, if any, shall be in accordance with
Paragraph 4.4 hereof."
2. The rental provisions of Paragraph 4 of the Lease are hereby amended by
adding the following sub-paragraph 4.4 to such Paragraph 4 (to follow
immediately after existing sub-paragraph 4.3):
2
<PAGE>
"4.4 Notwithstanding the foregoing or any other provision of this
Lease, the rent payable during the five-year period commencing April
1, 2003 and ending March 31, 2008 shall be $188,671.94 per annum
($15,722.66 per month), and the rent payable during the fourth and
fifth renewal terms, if any, shall be as follows:
(a) during the fourth renewal term, if any (April 1, 2008 to March
31, 2013), a regular rent of $213,281.33 per annum ($17,773.44
per month) during such term; and
(b) during the fifth renewal term, if any (April 1, 2013 to March 31,
2018), a regular rent of $237,890.71 per annum ($19,824.23 per
month) during such term.
3. Sub-paragraph 8.1 of the Lease is hereby amended, effective as of the
date of this Addendum, by deleting such existing sub-paragraph 8.1 and inserting
the following in its place:
"8.1 Notwithstanding any other provision of the Lease to the contrary,
Tenant shall, at its sole cost and expense, during the term and each
renewal term, expeditiously make all repairs and necessary
modifications to the Premises, whether structural or non-structural,
and whether or not required by applicable law, and maintain and keep
the Premises in good and clean condition, so that the Premises shall
be, at termination of the Lease, in such condition. Notwithstanding
the foregoing, in the event of any loss, destruction or other event
which is covered by any fire or other insurance which may be
maintained by Landlord, then Landlord shall be responsible for the
cost of any necessary repair up to the amount of the proceeds of such
insurance coverage, less any applicable deductible charged to Landlord
and the cost, if any, to Landlord in collecting such insurance
proceeds from the insurance carrier."
4. For the purpose of conforming the other provisions of the Lease with
the above-
3
<PAGE>
described amendment of sub-paragraph 8.1, sub-paragraph 5.1 is hereby amended,
effective as of the date of this Addendum, by deleting the word non-structural
from the fourth line of such sub-paragraph.
5. Paragraph 10 of the Lease is hereby amended, effective as of the date of
this Addendum, by deleting the existing Paragraph 10 and inserting the following
in its place:
"10. Fire Insurance; Destruction of Improvements
10.1 Tenant will, at its own expense, maintain in full force and
effect throughout the term and each renewal term fire insurance
policies covering all physical loss and with broad form coverage or
such other broader coverage as may from time to time be customary, on
all buildings and other improvements (excluding paving and
foundations) now or hereafter on the premises, issued by insurance
companies selected by Tenant and approved by Landlord, licensed to do
business by the State in which the premises is located, and naming
Tenant as the insured party, and Landlord as the additional insured,
Said policies shall bear loss payee endorsements in favor of the
holder of any mortgage or deed of trust permitted under this lease.
Such insurance shall be in a face amount of not less then ninety
percent (90%) of the full insurable value of all such improvements, or
the full replacement costs of said improvements, whichever is the
greater. Tenant will cause true copies of all such insurance policies
(or certificates thereof showing the premiums thereon to have been
paid) to be delivered to Landlord upon Landlord's written request
therefor. All such policies shall provide that they shall not be
cancelable by the insurers without said insurers first giving at least
ten (10) days' notice in writing to Tenant and Landlord.
10.2 Proceeds from said insurance policies shall be payable, first, to
the holder of any mortgage or deed of trust permitted under this Lease
to the extent required by said mortgage or deed of trust, and the
balance shall be payable to Tenant. However, the portion of said
proceeds received by Tenant shall be immediately impounded with the
disbursed directly by an
4
<PAGE>
independent depository acceptable to each party to pay, to the extent
such portion of proceeds may be sufficient, the costs of repairing and
restoring damaged buildings and other improvements. If, after such
payment of all of said costs, any balance of funds remains, the same
shall belong to Landlord absolutely.
