<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997
REGISTRATION NO. 333-13941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PARADISE MUSIC & ENTERTAINMENT, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7929 13-3906452
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION CLASSIFICATION IDENTIFICATION NO.)
OR ORGANIZATION) CODE NUMBER)
</TABLE>
------------------------
420 West 45th Street, 5th Floor
New York, NY 10036
(212) 957-9393
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
------------------------------
John Loeffler
President
420 West 45th Street, 5th Floor
New York, NY 10036
(212) 957-9393
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
With copies to:
<TABLE>
<S> <C>
Walter M. Epstein, Esq. Michael DiGiovanna, Esq.
Rubin Baum Levin Constant & Friedman Parker Duryee Rosoff & Haft
30 Rockefeller Plaza 529 Fifth Avenue
New York, NY 10112 New York, NY 10017
(212) 698-7758 (212) 599-0500
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier registration statement for the same
offering. / / ______
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, par value $.01 per share, and one
Warrant, each to purchase one-half share of
Common Stock................................ 1,150,000(2) $7.00 $8,050,000 $2,439.40
Common Stock, par value $.01 per share,
issuable upon exercise of the Warrants(3)... 575,000(2) $8.40 $4,830,000 $1,463.64
Representative's Warrants, each to purchase
one Unit, each consisting of one share of
Common Stock, par value $.01 per share, and
one Warrant, each to purchase one-half share
of Common Stock(4).......................... 100,000 $.001 $100 $.04
Units, each consisting of one share of Common
Stock, par value $.01 per share, and one
Warrant, each to purchase one-half share of
Common Stock, issuable upon exercise of the
Representative's Warrants(3)................ 100,000 $7.70 $770,000 $233.34
Common Stock, par value $.01 per share,
issuable upon exercise of the Warrants
contained in the Units issuable upon
exercise of the Representative's
Warrant(3).................................. 50,000 $8.40 $420,000 $127.28
Common Stock, par value $.01 per share, to be
sold by Selling Stockholders(5)............. 78,333 $7.00 $548,331 $166.17
Total Registration Fee.............................................. $14,618,431 $4,429.87(6)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Assumes the Representative's over-allotment option to purchase up to 150,000
additional Units is exercised in full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions contained in the Warrants and the Representative's
Warrants.
(4) Represents warrants to be issued by the Company to the Representative at the
time of delivery and acceptance of the securities to be sold by the Company
to the public hereunder.
(5) Represents 78,333 shares of Common Stock owned by stockholders of the
Company which are being registered for offer and sale on a delayed basis
pursuant to Rule 415.
(6) $4,429.87 of this amount has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL SUCH REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of:
(i) 1,150,000 Units ("Units"), including Units to cover over-allotments for
sale by the Company in an underwritten public offering (the "Offering"), each
Unit consisting of:
(a) one share of Common Stock, $.01 par value per share (the "Common
Stock"), of Paradise Music & Entertainment, Inc. (the "Company"), for an
aggregate of 1,150,000 shares of Common Stock; and
(b) one Redeemable Warrant (the "Warrants"), with two Warrants entitling
the holder thereof to purchase one share of Common Stock, for an aggregate
of 575,000 shares of Common Stock;
(ii) the Representative's Warrants, exercisable into 100,000 Units and the
underlying Common Stock and Warrants, for an aggregate of 100,000 Warrants and
150,000 shares of Common Stock; and
(iii) an additional 78,333 shares of Common Stock (the "Selling Stockholder
Securities") for sale by the holders thereof (the "Selling Stockholders").
Following the Prospectus for the Offering are certain pages of the
Prospectus relating solely to the Selling Stockholder Securities, including
alternate front and back cover pages and sections entitled "Public Offering" and
"Selling Stockholders and Plan of Distribution" to be used in lieu of "Offering
by Selling Stockholders" and "Underwriting" contained in the Prospectus relating
to the Offering. All other sections of the Prospectus for the Offering are to be
used in the Prospectus relating to the Selling Stockholder Securities.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 13, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
PARADISE MUSIC & ENTERTAINMENT, INC.
1,000,000 UNITS
CONSISTING OF 1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
---------------------
Paradise Music & Entertainment, Inc. (the "Company") is offering (the
"Offering") hereby 1,000,000 Units (the "Units"), each consisting of one share
of its common stock (the "Common Stock") and one redeemable common stock
purchase warrant (the "Warrants"). The shares of Common Stock and Warrants will
be separately transferable immediately upon issuance. Two Warrants will entitle
the registered holder thereof to purchase one share of Common Stock at a price
of $ per share [120% of the initial public offering price of the Units],
subject to adjustment, at any time commencing on the date of this Prospectus and
terminating on , 2001 [four years from the date of this Prospectus].
The Warrants will be redeemable, at the option of the Company, at a price of
$0.05 per Warrant upon not less than 30 days' written notice if the average
closing bid price of the Common Stock has been equal to or greater than 120% of
the then exercise price of the Warrants for 20 consecutive trading days ending
on the fifth day prior to the notice of redemption. See "Description of
Securities" for additional terms of the Warrants.
Concurrently with the Offering, the Company also has registered on behalf of
certain stockholders (the "Selling Stockholders") an additional 78,333 shares of
Common Stock (the "Selling Stockholder Securities"). The Selling Stockholders
have agreed not to sell any of the Selling Stockholder Securities for at least
one year after the closing of the Offering. Sales of Selling Stockholder
Securities or even the potential of such sales at any time may have an adverse
effect on the market prices of the securities offered hereby. The Company will
not receive any proceeds from the sale of the Selling Stockholder Securities.
See "Offering by Selling Stockholders."
Prior to the Offering there has been no public market for the Common Stock
or Warrants. It is currently estimated that the initial public offering price of
the Units will be between $6.00 and $7.00 per Unit. For factors considered in
determining the initial public offering price, see "Underwriting." The Company
has applied to have the Common Stock and Warrants approved for quotation on The
Nasdaq SmallCap Market ("Nasdaq SCM") under the symbols "PDSE" and "PDSEW",
respectively.
--------------------------
THESE ARE SPECULATIVE SECURITIES. THIS OFFERING INVOLVES A HIGH DEGREE OF
RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREOF.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY (2)
-------------- ------------ --------------
<S> <C> <C> <C>
Per Unit................................................................ $ $ $
Total (3)............................................................... $ $ $
</TABLE>
- --------------------------
(1) Does not include additional compensation to Donald & Co. Securities Inc.,
acting as representative (the "Representative") of the several underwriters
identified elsewhere herein (the "Underwriters"), in the form of a
nonaccountable expense allowance of 3% of the gross proceeds of the
Offering. The Company has also agreed to sell to the Representative warrants
to purchase up to 100,000 Units at an exercise price of $ per Unit,
subject to adjustment, exercisable over a period of four years commencing
one year from the date hereof (the "Representative's Warrants") and to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting estimated expenses payable by the Company, including the
Representative's nonaccountable expense allowance of $ ($ if the
Representative's Over-Allotment Option, as hereinafter defined, is exercised
in full), estimated at $ ($ if the Over-Allotment Option is
exercised in full).
(3) The Company has granted the Representative a 45-day option (the
"Over-Allotment Option") to purchase up to 150,000 Units upon the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discounts and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Units are being offered by the Underwriters subject to receipt and
acceptance by the Underwriters, subject to approval of certain legal matters by
counsel and subject to prior sale. The Underwriters reserve the right to
withdraw, cancel or modify the Offering and to reject any order in whole or in
part. It is expected that delivery of certificates will be made against payment
therefor on or about , 1997, at the offices of Donald & Co.
Securities Inc., 65 East 55th Street, New York, New York 10022.
--------------------------
DONALD & CO. SECURITIES INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements of the Company, after the end of each fiscal year,
and make available such other periodic reports as the Company may deem
appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE
INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE
INDICATED, ALL REFERENCES TO THE COMPANY IN THIS PROSPECTUS GIVE PRO FORMA
EFFECT TO THE EFFECTIVENESS OF (I) THE EXCHANGE AGREEMENT (THE "EXCHANGE
AGREEMENT") DATED OCTOBER 9, 1996 AMONG THE COMPANY, JOHN LOEFFLER, JON SMALL,
BRIAN DOYLE AND RICHARD FLYNN, AND (II) THE EMPLOYMENT AGREEMENTS, AS AMENDED
(THE "EMPLOYMENT AGREEMENTS"), EACH DATED OCTOBER 9, 1996 BETWEEN THE COMPANY
AND EACH OF JOHN LOEFFLER, JON SMALL, BRIAN DOYLE AND RICHARD FLYNN. UNLESS
OTHERWISE INDICATED, ALL REFERENCES TO THE COMPANY INCLUDE JOHN LEFFLER MUSIC,
INC. D/B/A RAVE MUSIC AND ENTERTAINMENT ("RAVE"), PICTURE VISION, INC. ("PICTURE
VISION") AND ALL ACCESS ENTERTAINMENT MANAGEMENT GROUP, INC. ("ALL ACCESS"),
EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY. UNLESS OTHERWISE
INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE OVER-
ALLOTMENT OPTION, (II) NO EXERCISE OF THE REPRESENTATIVE'S WARRANTS AND (III) NO
EXERCISE OF ANY OTHER WARRANT OR OPTION OF THE COMPANY.