10.3 No damage or destruction, by fire or other casualty, of any
building or other improvements now or hereafter on the premises shall
relieve Tenant of its obligations for rent and additional rent under
other provisions of this Lease, or of any of its obligations under
other provisions of this Lease (including without limitation Tenant's
and Landlord's respective obligations under the Article entitled
"Improvements, Repairs, Alterations, Restoration"), except that in the
event that the premises shall be damaged by fire, explosion or other
casualty or occurrence to the extent of twenty-five (25%) or more of
the insurable value of the premises during the final 180 days of any
renewal term and Tenant has served notice of its intention to
terminate the Lease as of the end of such renewal term, then Landlord
shall have the option, upon notice to Tenant, to obtain an assignment
of the relevant insurance proceeds in lieu of requiring Tenant to
repair and/or re-build in accordance with the other provisions of this
Lease.
10.4 In the event of any dispute between the parties regarding this
Article, the same shall be resolved by, and under the rules and
procedures of, the AMERICAN ARBITRATION ASSOCIATION, sitting in the
State of Florida.
6. Except as modified herein, all of the remaining provisions of the Lease
shall remain in full force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the
day and year first above written.
SIGNED, SEALED AND DELIVERED /s/ Allan Wolk
in the presence of ------------------------------------
Allan Wolk, as Landlord
/s/ Sheffield Wolk
- ------------------------------ ------------------------------------
Sheffield Wolk, as Landlord
PEACHES ENTERTAINMENT CORPORATION,
as Tenant
By: /s/ Brian Wolk
- ------------------------------ ------------------------------------
- ------------------------------ Title: Executive Vice-President
6
EXHIBIT 10.11
LOAN FORGIVENESS AGREEMENT
AGREEMENT dated as of the 29th day of November, 1997 between URT
INDUSTRIES, INC. ("URT"), a Florida corporation with offices at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009, and PEACHES ENTERTAINMENT
CORPORATION ("PEC"), a Florida corporation with offices at 1180 East Hallandale
Beach Boulevard, Hallandale, Florida 33009.
WHEREAS, in order to cause PEC's Plan of Reorganization, as modified,
to be approved and confirmed by the U.S. Bankruptcy Court, URT lent
$700,000 to PEC and, in exchange, PEC delivered to URT its promissory
note in such principal amount dated January 27, 1997 (the "Note"), and
WHEREAS, URT wishes to further assist PEC by forgiving a portion of
the principal and interest payable under the Note,
IT IS, THEREFORE, AGREED:
1. In consideration of $1.00 and other good and valuable consideration
received by it, URT agrees to and does hereby forgive and waive its right to
receive one-half (1/2) of the Seven Hundred Thousand Dollar ($700,000) principal
amount due to it under the Note, together with all interest on the principal
amount so forgiven which accrued from the date of the Note to the date of this
Agreement. Accordingly, the Note shall be treated as if partially pre-paid in
the amount set forth above, and the unpaid principal balance on the Note, as of
the date of this Agreement, shall be Three Hundred and Fifty Thousand Dollars
($350,000), which shall be repaid in
<PAGE>
four equal installments on the Installment Payment Dates, as such term is
defined in the Note, with interest on such Three Hundred and Fifty Thousand
Dollars ($350,000) to be paid at the times and at the rate set forth in the
Note.
2. Except as set forth above, the Note shall remain in full force and
effect, and nothing contained herein shall be deemed a modification or waiver of
any of URT's rights under the Security Agreement dated January 27, 1997 between
URT and PEC, or the Mortgage with Assignment of Rents, Security Agreement and
Fixture Filing dated as of January 27, 1997 between URT and PEC.
IN WITNESS WHEREOF, each of the undersigned has executed this document as
of the date and year first set forth above.
URT INDUSTRIES, INC.