THE COMPANY
GENERAL
The Company is a music and entertainment company focused on providing music
driven content for the music and entertainment industry. The Company's current
businesses include: the commercial production of original music scores and
advertising themes for television, radio and film; the production of music
videos and music specials for television; and music artist management. The
Company's operations are currently conducted through its three wholly-owned
operating subsidiaries: Rave, Picture Vision, and All Access. The Company
provides a range of in-house products and services for music driven content
production, which combination of in-house products and services, the Company
believes, is not provided by other independent music companies. The Company
believes that this combination of in-house products and services provide it with
certain competitive advantages potentially resulting in lower costs and greater
convenience for its customers. See "Business."
Following the Offering, the Company's strategy is to: (i) invest in and
expand its current businesses; (ii) establish one record label; and (iii)
commence an acquisition program to acquire or develop small complementary music
driven businesses. Through the implementation of this strategy, the Company
intends to expand the range of music driven products and services it provides
and the size of its business.
CURRENT BUSINESS
The Company's commercial music production business is conducted through
Rave, which was founded in 1986 by John Loeffler, the President of the Company.
The Company creates original music scores and advertising themes for television,
radio, and film. This business involves creating original music, hiring
musicians, recording music in its in-house recording studios and submitting
final, ready to use, compositions. Rave has composed and produced more than
2,000 commercial scores and has received various awards, including awards from
the American Society of Composers, Authors and Publishers ("ASCAP"). See
"Business--Current Business--Commercial Music."
The Company's music video and television music special production business
is conducted through Picture Vision, which was founded in 1984 by Jon Small, an
Executive Vice President of the Company. The Company produces music videos used
to promote music artists as well as music specials and programs for television
networks and other video broadcasters. In connection with this business the
Company, utilizing both in-house capabilities and independent contractors,
directs, produces, story-writes, art directs, scouts locations, produces special
effects, edits, contracts, and manages the production. Picture Vision has
produced numerous music videos and television music video specials for many well
known artists and has won MONITOR and ACE awards. For work he directed for
Picture Vision, Mr. Small was awarded the "1995 Music Video Director Of The
Year" by the Country Music Association. See "Business--Current Business--Video
Production."
3
<PAGE>
The Company's music artist management services are provided by All Access,
which currently manages the careers of the following eight music artists and/or
music groups: Carly Simon; Daryl Hall; Daryl Hall & John Oates; Thin Lizard
Dawn; Screaming Headless Torsos; Stacy Wilde; Coward; and Fat. All Access was
founded in 1994 by Brian Doyle and Richard Flynn, each an Executive Vice
President of the Company. The services provided to clients include securing
recording and publishing contracts, advising on the creative aspects of their
music and public image and organizing the many aspects of touring, publicity,
television appearances, videos, and business affairs. See "Business--Current
Business-- Music Artist Management."
Each of the Company's businesses will seek to make substantial use of the
capabilities of its other businesses in order to lower costs and increase
efficiency. There can be no assurance that any such efficiencies will be
achieved.
DEVELOPMENT OF RECORDED MUSIC BUSINESS
The Company will enter into the recorded music business by establishing one
independent record label under a soon-to-be formed subsidiary referred to in
this Prospectus as PRM. It is anticipated that this record label will be a
contemporary label featuring alternative and adult contemporary artists. The
Company will seek to sign artists believed to have commercial appeal, but who
will not require substantial advances or special production facilities.
Typically these artists will be commercially unknown recording artists. The
Company will also seek to hire established producers who are attracted to the
potentially greater independence and flexibility which it is believed can be
offered by an independent music company. PRM will be under the direction of
Brian Doyle and Richard Flynn and will, to the extent practicable, utilize the
in-house recording studios and video production facilities of the Company. Until
it can support a higher level of overhead, PRM will, to the extent practicable,
use the existing resources of the Company, particularly those employed in its
artist management services business. It is anticipated that additional record
labels may be acquired pursuant to the acquisition program. See "Use of
Proceeds" and "Business--Development of Recorded Music Business" and
"--Acquisition Program."
ACQUISITION PROGRAM
The music and entertainment industry includes six major companies in the
area of recorded music and thousands of smaller independent music entities in
the area of recorded music and the broader music business. The Company believes
that many owners of independent music entities do not enjoy certain benefits
which the Company intends to offer. These benefits include the ability to
provide a broader range of services to their clients and greater liquidity and
potential for capital enhancement through ownership of a publicly traded entity.
Other benefits that the Company believes it can provide acquired entities are
access to capital, management expertise and a broad range of industry contacts.
See "Business--Acquisition Program."
The Company's acquisition program will concentrate on acquisitions of small
complementary music driven businesses in the music and entertainment industry.
For purposes of this Prospectus, the term "acquisition" includes not only the
purchase of existing businesses but also joint ventures or similar arrangements
with existing businesses and with individuals seeking to establish businesses in
specific areas of the music and entertainment business. The Company initially
will target acquisitions of up to $5 million. In its business acquisitions, the
Company will seek to acquire established companies and engage in other
acquisitions which the Company believes may generate, under its management,
profits and opportunities for growth. The Company anticipates that by targeting
acquisitions in areas in which the Company's existing management has expertise,
the Company will be better able to attempt to achieve operating efficiencies by
merging a portion of the overhead of acquired entities into the Company's
existing infrastructure. The Company intends to use equity, cash, debt
instruments or a combination thereof in making acquisitions. The Company
believes that larger companies are not interested in acquisitions of this size,
and that smaller companies, due to the complexity involved in acquiring and
integrating additional smaller entities, will not compete as aggressively for
such acquisitions. The Company further believes that,
4
<PAGE>
consistent with the broad range of experience of its management combined with
the development of its businesses, that it will be able to compete effectively
with other small companies for acquisitions. To accomplish its acquisition
program, the Company, in the future, may need to obtain additional financing.
See "Risk Factors--Future Capital Needs; Uncertainty of Future Funding" and
"Business--Acquisition Program."
The Company has no present agreements, understandings or negotiations
relating to any current or pending acquisitions. There can be no assurance that
the acquisition program will be successful, that companies acquired by the
Company will be profitable or that the Company will be able to achieve
substantial growth. See "Risk Factors."
CORPORATE INFORMATION
The Company was incorporated in Delaware in July 1996. On October 9, 1996,
the Company consummated the Exchange Agreement, pursuant to which it issued an
aggregate of 873,000 shares of Common Stock to John Loeffler, Jon Small, Brian
Doyle and Richard Flynn in exchange for all of the outstanding common stock of
each of Rave, Picture Vision and All Access.
The Company's principal executive offices are currently located at 420 West
45th Street, New York, New York 10036. The Company's telephone number is (212)
957-9393. Subsequent to the Offering, the Company will relocate its New York
operations. See "Business--Facilities."
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 1,000,000 Units, each Unit consisting of one
share of Common Stock and one Warrant. Two
Warrants entitle the holder thereof to
purchase, at an exercise price of $7.20 per
share (at an assumed initial public offering
price of $6.00 per Unit), one share of Common
Stock at any time prior to , 2001.
The exercise price of the Warrants is subject
to adjustment and the Warrants are subject to
redemption in certain circumstances. See
"Description of Securities--Warrants."
Common Stock Outstanding Prior to the 1,080,333 shares
Offering...................................
Common Stock Outstanding After the 2,080,333 shares
Offering...................................
Use of Proceeds.............................. The net proceeds of the Offering will be used
for: (i) the establishment of the Company's
recorded music business; (ii) the acquisition
program, (iii) expanding existing businesses;
(iv) the purchase of new equipment; and (v)
working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq SCM Trading Symbols(1):
Common Stock............................... PDSE
Warrants................................... PDSEW
</TABLE>
- ------------------------
(1) Notwithstanding quotation on the Nasdaq SCM, there can be no assurance that
an active trading market for the Company's securities will develop, or, if
developed, that it will be sustained.
RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. Prior to making any investment decision,
prospective investors should read and carefully review the "Risk Factors"
section of this Prospectus.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial information set forth below is derived from the
consolidated financial statements included elsewhere in this Prospectus and
should be read in conjunction with such consolidated financial statements and
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 3,638,192 $ 3,379,848 $ 1,087,988 $ 1,149,660
------------ ------------ ------------ ------------
Operating expenses:
Cost of sales.......................................... 1,939,807 2,096,076 559,701 567,288
Marketing, selling general and administrative.......... 1,610,097 1,386,270 455,160 387,283
------------ ------------ ------------ ------------
Total operating expenses................................. 3,549,904 3,482,346 1,014,861 954,571
------------ ------------ ------------ ------------
Income (loss) before income taxes........................ 88,288 (102,498) 73,127 195,089
Income taxes............................................. 10,500 -- 1,200 9,000
------------ ------------ ------------ ------------
Net income (loss)........................................ $ 77,788 $ (102,498) $ 71,927 $ 186,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) before pro forma income taxes (credits)
(1).................................................... $ 88,288 $ (102,498) $ 73,127 $ 195,089
Pro forma income taxes (credits) (1)..................... 26,000 (37,000) 22,000 78,000
------------ ------------ ------------ ------------
Pro forma net income (loss) (1).......................... $ 62,288 $ (65,498) $ 51,127 $ 117,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income (loss) per
common share (1)(2).................................... $ .06 $ (.07) $ .05 $ .11
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding...................... 1,039,167 990,667 1,039,167 1,039,167
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
------------- -------------------------------
<S> <C> <C> <C>
AS
ACTUAL ACTUAL ADJUSTED(3)(4)(5)(6)
------------- ---------- -------------------
BALANCE SHEET DATA:
Working capital................................................... $ 39,754 $ 112,932 $ 5,142,931
Total assets...................................................... 330,009 361,266 5,381,265
Total current liabilities......................................... 190,029 149,359 149,359
Retained earnings................................................. 119,160 191,087 13,245
Total stockholders' equity........................................ 139,980 211,907 5,231,906
</TABLE>
- ------------------------
(1) Pro forma data gives effect to two of the Company's subsidiaries terminating
their "S" corporation status effective on October 9, 1996 and restates the
prior periods.
(2) Pro forma net income (loss) per common share is computed based upon the
weighted average number of shares of Common Stock outstanding during the
periods and gives effect to certain adjustments described below. Pursuant to
the requirements of the Securities and Exchange Commission (the
"Commission"), all stock issued within the 12 months immediately preceding
the initial filing of the Registration Statement (as herein defined) for the
Offering at a price below the anticipated initial public offering price,
totaling 1,080,333 shares of Common Stock, have been included in the
calculation for all periods presented.
(3) As adjusted to give effect to the pro forma reclassification of retained
earnings to capital in excess of par value of two subsidiaries which had
been previously classified as "S" corporations.
(4) As adjusted to give effect to the sale of 1,000,000 Units in the Offering
(after deduction of underwriting discounts and estimated expenses to be
incurred by the Company in connection with the Offering) at an assumed
initial public offering price of $6.00 per Unit. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(5) As adjusted to give effect to the sale of 78,333 shares of Common Stock
subsequent to September 30, 1996 at a price of $3.00 per share.
(6) As adjusted to give effect to the issuance of 4,000 shares of Common Stock
to an attorney subsequent to September 30, 1996.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE PURCHASING UNITS OFFERED
HEREBY.
RECENTLY CONSOLIDATED ENTITY; NO ASSURANCE OF FUTURE PROFITABILITY
While the Company's subsidiaries have operating histories, the Company was
recently organized and has no history as a consolidated enterprise. The
integration of the consolidated entities may take a significant amount of time
to achieve successfully, if ever. The failure to successfully integrate the
business of its subsidiaries would have a materially adverse effect on the
Company. Future operating results will depend on many factors, including the
start up costs of the record label and future divisions, if any, demand for the
Company's products and services, the level of competition, the Company's ability
to acquire, develop and market new artists, products and services, the ability
to integrate acquired entities, if any, and the ability of its officers and key
employees to manage the Company's business and control costs. There can be no
assurance that the Company will achieve or sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
DEPENDENCE ON SENIOR MANAGEMENT; ATTRACTION AND RETENTION OF KEY PERSONNEL
The business of the Company is highly dependent on the skill and creativity
of its employees. The success of the Company will be largely dependent on the
skills, experience and efforts of its senior management, John Loeffler, Jon
Small, Brian Doyle and Richard Flynn, each of whom has an employment agreement
with the Company. In addition, the Company's success will depend in large part
upon its ability
to attract and retain qualified management, marketing and sales personnel. The
Company competes for personnel with other companies and organizations. There can
be no assurance that the Company will be successful in hiring or retaining
qualified personnel. The loss of the services of any of John Loeffler, Jon
Small, Brian Doyle or Richard Flynn, or the Company's inability to hire or
retain qualified personnel, could have a materially adverse effect on the
Company. Prior to the consummation of the Offering, the Company will have in
place "key man" life insurance policies, in the amount of $500,000 each,
covering the lives of each of John Loeffler, Jon Small, Brian Doyle and Richard
Flynn. See "Management."
CERTAIN RISKS INHERENT IN THE RECORDED MUSIC INDUSTRY
By entering into the recorded music business, the Company will be subject to
all the risks of establishing a new business including the possibility of losses
by the record label, particularly in its start up phase. Additionally, the
recorded music industry, which has experienced a recent reduction in its growth
rate, contains certain particular risks. Each recording is an individual
artistic work, and its commercial success is primarily determined by consumer
taste, which is unpredictable and constantly changing. Accordingly, there can be
no assurance as to the financial success of any particular release, the timing
of such success or the popularity of any particular artist. Furthermore, changes
in the timing of new releases can cause significant fluctuations in quarterly
operating results. There can be no assurance that the Company will be able to
generate sufficient revenues from successful releases to cover the costs of
unsuccessful releases. In accordance with industry practice, the Company's
future recorded music products will be sold primarily on a returnable basis. The
Company will establish reserves for future returns of products based on its
return policies and return experience. An increase in returns over the Company's
reserves could adversely affect the Company's results of operations. See "Risk
Factors--Quarterly and Yearly Fluctuations; Seasonality."
Following the Offering, the Company will attempt to contract with a recorded
music company, or other entity, to manufacture and distribute the Company's
recorded music products through such entity's manufacturing facilities and
distribution network. There can be no assurance that such an agreement will
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<PAGE>
be reached or, if reached, that the terms will be advantageous to the Company.
See "Business-- Development of Recorded Music Business--Manufacturing and
Distribution."
Following the Offering, the Company may be engaged, with respect to its
recorded music business, in licensing activities involving both the acquisition
of rights to certain master recordings and compositions for its own projects and
the granting of rights to third parties in the master recordings and
compositions it owns. There can be no assurance that the Company will be able to
obtain licenses from third parties on terms satisfactory to the Company or at
all. See "Business--Copyrights."
RISKS ASSOCIATED WITH TALENT DEVELOPMENT
Currently, the Company has not entered into recording contracts with any
artists. There can be no assurance that the Company will be able to attract
artists, or, if the Company is able to attract such talent, that the Company
will be able to develop that talent successfully or in such a manner that
significant sales of artist product results. The Company will have to pay
advances consistent with industry standards to secure the services of music
artists. Should the artist's album not sell well, or should the artist fail to
produce an album, the amount of the advance already paid to the artist is
generally not recovered. There can also be no assurance that any of the artists
to whom the Company makes advances will produce sales revenue for the Company,
or if they do, that such revenue will be sufficient to recoup any advances made
to them by the Company. In addition there can be no assurance that any artist
developed by the Company will not request a release from his or her agreement
with the Company. Because of the highly personal and creative nature of the
artist's contractual obligations to the Company, it is not feasible to force an
unwilling artist to perform the terms of his or her contract with the Company.
If artists are signed, the loss of an artist could have a materially adverse
effect on the Company. See "Business--Development of Recorded Music
Business--Relationship with Artists."
MANAGEMENT OF GROWTH
Following the Offering, the Company intends to grow and expand its business
through internal expansion and through acquisitions. If such growth occurs, it
will place demands on the Company's management, employees, operations and
physical resources. To manage such growth, the Company will be required to
continue to implement and improve its operating systems, attract and train
additional qualified personnel and expand its facilities. The failure of the
Company to effectively manage growth could have a materially adverse effect on
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
RELIANCE ON AND RISKS OF UNSPECIFIED ACQUISITIONS
Following the Offering, the Company will initiate its acquisition program
which will focus on small complementary music and entertainment entities. Some
of these acquisitions could be material in size and scope. The Company believes
that its future growth depends, in part, upon the successful implementation of
this program. The failure of the acquisition program could have a materially
adverse effect on the Company. Many of these activities may require substantial
working capital in addition to the direct acquisition costs. See
"Business--Acquisition Program."
While the Company will continually be searching for acquisition
opportunities, there can be no assurance that the Company will be successful in
identifying attractive acquisitions. If any potential acquisition opportunities
are identified, there can be no assurance that the Company will consummate such
acquisitions or, if any such acquisition does occur, that it will be successful
in enhancing the Company's business. The Company may in the future face
increased competition for acquisition opportunities, which may inhibit the
Company's ability to consummate suitable acquisitions and increase the expense
of completing acquisitions. In addition, to the extent that the Company's
acquisition program results in the acquisition of businesses, such acquisitions
could pose a number of special risks, including the
8
<PAGE>
diversion of management's attention, the assimilation of the operations and
personnel of the acquired companies, the integration of acquired assets with
existing assets, adverse short-term effects on reported operating results, the
amortization of acquired intangible assets and the loss of key employees.
Pursuant to its acquisition program, the Company will issue additional
Common Stock which may dilute investors in the Offering. Additionally, with
respect to most of its future acquisitions, the Company's stockholders will not
have a chance to review the financial statements of companies being acquired or
to vote on such acquisitions. See "Risk Factors--Dilution" and
"Business--Acquisition Program."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF FUTURE FUNDING
In order to implement its acquisition program or establish additional record
labels or other businesses in the future, the Company may, in the future,
require additional capital. In addition, even if the Offering is successfully
completed, cash generated from operations may not be sufficient to fund the
Company's requirements beyond the 12-month period following the date of this
Prospectus. If and when the Company needs additional cash for such activities or
requirements or if the Company otherwise requires additional funding, it may
make additional equity or debt offerings or may borrow on the security of
existing assets, the assets it is seeking to acquire or otherwise. The issuance
of debt securities or borrowings could result in increased leverage and reduced
or negative working capital. There can be no assurance that the Company will be
able to obtain either equity or debt financing on terms acceptable to the
Company, and the inability to obtain such financing could limit the Company's
growth or have an adverse effect on its operations. The Company could issue debt
or equity securities without the consent of persons who purchase Units in the
Offering. The issuance of additional Common Stock could result in additional
dilution. See "Use of Proceeds" and "Business--Acquisition Program."