By: /s/ Brian Wolk
----------------------------------
Name: Brian Wolk
Title: Executive Vice-President
PEACHES ENTERTAINMENT CORPORATION
By: /s/ Jason Wolk
----------------------------------
Name: Jason Wolk
Title: Executive Vice-President
-2-
EXHIBIT 10.12
[Letterhead of URT Industries, Inc.]
December 23, 1998
Peaches Entertainment Corporation
1180 East Hallandale Boulevard
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter to confirm our agreement that URT
Industries, Inc. ("URT") agrees that the salary payable by Peaches Entertainment
Corporation ("PEC"), to Allan Wolk, pertaining to the services of Allan Wolk,
pursuant to the agreement dated January 1, 1996 between URT and PEC, as such
agreement has previously been amended (the "Intercorporate Agreement"), shall be
$20,833.33 per month ($250,000 per annum), for a period of nine months effective
April 1, 1998 and continuing until December 31, 1998. Other than as set forth
immediately above, the Intercorporate Agreement shall remain in full force and
effect.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/ Jason Wolk
------------------------
Executive Vice-President
Agreed to and approved:
Peaches Entertainment Corporation
By: /s/ Brian Wolk
-------------------------------
Executive Vice-President
EXHIBIT 10.13
[Letterhead of URT Industries, Inc.]
December 23, 1998
Mr. Allan Wolk
1180 East Hallandale Beach Boulevard
Hallandale, FL 33009
Dear Mr. Wolk:
It is the purpose of this letter to confirm our agreement to further amend
the Amended and Restated Employment Agreement, dated as of the first day of
October, 1994 (the "Employment Agreement"), between URT Industries, Inc.
("URT"), and yourself ("Employee"), as previously amended, in the manner
described below:
Employee acknowledges having received salary compensation, during the
nine month period commencing April 1, 1998 and ending December 31,
1998 which is $37,202.69 less than the compensation to which he would
otherwise be entitled, and agrees to forego such $37,202.69 in
compensation.
Other than as set forth above, the Employment Agreement, as previously
amended, shall remain in full force and effect.
Please sign below to confirm your agreement to the foregoing.
Very truly yours,
URT INDUSTRIES, INC.
By: /s/ Jason Wolk
--------------------------
Executive Vice-President
AGREED TO AND APPROVED:
/s/ Allan Wolk
- -------------------------------
Allan Wolk
EXHIBIT 10.14
[LETTERHEAD OF URT INDUSTRIES, INC.]
May 28, 1999
Peaches Entertainment Corporation
1180 East Hallandale Beach Blvd.
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter agreement to confirm that, in
consideration of the benefit which would be expected to accrue to URT
Industries, Inc. ("URT"), URT hereby agrees that, in the event that funds
generated from the operations of Peaches Entertainment Corporation ("PEC"), and
the proceeds of debt financing, are insufficient to meet PEC's current projected
operating requirements during the fiscal year period ending April 2, 2000, then
URT will take any necessary action to see that funds are available to cover any
such shortfall up to April 2, 2000.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/ Jason Wolk
---------------------------
Executive Vice-President
Agreed and Approved:
Peaches Entertainment Corporation
By: /s/ Brian Wolk
------------------------
Executive Vice-President
EXHIBIT 10.15
PROMISSORY NOTE
---------------
Hallandale, Florida
$275,000.00 April 19, 1999
----------- -------------------
FOR VALUE RECEIVED, PEACHES ENTERTAINMENT CORPORATION ("Borrower"), a
Florida corporation whose principal place of business is located at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009, does hereby promise to
pay to the order of URT INDUSTRIES, INC. (the "Payee"), whose address is 1180
East Hallandale Beach Boulevard, Hallandale, Florida 33009, the sum of TWO
HUNDRED AND SEVENTY-FIVE THOUSAND DOLLARS ($275,000.00) on or before December
29,1999, without interest. Payment of this Note shall be made at the Payee's
above-described address in such currency of the United States of America as at
the time of payment shall constitute legal tender for the payment of public and
private debts.