COMPETITION
The Company currently competes with numerous other businesses and
individuals who produce original music scores and advertising themes for
television, radio and film, produce music videos and music specials for
television and provide music artist management. Many of these businesses and
individuals, including Crushing Enterprises, Elias Associates and JSM Music,
Inc., with respect to commercial music, The End, Propaganda and DNA, with
respect to video production and Gold Mountain Entertainment, Left Bank
Management and H.K. Management, with respect to artist management, have greater
financial resources, and in many instances have longer operating histories, than
the Company. Following the Offering, the Company intends to establish an
independent record label. With respect to this and future record labels, if any,
the Company will face intense competition for discretionary consumer spending
from numerous other record companies and other forms of entertainment offered by
film companies, video companies and others. The Company will compete directly
with other recorded music companies, including the six major recorded music
companies, which distribute contemporary music, as well as with other record
companies for signing artists and acquiring music catalogs. Many of these
competitors have significantly longer operating histories, greater financial
resources and larger music catalogs than the Company. The Company's ability to
compete successfully in the recorded music business will be largely dependent
upon its ability to sign and retain artists who will prove to be successful and
to introduce music products which are accepted by consumers. See
"Business--Competition."
QUARTERLY AND YEARLY FLUCTUATIONS; SEASONALITY
The Company believes the results of operations of its operating subsidiaries
will be subject to seasonal variations, which variations may initially offset
each other. However, once the Company enters into the recorded music business,
the Company's results of operations from period to period may be materially
affected by the timing of new record releases and, if such releases are delayed
beyond the peak holiday season, the Company's operating results could be
materially adversely affected. Additionally, due to the success of particular
artists, artists touring schedules and the timing of music television specials,
it is
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<PAGE>
possible that the Company could also experience material fluctuations in revenue
from year to year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE UPON MAJOR CUSTOMERS
Approximately $365,000 and $413,000 of commercial music production revenues
(approximately 10% and 12% of total revenues) for the years ended June 30, 1996
and 1995, respectively, were derived from one advertising agency (Grey
Advertising). For the three months ended September 30, 1996 and 1995,
approximately $99,000 and $141,000, respectively, of commercial production
revenues (approximately 9% and 12% of total revenues) were derived from the same
advertising agency. Approximately $700,000 and $185,000 of music artist
management revenues (approximately 19% and 5% of total revenues) for the years
ended June 30, 1996 and 1995, respectively, were derived from two musical
artists (Carly Simon and Daryl Hall & John Oates). For the three months ended
September 30, 1996 and 1995, approximately $273,000 and $320,000, respectively,
of music artist management revenues (approximately 25% and 28% of total
revenues) were derived from three music artists (Carly Simon, Daryl Hall & John
Oates and Coward) and two musical artists (Carly Simon and Daryl Hall & John
Oates), respectively. For the years ended June 30, 1996 and 1995, approximately
$518,000 and $778,000, respectively, of video production revenues (approximately
14% and 23% of total revenues) were derived from the production of videos for
two artists (Meatloaf and Garth Brooks) and one artist (Reba McEntire),
respectively. For the three months ended September 30, 1996 and 1995,
approximately $468,000 and $374,000, respectively, of video production revenues
(approximately 43% and 32% of total revenues) were derived from the production
of videos for six and five artists, respectively. With respect to video
production, the artists for whom videos are produced are varied and constantly
changing and in any given year significant revenues may or may not be derived
from the production of videos from any given artist. The loss of such customers
or artists could have a materially adverse effect on the Company. Revenues
generated by one customer or client in one year may not be indicative of the
revenue which will be generated by such customer or client in any other year. In
accordance with industry custom, the Company currently operates its business
based upon oral agreements and purchase orders with its artists and customers.
See "Management's Discussion and Analysis of Financial Conditon and Results of
Operations."
INFRINGEMENT OF COMPANY'S COPYRIGHTED MATERIALS
In the future, if artists are signed, infringement of the Company's
copyrights, in the form of unauthorized reproduction and sale of artists'
recordings, may occur. If the Company achieves significant commercial success
with one or more of its recordings, its recordings could be a target of
"pirating"-- copying and sale in violation of the Company's copyrights in such
recordings. It is impossible to estimate the potential loss in sales that could
result from illegal copying and sales of the Company's recordings. The Company
intends to enforce against unlawful infringement all copyrights owned by or
licensed to it which are material to its business. See "Business--Copyrights."
POSSIBILITY OF BONUS WITHOUT PROFITS
Pursuant to the Employment Agreements, four bonus plans have been
established primarily for the benefit of John Loeffler, Brian Doyle, Jon Small
and Richard Flynn (the "Executives").
Under the first bonus plan, bonuses will be granted to each Executive based
on earnings (as defined in the Employment Agreements) of the respective
subsidiary or division which the Executive manages or co-manages. Generally the
Executive receives approximately 60% of such earnings (with Messrs. Doyle and
Flynn considered as one person for purposes of this calculation) up to a maximum
of $375,000 of earnings for each of Rave and Picture Vision commencing with the
fiscal year ending June 30, 1997 and $512,500 of earnings for All Access
commencing with the fiscal year ending June 30, 1998. Messrs. Doyle and Flynn
receive all earnings of All Access up to $325,000 of earnings for the year
ending June 30, 1997. Each of the Executives will have the right to allocate any
portion of the bonus granted to him to any of the employees
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<PAGE>
of the respective subsidiary or division of such Executive. Under the second
bonus plan, a bonus pool equal to 10% of the consolidated pretax earnings of the
Company (after giving effect to the payment of all other bonuses), will be
established for each fiscal year. Awards under this bonus pool will be granted
to the Company's employees at the discretion of the Company's Board of
Directors. The third bonus plan has been established for the benefit of Brian
Doyle, Richard Flynn and others designated by them based on cumulative
profitability of the recorded music business to reward them based on a
successful launch of the record label. The maximum aggregate bonus granted under
this plan will be $600,000. No bonus under this plan will be granted until the
completion of the first fiscal year in which the cumulative net earnings before
taxes of the record label, including Brain Doyle's base salary paid by the
record label, exceeds $1,000,000. No bonus will be granted under this plan after
fiscal 2001. The fourth bonus plan has been established as an incentive for
successful consummation of special projects pre-designated by the Compensation
Committee. Such plan provides for a bonus, if the net profits (as defined in the
Employment Agreements) from the special project exceed $1,000,000. Such bonus
will be calculated on 15% of net profits realized therefrom in excess of any
bonus paid to such Executive pursuant to the first bonus plan. After the payment
of any bonus pursuant to the fourth bonus plan, there will be payable 15% of
future royalty revenue derived from such special project.
Upon the closing of the Offering, John Loeffler and Jon Small will each
receive an initial advance on future possible bonuses of $56,250. Upon the
closing of the Offering, Richard Flynn and Brian Doyle will each receive an
initial advance on future possible bonuses of $81,250 and $81,250, respectively.
Thereafter, in each subsequent fiscal quarter the Company may grant, at the
request of the Executives and upon the approval of the Compensation Committee,
additional advances to be offset against bonuses payable. See
"Management--Executive Compensation--Compensation Agreements."
Based on the foregoing, it is possible that one or more of the Executives
may be paid bonuses, based upon their respective subsidiaries or divisions
achieving the performance targets set forth above or based upon the successful
completion of special projects, even though the Company as a whole may have
suffered a loss for such year. See "Management--Executive
Compensation--Compensation Agreements."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF PRICE
Prior to the Offering, there has been no public market for the Common Stock
and Warrants, and there can be no assurance that an active public market for the
Common Stock and Warrants will develop or be sustained after the Offering. The
stock market generally, and securities of entertainment companies in particular,
have from time to time experienced significant price and volume fluctuations
that are unrelated to the operating performance of any particular company. The
Company believes factors such as quarterly fluctuations in results of
operations, timing of product releases, announcements of new products and
acquisitions by the Company or by its competitors, changes in earnings estimates
by research analysts, changes in accounting treatments or principles and other
factors may cause the market price of the Common Stock and Warrants to
fluctuate, perhaps substantially. These fluctuations, as well as general
economic, political and market conditions, may adversely affect the market
prices of the Common Stock and Warrants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The initial public
offering price of the Units has been determined by negotiations among the
Company and the Representative and may not be indicative of the prices that may
prevail for the Common Stock and the Warrants in the public market, and is not
necessarily related to the Company's asset value, net worth, results of
operations or any other established criteria of value. See "Underwriting."
DILUTION
The initial public offering price of the Units offered hereby is
substantially higher than the net book value of the currently outstanding Common
Stock. Therefore, purchasers of the Units offered hereby will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock in the amount of $3.49 per share (58%) (based on the assumed initial
public offering price of $6.00 per Unit and
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<PAGE>
assuming no portion of the initial public offering price is attributable to the
Warrants). Existing stockholders paid an average of $.25 per share of Common
Stock. See "Dilution."
Purchasers of the Common Stock offered hereby may experience dilution in the
future as a result of Common Stock issued pursuant to the Company's acquisition
program. See "Business--Acquisition Program."
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and does not expect to pay cash dividends in the foreseeable future. See
"Dividend Policy."
CONTROL BY MANAGEMENT
Upon completion of the Offering, the Company's officers and directors and
their respective affiliates will beneficially own approximately 49.6%
(approximately 46.3% if the Over-Allotment Option is exercised in full) of the
Company's outstanding Common Stock. Although no voting agreements or similar
arrangements among such stockholders will exist upon completion of the Offering,
if such stockholders were to act in concert in the future, they would
effectively be able to elect all of the directors of the Company, approve or
disapprove certain matters requiring stockholder approval and otherwise control
the management and affairs of the Company, including the sale of all or
substantially all of the Company's assets. Such concentration of control of the
Company may also have the effect of delaying, deferring or preventing a
third-party from acquiring a majority of the outstanding voting stock of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price and may adversely affect the market price of and other rights
of the holders of Common Stock. See "Management" and "Principal Stockholders."
ANTI-TAKEOVER CONSIDERATIONS INCLUDING POSSIBILITY OF FUTURE ISSUANCE OF
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to five million shares of preferred stock in one or more
series, to fix the rights, preferences, privileges and restrictions granted to
or imposed upon any wholly unissued shares of preferred stock, to fix the number
of shares constituting any such series, and to fix the designation of any such
series, without further vote or action by its stockholders. The rights of the
holders of Common Stock will be subject to, and may be materially adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue shares of
preferred stock. Also, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined by such statute. Any of the foregoing factors may delay, defer or
prevent a change in control of the Company. See "Description of
Securities--Preferred Stock" and "Description of Securities--Delaware
Anti-Takeover Law."
RISK OF LIMITATION OF LIABILITY
The Company has included in its Certificate of Incorporation provisions to
indemnify its directors and officers to the extent permitted by Delaware law.
The Company's Certificate of Incorporation also includes provisions to eliminate
the personal liability of its directors and officers to the Company and its
stockholders to the fullest extent permitted by Delaware law. The Company's
By-Laws provide that the Company will indemnify its directors, officers and
employees against judgments, fines, amounts paid in settlement and reasonable
expenses. See "Management--Limitation of Liability and Indemnification Matters".
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<PAGE>
RISK OF SALES OF SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
Upon consummation of the Offering, the Company will have a total of 2,080,333
shares of Common Stock outstanding, of which the 1,000,000 shares of Common
Stock included in the Units will be eligible for immediate sale in the public
market without restrictions, unless they are held by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act, and of which 1,080,333
shares will be "restricted" securities within the meaning of Rule 144 under the
Securities Act. Additionally, the Company has granted options to certain
directors of the Company to purchase an aggregate of 25,000 shares of Common
Stock. The holders of such 1,080,333 shares of Common Stock and such options
have agreed that they will not directly or indirectly offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any shares of Common
Stock or any other equity security of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, Common Stock or any other equity security of the Company,
or enter into any agreement to do any of the foregoing, for a period of two
years from the date of this Prospectus, with respect to the officers and
directors, and for a period of one year with respect to the Selling Stockholders
who are not also directors. Upon the expiration of such one year period, 61,667
of these shares will be eligible for resale and upon the expiration of such two
year period (or earlier upon the consent of Donald & Co. Securities Inc., except
that Donald & Co. Securities Inc. may not release the lock-up with respect to
16,666 shares of Common Stock held by two Selling Stockholders during the one
year period following the effective date of the Offering) the remaining
1,018,666 shares will become eligible for resale commencing in October 1998
under Rule 144, subject to volume and other limitations of Rule 144. No
prediction can be made as to the effect, if any, that future sales of shares of
Common Stock, or the availability of shares for future sales, will have on the
market price of the Common Stock from time to time or the Company's ability to
raise capital through an offering of its equity securities. See "Principal
Stockholders," "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
NO SPECIFIC USE OF PROCEEDS; POTENTIAL REALLOCATION OF PROCEEDS
The Company has not designated any specific use for approximately $960,000
or 20% of the net proceeds from the Offering (assuming an initial public
offering price of $6.00 per Unit), other than for working capital and other
general corporate purposes. Accordingly, management will have significant
flexibility in applying this portion of the funds obtained from the Offering. In
addition, the Company may reallocate its anticipated use of proceeds from the
Offering in response to, among other things, changes in its plans, unanticipated
industry conditions, and future revenues and expenditures. See "Use of
Proceeds."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Purchasers of Units will only be able to exercise the Warrants if (i) a
current prospectus under the Securities Act relating to the Common Stock
underlying the Warrants is then in effect and (ii) such Common Stock is
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of the Warrants reside. There
can be no assurance that the Company will be able to maintain the effectiveness
of a current prospectus covering the Common Stock underlying the Warrants. The
value of the Warrants may be greatly reduced if a current prospectus, covering
the Common Stock issuable upon the exercise of the Warrants, is not kept
effective or if such Common Stock is not qualified, or exempt from
qualification, in the states in which the holders of Warrants reside. See
"Description of Securities--Warrants."
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POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants may be redeemed by the Company at a redemption price of $.05
per Warrant upon 30 days' notice if the average closing bid price of the Common
Stock has been equal to or greater than 120% of the then exercise price of the
Warrants for 20 consecutive business days ending on the fifth day prior to the
notice of redemption. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants or to
accept the redemption price, which, at the time the Warrants are called for
redemption, is likely to be substantially less than the market value of the
Warrants. See "Description of Securities--Warrants."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ SCM AND POSSIBLE MARKET
ILLIQUIDITY
There can be no assurance that the Company will meet the criteria for
continued listing of securities on the Nasdaq SCM. Continued listing criteria
generally include a minimum of $2,000,000 in total assets, $1,000,000 in capital
and surplus, a minimum bid price of $1.00 share of common stock and 100,000
shares in the public float. In addition, the common stock must have at least two
registered and active market makers, must be held by at least 300 holders and
the market value of its public float must be at least $200,000. If an issuer
does not meet the $1.00 minimum bid price standard, it may remain on the Nasdaq
SCM if the market value of its public float is at least $1,000,000 and the
issuer has capital and surplus of at least $2,000,000. If the Company should
become unable to meet the continued listing criteria of the Nasdaq SCM and is
delisted therefrom, trading, if any, in the Common Stock and the Warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the "OTC Bulletin Board Service." As a result, an investor would
likely find it more difficult to dispose of or to obtain accurate quotations as
to the value of the Company's securities. Recently, a proposal has been made to
increase the continued listing criteria on the Nasdaq SCM. If implemented as
proposed, stricter criteria for continued listing on the Nasdaq SCM would be
imposed, including the implementation of a $2,000,000 net tangible assets test,
higher public float and market value of public float criteria and the
implementation of new corporate governance rules. No assurance can be given that
such proposal will be adopted, or, if adopted, will be adopted in its current
form. See "Description of Securities."
POSSIBLE ADVERSE EFFECT OF PENNY STOCK RULES ON LIQUIDITY FOR THE COMPANY'S
SECURITIES
If the Company's securities were delisted from the Nasdaq SCM, they may
become subject to Rule 15g-9 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which imposes additional sales practice
requirements on broker-dealers which sell penny stocks to persons other than
established customers and institutional accredited investors. For transactions
covered by this Rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, such Rule may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers in the Offering to sell any of the securities acquired
hereby in the secondary market.
The Commission has adopted regulations which generally define a penny stock
to be any non-Nasdaq Stock Market equity security that has a market price (as
therein defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction by broker-
dealers involving a penny stock, unless exempt, the rules require delivery,
prior to a transaction in a penny stock, of a risk disclosure document relating
to the penny stock market. Disclosure is also required to be made about
compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks. If the
Company's securities were subject to the rules on penny stocks, the market
liquidity for the Company's securities could be severely adversely affected.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered by the
Company hereby are estimated to be approximately $4,800,000 ($5,583,000 if the
Over-Allotment Option is exercised in full), assuming an initial public offering
price of $6.00 per Unit and after deducting underwriting discounts and estimated
expenses of the Offering.
The Company expects to use the net proceeds (assuming no exercise of the
Over-Allotment Option) approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- -------------------------------------------------------------------------- -------------- ----------------------
<S> <C> <C>
Establishment of the Company's recorded music business(1)................. $ 1,680,000 35.0%
Acquisition program(2).................................................... $ 1,200,000 25.0%
Expanding existing businesses(3).......................................... $ 600,000 12.5%
Purchase of new equipment(4).............................................. $ 360,000 7.5%
Working capital and general corporate purposes(5)......................... $ 960,000 20.0%
-------------- -------
Total................................................................. $ 4,800,000 100.0%
-------------- -------
-------------- -------
</TABLE>
- ------------------------
(1) Represents amounts to be used to establish the Company's recorded music
business, including a minimum of $800,000 in the first year following the
Offering for the establishment of the Company's record label, which amount
includes the base salary of one of the Executives, anticipated artist
advances, salaries for additional employees, recording costs and promotion
and marketing expenses. The Company currently plans to allocate up to an
additional $800,000 to its record label in the 12-month period following the
first year of the Offering. Any amounts not allocated for the establishment
of the Company's record label may be allocated to any additional record
labels that may be acquired pursuant to the acquisition program. There can
be no assurance that the Company will operate more than one record label. If
no additional record labels are acquired, a portion of this amount may be
transferred to working capital. If operating revenue from the recorded music
subsidiary is not sufficient to meet its expenses, the Company will allocate
additional funds out of working capital and general corporate purposes to
help pay such expenses. See "Business--Development of Recorded Music
Business."
(2) Represents amounts to be used for implementing the Company's acquisition
program, including amounts to be used for acquiring entities and assets in
accordance with the acquisition program and costs and expenses incurred in
connection with the acquisition program. See "Business--Acquisition
Program."
(3) Represents $200,000 to be used for expanding each of the Company's existing
businesses, including upgrading facilities and equipment (other than new
recording studio equipment) and expanding marketing and promotion. See
"Business--Current Business."
(4) Represents amounts to be used for new recording studio equipment.
(5) Represents amounts to be used for working capital and general corporate
purposes including corporate overhead, administration and ongoing
professional fees. Does not include any amounts for base salaries or
payments to any of the Company's Outside Directors (as herein defined),
since, other than the base salary for one of the Executives, base salaries
(including base salaries for the other Executives) and amounts payable to
Outside Directors will be paid from operating revenue. Includes an aggregate
of $275,000 in advance of possible future bonus compensation payable to John
Loeffler, Jon Small, Brian Doyle and Richard Flynn which amounts will be
repaid if they are not earned.