Upon the occurrence of an event of default, as hereinafter defined, the
principal amount of this Note shall be immediately due and payable. The term
"event of default" as used herein means any one of the following occurrences:
(a) In the event that the Borrower should become insolvent, or make an
assignment for the benefit of creditors or apply for the appointment of a
receiver; or in the event of the appointment of a receiver or trustee in
bankruptcy for the Borrower; or in the event that the Borrower shall file a
petition under the U.S. Bankruptcy Code or any amendment thereof or file a
petition or seek other relief under any insolvency law providing for the relief
of debtors; or in the event that any such petition is filed against the Borrower
and not dismissed within sixty (60) days; or
(b) In the event of the liquidation or dissolution of the Borrower; or
(c) In the event of the cessation of the business activities for which the
Borrower was organized.
The Borrower does hereby waive presentment, protest, demand for payment,
notice of
<PAGE>
dishonor, notice of protest and all other notices or demands of any kind in
connection with the delivery, acceptance, performance or default under this
Note.
No act, delay, extension, omission or indulgence on the part of the Payee
or any other holder of this Note shall be deemed a waiver of any of the rights
of such holder against the Borrower hereunder, nor shall the failure to exercise
any such right or remedy when available on any occasion be constructed as a bar
to or waiver of any such rights on any future occasion.
If there should be a default by the Borrower in the payment of this Note or
an event of default, as defined herein, and if the Payee or any other holder of
this Note shall incur any reasonable expenses, including, without limitation,
legal fees and expenses, in connection with the collection of any amount payable
hereunder the Borrower hereby agrees to pay any and all such reasonable
expenses.
This Note shall be governed by and constructed in accordance with the laws
of the State of Florida. It may be prepaid by Borrower in whole or in part at
any time.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the above date.
PEACHES ENTERTAINMENT CORPORATION
By: /s/Jason Wolk
--------------------------------
Name: Jason Wolk
-------------------
Title: Executive
Vice-President
-------------------
EXHIBIT 10.16
[Letterhead of URT Industries, Inc.]
July 9, 1999
Peaches Entertainment Corporation
1180 East Hallandale Boulevard
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter to confirm our agreement that URT
Industries, Inc. ("URT") agrees that the salary payable by Peaches Entertainment
Corporation ("PEC"), to Allan Wolk, pertaining to the services of Allan Wolk,
pursuant to the agreement dated January 1, 1996 between URT and PEC, as such
agreement has previously been amended (the "Intercorporate Agreement"), shall be
$20,833.33 per month ($250,000 per annum), for a period of three months
effective January 1, 1999 and continuing until April 3, 1999. Other than as set
forth immediately above, the Intercorporate Agreement shall remain in full force
and effect.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/ Jason Wolk
---------------------------
Executive Vice-President
Agreed to and approved:
Peaches Entertainment Corporation
By: /s/ Brian Wolk
---------------------------------
Executive Vice-President
EXHIBIT 22
Subsidiaries of URT Industries, Inc.:
Peaches Entertainment Corporation
United Record and Tape Industries, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the year ended April 3, 1999 and
is qualified in its entirety by reference to such financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> APR-03-1999
<CASH> 927,982
<SECURITIES> 439,640
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,309,600
<CURRENT-ASSETS> 4,011,800
<PP&E> 3,013,150
<DEPRECIATION> 1,763,861
<TOTAL-ASSETS> 5,460,034
<CURRENT-LIABILITIES> 3,054,796
<BONDS> 578,039
0
0
<COMMON> 153,175
<OTHER-SE> 2,688,488
<TOTAL-LIABILITY-AND-EQUITY> 5,460,034
<SALES> 17,480,467
<TOTAL-REVENUES> 17,480,467
<CGS> 10,361,351
<TOTAL-COSTS> 18,155,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,174
<INCOME-PRETAX> (672,859)
<INCOME-TAX> 0
<INCOME-CONTINUING> (672,859)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,687)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