The allocation of the net proceeds from the Offering set forth above
represents the Company's best estimates based upon its currently proposed plans
and assumptions relating to its operations (including
15
<PAGE>
assumptions regarding the timing and costs associated with the establishment of
the Company's record label and costs associated with the acquisition program)
and certain assumptions regarding general economic conditions. If any of these
factors change, the Company may find it necessary or advisable to reallocate
some of the proceeds within the above-described categories or to use portions
thereof for other purposes. Any such shifts in the use of proceeds will be at
the discretion of the Company. Upon completion of the Offering, the Company
believes that net proceeds of the Offering, together with the Company's current
cash and anticipated cash flow from operations, will be sufficient to fund its
operations, including the expenses of its current businesses, its entrance into
the recorded music industry and the acquisition program, for the 12-month period
following the date of this Prospectus. Even if the Offering is successfully
completed, cash generated from operations may not be sufficient to fund the
Company's requirements beyond such 12-month period. Under such circumstances or
if the Company otherwise requires additional funding, the Company would need to
raise additional cash through the sale of equity or debt securities or obtain
bank or other financing. The Company has no current arrangements with respect
to, or sources of, additional financing, and there can be no assurance that
additional financing, including any institutional financing, will be available
to the Company if needed on commercially reasonable terms or at all. Any
inability to obtain additional financing when needed could have a material
adverse effect on the Company, including requiring the Company to significantly
curtail or possibly cease its operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
If the Representative exercises the Over-Allotment Option in full, the
Company will realize additional net proceeds (after deducting the underwriting
discounts and the Representative's nonaccountable expense allowance) of
$783,000. If the Warrants offered hereby are exercised, the Company will realize
proceeds relating thereto of approximately $3,600,000, before any solicitation
fees which may be paid in connection therewith. Such additional proceeds, if
received, are expected to be used for working capital and general corporate
purposes. See "Underwriting."
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DIVIDEND POLICY
Since its inception, the Company has not paid any dividends on the Common
Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and, accordingly, does not plan, for the reasonably
foreseeable future, to pay dividends to holders of the Common Stock. Any
decision as to the future payment of dividends will depend on the results of
operations and financial position of the Company and such other factors as the
Company's Board of Directors, in its discretion, deems relevant.
16
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1996, after
giving effect to the issuance of 82,333 shares of Common Stock subsequent
thereto, was approximately $422,000 or $.39 per share of Common Stock. Net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of issued and
outstanding Common Stock. After giving effect to the sale of the 1,000,000 Units
offered hereby at an assumed initial public offering price of $6.00 per Unit,
the net tangible book value of the Company, as of September 30, 1996, would have
been approximately $5,232,000 or $2.51 per share (assuming no portion of the
initial public offering price is attributable to the Warrants). This represents
an immediate increase in net tangible book value of $2.12 per share to existing
stockholders and an immediate dilution of $3.49 per share to new stockholders
purchasing Units in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................. $ 6.00
Net tangible book value per share of Common Stock at
September 30, 1996(1)(2).......................... $ .39
Increase per share attributable to new
stockholders...................................... 2.12
---------
Net tangible book value per share of Common Stock
after the Offering.................................. 2.51
---------
Dilution per share to new stockholders................ $ 3.49(3)
---------
---------
</TABLE>
- ------------------------
(1) Gives effect to the sale of 78,333 shares of Common Stock subsequent to
September 30, 1996 at a price of $3.00 per share, less estimated expenses of
$15,000.
(2) Gives effect to the issuance of 4,000 shares of Common Stock to an attorney
subsequent to September 30, 1996 at a price of $3.00 per share, less
deferred registration costs of approximately $12,000.
(3) This represents dilution of approximately 58%.
The following table summarizes, as of September 30, 1996, after giving
effect to the issuance of 82,333 shares of Common Stock subsequent thereto, the
differences between the number of shares purchased from the Company, the
relative investment in the Company and the average price per share paid by
existing stockholders and investors in the Offering, giving pro forma effect to
the sale by the Company of the Units offered hereby at an assumed initial public
offering price of $6.00 per Unit, assuming no portion of the initial offering
price is attributable to the Warrants.
<TABLE>
<CAPTION>
SHARES OWNED TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................. 1,080,333(1) 51.9% $ 267,820 4.3% $ .25
New stockholders....................................... 1,000,000 48.1 6,000,000 95.7 $ 6.00
------------ ----- ------------ -----
Total.............................................. 2,080,333(1) 100.0% $ 6,267,820 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>
- ------------------------
(1) Gives effect to the sale of 78,333 shares of Common Stock subsequent to
September 30, 1996 at a price of $3.00 per share less estimated expenses of
$15,000, and the issuance of 4,000 shares of Common Stock to an attorney
subsequent to September 30, 1996 at a price of $3.00 per share.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) at
September 30, 1996, taking into account the initial capitalization of the
Company and the effectiveness of the Exchange Agreement and (ii) at September
30, 1996 as adjusted to reflect the issuance and sale by the Company of the
Units offered hereby (at an assumed initial public offering price of $6.00 per
Unit and after deduction of underwriting discounts and estimated Offering
expenses payable by the Company).
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
----------------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (1)(2)(3)(4)
---------- ----------------------
Stockholders' Equity:
Preferred Stock, $.01 par value per share; 5,000,000 shares authorized, no
shares issued and outstanding............................................. $ -- $ --
Common Stock, $.01 par value per share; 20,000,000 shares authorized;
998,000 shares currently issued and outstanding; 2,080,333 shares
outstanding as adjusted................................................... 9,980 20,803
Capital in excess of par value.............................................. 12,090 5,199,108
Retained earnings........................................................... 191,087 13,245
Common Stock subscription receivable........................................ (1,250) (1,250)
---------- -----------
Total capitalization...................................................... $ 211,907 $ 5,231,906
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) To record the sale of 1,000,000 Units at an assumed initial public offering
price of $6.00 per share after providing for approximately $600,000 in
expenses of the Offering payable by the Company and $600,000 in underwriting
discounts.
(2) Gives effect to the sale of 78,333 shares of Common Stock subsequent to
September 30, 1996 at a price of $3.00 per share, less estimated expenses of
$15,000.
(3) Gives effect to the issuance of 4,000 shares of Common Stock to an attorney
subsequent to September 30, 1996, at a price of $3.00 per share, less
deferred registration costs of approximately $12,000.
(4) Gives effect to the pro forma reclassification of retained earnings to
capital in excess of par value of two subsidiaries which had been previously
classified as "S" corporations.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary financial information set forth below is derived from the
consolidated financial statements included elsewhere in this Prospectus and
should be read in conjunction with such consolidated financial statements and
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 3,638,192 $ 3,379,848 $ 1,087,988 $ 1,149,660
------------ ------------ ------------ ------------
Operating expenses:
Cost of sales.......................................... 1,939,807 2,096,076 559,701 567,288
Marketing, selling general and administrative.......... 1,610,097 1,386,270 455,160 387,283
------------ ------------ ------------ ------------
Total operating expenses................................. 3,549,904 3,482,346 1,014,861 954,571
------------ ------------ ------------ ------------
Income (loss) before income taxes........................ 88,288 (102,498) 73,127 195,089
Income taxes............................................. 10,500 -- 1,200 9,000
------------ ------------ ------------ ------------
Net income (loss)........................................ $ 77,788 $ (102,498) $ 71,927 $ 186,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) before pro forma income taxes (credits)
(1).................................................... $ 88,288 $ (102,498) $ 73,127 $ 195,089
Pro forma income taxes (credits) (1)..................... 26,000 (37,000) 22,000 78,000
------------ ------------ ------------ ------------
Pro forma net income (loss) (1).......................... $ 62,288 $ (65,498) $ 51,127 $ 117,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income (loss) per common share (1)(2)...... $ .06 $ (.07) $ .05 $ .11
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding...................... 1,039,167 990,667 1,039,167 1,039,167
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
------------- ---------------------------------
<S> <C> <C> <C>
AS
ACTUAL ACTUAL ADJUSTED(3)(4)(5)(6)
------------- ---------- ---------------------
BALANCE SHEET DATA:
Working capital................................................ $ 39,754 $ 112,932 $ 5,142,931
Total assets................................................... 330,009 361,266 5,381,265
Total current liabilities...................................... 190,029 149,359 149,359
Retained earnings.............................................. 119,160 191,087 13,245
Total stockholders' equity..................................... 139,980 211,907 5,231,906
</TABLE>
- ------------------------
(1) Pro forma data gives effect to two of the Company's subsidiaries terminating
their "S" corporation status effective on October 9, 1996 and restates the
prior periods.
(2) Pro forma net income (loss) per common share is computed based upon the
weighted average number of shares of Common Stock outstanding during the
periods and gives effect to certain adjustments described below. Pursuant to
the requirements of the Securities and Exchange Commission (the
"Commission"), all stock issued within the 12 months immediately preceding
the initial filing of the Registration Statement for the Offering at a price
below the anticipated initial public offering price, totaling 1,080,333
shares of Common Stock, have been included in the calculation for all
periods presented.
(3) As adjusted to give effect to the pro forma reclassification of retained
earnings to capital in excess of par value of two subsidiaries which had
been previously classified as "S" corporations.
(4) As adjusted to give effect to the sale of 1,000,000 Units in the Offering
(after deduction of underwriting discounts and estimated expenses to be
incurred by the Company in connection with the Offering) at an assumed
initial public offering price of $6.00 per Unit. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(5) As adjusted to give effect to the sale of 78,333 shares of Common Stock
subsequent to September 30, 1996 at a price of $3.00 per share.
(6) As adjusted to give effect to the issuance of 4,000 shares of Common Stock
to an attorney subsequent to September 30, 1996.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the consolidated financial condition and related
results of operations of the Company should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus.
While the Company's subsidiaries have operating histories, the Company was
incorporated in Delaware in July 1996 and has no history as a consolidated
enterprise. Management therefore believes that the period to period comparisons
of the Company's results of operations are not indicative of the results that
may be expected for the fiscal year ending June 30, 1997. See "Risk
Factors--Recently Consolidated Entity; No Assurance of Future Profitability,"
"--Certain Risks Inherent in the Recorded Music Industry," "--Management of
Growth," and "--Risks Associated With Talent Development."
GENERAL
The Company currently derives most of its revenues from: the production of
original music scores and advertising themes for television, radio, and film;
the production of music videos used to promote music artists and music specials
and programs for television networks and other video broadcasters; and the
management of music artists. The Company's commercial music production revenues
and the related production costs are recognized upon acceptance of the music
production by the client. Royalty and residual income is recognized when
received. Music video production revenues and related production costs are
recorded upon completion for short term (less than a month) projects. For music
video projects with a longer duration, video production revenues and related
production costs are recorded using the percentage-of-completion method which
recognizes income on the project as work on the project progresses. Music artist
management revenues are recognized when received. In accordance with industry
custom, the Company currently operates its business based upon oral agreements
and purchase orders with its artists and customers.
The Company believes the results of operations of its operating subsidiaries
will be subject to seasonal variations, which variations may initially offset
each other. However, once the Company enters into the recorded music business,
the Company's results of operations from period to period may be materially
affected by the timing of new record releases and, if such releases are delayed
beyond the peak holiday season, the Company's operating results could be
materially adversely affected. Additionally, due to the success of particular
artists, artists touring schedules and the timing of music television specials,
it is possible that the Company could also experience material fluctuations in
revenue from year to year. See "Risk Factors--Quarterly and Yearly Fluctuations;
Seasonality."
During the next twelve months of operations, the Company expects to expand
its three wholly-owned subsidiaries (Rave, Picture Vision, and All Access),
establish its record label, and implement its acquisition program. The Company's
failure to expand its business in an efficient manner could have a material
adverse effect upon the Company's business, operating results and financial
condition. In addition, there can be no assurance that the Company will grow at
a rate that will support its increasing overhead and the expenses of its
expansion.
MANUFACTURING AND DISTRIBUTION
The Company anticipates that it will enter into manufacturing and
distribution agreements for the production and sale of the Company's future
music products (CDs, cassettes, music videos) with a recorded music company, or
other entity, which has existing manufacturing and distribution capabilities.
There can be no assurance that such agreements will be reached on terms
advantageous to the Company, or at all. See "Risk Factors--Certain Risks
Inherent in the Recorded Music Industry."
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
JUNE 30, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 53.3 62.0 51.4 49.3
--------- --------- --------- ---------
Gross profit......................................... 46.7 38.0 48.6 50.7
Marketing, selling, general and administrative....... 44.3 41.0 41.8 33.7
--------- --------- --------- ---------
Income (loss) before income taxes.................... 2.4% (3.0)% 6.8% 17.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
In connection with the Offering, the Executives have entered into the
Employment Agreements, which will be effective for the Company's fiscal year
ended June 30, 1997. If the Employment Agreements had been in effect for the
Company's fiscal year ended June 30, 1996, net income on a consolidated basis
for such fiscal year would have been reduced by an amount which would not have
been material to the Company's consolidated financial statements for the fiscal
year ended June 30, 1996. Future operations of the Company will be charged with
amounts payable in the future on the Employment Agreements. Since the results of
future operations cannot be predicted, it is not possible to predict the amount
of such payments and their effect on future operating results. All bonuses,
however, are linked to a percentage of determined earnings before taxes and
therefore, will only serve to reduce actual earnings. See "Risk
Factors--Possibility of Bonus Without Profits" and "Management--Executive
Compensation--Compensation Agreements."
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Commercial music production revenues increased to $179,375 for the three
months ended September 30, 1996 from $175,620 for the three months ended
September 30, 1995, an increase of $3,755 or 2.1%, while commercial music
production costs of sales decreased to $64,807 for the three months ended
September 30, 1996 from $72,268 for the three months ended September 30, 1995, a
decrease of $7,461, or 10.3%. The increase in revenues was primarily due to an
increase of residual and royalty income partially offset by a minor decrease in
production of demos and commercial scores. The decrease in costs was primarily
due to the minor decrease in the production of demos and commercial scores. The
level of residual and royalty income varies from period to period based upon the
number of compositions airing at any one time, the medium on which such
compositions are aired and the frequency of such airings. Royalty and residual
income has no cost of sales associated with it. As a result of the foregoing,
gross profit as a percentage of commercial music production revenues increased
to 63.9% for the three months ended September 30, 1996 from 58.9% for the three
months ended September 30, 1995.
Video production revenues decreased to $633,693 for the three months ended
September 30, 1996 from $654,430 for the three months ended September 30, 1995,
a decrease of $20,737 or 3.2%, while video production costs of sales decreased
to $494,894 for the three months ended September 30, 1996 from $495,020 for the
three months ended September 30, 1995, a decrease of $126 or less than 1%.
Gross profit as a percentage of video production revenues decreased to 21.9%
for the three months ended September 30, 1996 from 24.4% for the three months
ended September 30, 1995. The average gross profit earned on the Company's video
productions in each period cannot be predicted and varies from period to period.
This decrease was primarily due to the Company earning a lower gross profit on
more of its productions in this period than in the prior period.
Music artist management revenues decreased to $274,920 for the three months
ended September 30, 1996 from $319,610 for the three months ended September 30,
1995, a decrease of $44,690 or 14.0%. The
21
<PAGE>
decrease was attributable to a decrease in the number concerts performed by one
artist. The Company's music artist management operations have no cost of sales
associated with it since no products are produced.
The Company's marketing, selling, general and administrative expenses
increased to $455,160 for the three months ended September 30, 1996 from
$387,283 for the three months ended September 30, 1995, an increase of $67,877
or 17.5%. The increase was primarily attributable to an increase in salaries.
The Company's income before income taxes decreased to $73,127 for the three
months ended September 30, 1996 from $195,089 for the three months ended
September 30, 1995, a decrease of $121,962 or 62.5%. The decrease was primarily
due to a decrease in revenues and an increase in marketing, selling, general and
administrative expenses.
FISCAL 1996 COMPARED TO FISCAL 1995
Commercial music production revenues increased to $820,835 for the fiscal
year ended June 30, 1996 from $804,041 for the fiscal year ended June 30, 1995,
an increase of $16,794 or 2.1%, while commercial music production costs of sales
decreased to $343,716 for the fiscal year ended June 30, 1996 from $346,372 for
the fiscal year ended June 30, 1995, a decrease of $3,006 or 1.0%. The increase
in revenues was primarily due to an increase of residual and royalty income
partially offset by a decrease in production of demos and commercial scores.
Gross profit as a percentage of commercial music production revenues
increased to 58.2% for the fiscal year ended June 30, 1996 from 56.9% for the
fiscal year ended June 30, 1995. The increase was primarily attributable to an
approximately 25% increase of royalty and residual income received during fiscal
1996, which royalty and residual income has no cost of sales associated with it.
Video production revenues decreased to $2,090,388 for the fiscal year ended
June 30, 1996 from $2,389,990 for the fiscal year ended June 30, 1995, a
decrease of $299,602 or 12.5%. Video production revenue was greater in fiscal
1995 than in fiscal 1996 primarily because of the completion in fiscal 1995 of
the production of a music special for television, which generated approximately
$778,000 of revenues.
Cost of sales for video production decreased to $1,596,091 for the fiscal
year ended June 30, 1996 from $1,750,304 for the fiscal year ended June 30,
1995, a decrease of $153,613 or 8.8%. The decrease was primarily attributable to
the decrease in video production revenues.
Gross profit as a percentage of video production revenues decreased to 23.6%
for the fiscal year ended June 30, 1996 from 26.8% for the fiscal year ended
June 30, 1995. The decrease was primarily attributable to the Company earning a
lower average gross profit on its video productions in fiscal 1996 than in
fiscal 1995. The average gross profit on video productions in fiscal 1995 was
greater than in fiscal 1996 primarily because of the production of a music
special for television completed during fiscal 1995 on which the Company
recognized a gross profit of approximately 35%.
Music artist management revenues increase to $726,969 for the fiscal year
ended June 30, 1996 from $185,817 for the fiscal year ended June 30, 1995, an
increase of $541,152 or 291%. The increase was primarily attributable to a full
12 months of operations in fiscal 1996 compared to only 10 months of operations
in fiscal 1995. The Company's music artist management operations has no cost of
sales associated with it.
The Company's marketing, selling, general and administrative expenses
increased to $1,610,097 for the fiscal year ended June 30, 1996 from $1,386,270
for the fiscal year ended June 30, 1995, an increase of $223,827 or 16.2%. These
expenses as percentage of gross revenues increased to 44.3% for the fiscal year
ended June 30, 1996 from 41.0% for the fiscal year ended June 30, 1995, or 3.3%.
This increase was primarily due to increased revenues in fiscal 1996 as compared
to fiscal 1995 and a full 12 months of operations for the Company's music artist
management subsidiary which subsidiary typically has higher marketing, selling,
general and administrative expenses than the Company's commercial music
production subsidiary and its video production subsidiary.
The Company's income before income taxes increased to $88,288 for the fiscal
year ended June 30, 1996 from a loss of $102,498 for the fiscal year ended June
30, 1995, an increase of $190,786 or 186%. This
22
<PAGE>
increase was primarily attributable to the full year of operations for the
Company's music artist management subsidiary in fiscal 1996 which included the
months of July and August 1995. These months are typically such subsidiary's
best revenue producing months because of the heavy summer touring of the artists
under management.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 1996, the Company used net cash from
operating activities in the amount of $81,207 as compared to $195,086 for the
quarter ended September 30, 1995. This decrease was primarily attributable to
the decrease in net income.
During the quarter ended September 30, 1996, the Company used cash for
investing activities in the amount of $14,221. The cash was primarily used for
the purchase of property and equipment.
During the quarter ended September 30, 1996, the Company used cash for
financing activities in the amount of $5,000, which represented expenses of the
Offering, as compared to cash used in the amount of $57,500, during the quarter
ended September 30, 1995, which was used for repayment of officer loans.
Net cash provided by operating activities was $63,616 and $40,259 for the
years ended June 30, 1996 and 1995, respectively. This increase was primarily
due to an increase in income from operations and a reduction of accounts
receivable, partially offset by a decrease in accounts payable.
The Company used cash for investing activities in the amount of $24,573 and
$84,763 for the years ended June 30, 1996 and 1995, respectively. The cash was
primarly used for the purchase of property and equipment.
The Company used cash in financing activities in the amount of $62,500 for
the year ended June 30, 1996. The cash was primarily used for the repayment of
officers loans. Net cash provided by financing activities in the amount of
$72,500 for the year ended June 30, 1995 was attributable to the issuance of
Common Stock and the receipt of proceeds from officers loans.
In December 1996, All Access borrowed $100,000 from a bank (the "All Access
Loan"). Such loan is due on August 30, 1997, has an interest rate of prime plus
1.5%, is secured by all of the assets of All Access and has been guaranteed by
Brian Doyle, Richard Flynn and the Company. The proceeds of such loan were used
for working capital. Such loan will be repaid out of operating revenues.
At June 30, 1996 and at September 30, 1996 the Company had working capital
of approximately $40,000 and $113,000, respectively. Subsequent to September 30,
1996, the Company received an additional approximately $235,000 from the sale of
Common Stock to the Selling Stockholders and an additional $100,000 from the All
Access Loan. Upon completion of the Offering, the Company believes that net
proceeds of the Offering, together with the Company's current cash and
anticipated cash flow from operations, will be sufficient to fund its
operations, including the expenses of its current businesses, its entrance into
the recorded music industry and the acquisition program, for the 12-month period
following the date of this Prospectus. Even if the Offering is successfully
completed, cash generated from operations may not be sufficient to fund the
Company's requirements beyond such 12-month period. Under such circumstances or
if the Company otherwise requires additional funding, the Company would need to
raise additional cash through the sale of equity or debt securities or obtain
bank or other financing. The sale of additional equity could result in
additional dilution to the Company's stockholders. There can be no assurance
that the Company would be able to sell such securities or obtain such credit on
acceptable terms, or at all. The Company's inability to fund its capital
requirements would have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Risk Factors-- Recently
Consolidated Entity; No Assurance of Future Profitability," "--Certain Risks
Inherent in the Recorded Music Industry," "--Future Capital Needs; Uncertainty
of Future Funding," "--Management of Growth" and "Use of Proceeds."
INFLATION
The impact of inflation on the Company's operating results has been
insignificant in recent years, reflecting generally lower rates of inflation in
the economy. While inflation has not had a material impact on operating results,
there is no assurance that the Company's business will not be affected by
inflation in the future.
23
<PAGE>
BUSINESS
GENERAL
The Company is a music and entertainment company focused on providing music
driven content for the music and entertainment industry. The Company's current
businesses include: the commercial production of original music scores and
advertising themes for television, radio and film; the production of music
videos and music specials for television; and music artist management. The
Company's operations are currently conducted through its three wholly-owned
operating subsidiaries: Rave, Picture Vision, and All Access. The Company
provides a range of in-house products and services for music driven content
production, which combination of in-house products and services, the Company
believes, is not provided by other independent music companies. The Company
believes that this combination of in-house products and services provide it with
certain competitive advantages potentially resulting in lower costs and greater
convenience for its customers.
Following the Offering, the Company's strategy is to: (i) invest in and
expand its current businesses; (ii) establish one record label; and (iii)
commence an acquisition program to acquire or develop small complementary music
driven businesses. Through the implementation of this strategy, the Company
intends to expand the range of music driven products and services it provides
and the size of its business.
THE MUSIC INDUSTRY
Currently, the production of original music scores and advertising themes
for television, radio and film, the production of music videos and music video
specials for television, and music artist management are carried out by
individuals and/or small privately held niche companies. Generally, each such
individual and/or small company engages in only one of the foregoing businesses.
The recorded music business, unlike the current businesses of the Company,
is currently dominated by operating divisions of six major multi-billion dollar
international companies: Warner Bros. Records Inc., PolyGram Records, Inc., Sony
Corporation of America, BMG Music, MCA Inc./Universal City Studios, Inc. and
Thorn EMI Music. These six major recorded music companies also have their own
publishing divisions and distribution systems. The remainder of the recorded
music business is represented by numerous small independent recorded music
companies, smaller distribution companies and smaller publishing companies.
These companies are called independents simply because they are not one of the
six major recorded music companies. The Company believes that none of the six
major recorded music companies currently produce original music scores and
advertising themes for television, radio and film, produce music videos and
music video specials for television, or provides music artist management.
Currently, most independent music companies specialize in only one aspect of
the music industry (such as niche-oriented record labels, jingles, video
production, artist management, concert promotion and genre-oriented publishing
or distribution). In response to the consolidation in the recorded music
industry, independent music companies are now increasingly recognizing the need
to adopt new strategies and form strategic alliances in order to stay
competitive.
CURRENT BUSINESS
COMMERCIAL MUSIC
The Company's commercial music production business is conducted through
Rave, which was founded in 1986 by John Loeffler, the President of the Company.
The Company creates original music scores and advertising themes for television,
radio, and film. This business involves creating original music, hiring
musicians, recording music in its in-house recording studios and submitting
final, ready to use, compositions.
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The Company is one of a number of small music production companies who
specialize in the creation of music scores and advertising themes for
television, radio and film. While there are several companies who produce more
of such music than the Company, such as Crushing Enterprises, Elias Associates,
JSM Music Inc. and tomandandy, the Company believes that it is one of the larger
producers of such music in New York, where a majority of such music is produced.
The Company typically works with advertising agencies to help create the
music soundtracks for commercials. Once the Company has been solicited for its
services it reviews the information provided by its client and produces a rough
version of the proposed production ("demo"). The fees for producing a "demo"
range from $750 to $2,000. The experience of the Company is that it is hired to
produce finished soundtracks based on the demo less than 15% of the time.
The Company utilizes the services of musicians, singers and engineers who
are independent contractors to work with the composer to produce the final
soundtrack in the Company's recording studios. The fee for a final soundtrack
ranges from $5,000 to $15,000. Creative/arranging fees and the fees of the
musicians, singers, engineers and studio expenses are paid by the client. The
Company retains its intellectual property rights in its musical compositions.
Royalty and residual distributions are paid by Broadcast Music, Inc. ("BMI") or
ASCAP to the Company, the composer and the performers for the various uses of
the actual compositions. These residual fees can exceed the creative fees.
The Company has six recording studios at its New York headquarters. The
Company currently owns the equipment contained in one 24 track analog recording
studio and one digital midi recording studio. The Company's four other recording
studios contain digital midi recording equipment owned by independent
contractors who work exclusively for the Company. The Company has an oral
understanding with such independent contractors for the free use of this
equipment when it is not in use. The Company anticipates that when it moves into
its new facilities all of this equipment will be relocated to such new
facilities.
Rave has produced over 2,000 commercial scores to date, and usually
completes an additional 3 or 4 per week. Rave has received music awards for its
work, including awards from ASCAP. See "Management--Directors, Executive
Officers and Key Personnel of the Company."
The Company believes that its commercial music business has begun to derive
benefits from the availability of resources of the Company's other businesses.
Through its relationships with various music artists, the music artist
management business has provided the commercial music business with either well-
known artists or artists whose style or sound would be ideal for a particular
commercial soundtrack. There can be no assurance that such efficiencies will
continue to be achieved.
VIDEO PRODUCTION
The Company's music video and television music special production business
is conducted through Picture Vision, which was founded in 1984 by Jon Small, an
Executive Vice President of the Company. The Company produces music videos, used
to promote music artists, as well as music specials and programs for television
networks and other video broadcasters. In connection with this business the
Company, utilizing both in-house capabilities and independent contractors,
directs, produces, story-writes, art directs, scouts locations, produces special
effects, edits, contracts, and manages the production.
Once the Company is solicited by a music company and asked to produce a
music video, it will receive a copy of the recording and develop a concept for
the video, which is referred to as the "treatment" or the "script." If the
concept is approved, the Company will submit a budget proposal to its client. If
the budget is approved, the production process is commenced. The Company has a
very limited time from concept to budget approval, and therefore, must be very
accurate in its budgeting. The Company gets paid the lump sum budget amount and
retains as profit all amounts not used for production costs and expenses. The
profit for any given job will increase if it is directed and produced by one of
the Company's in-house
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directors or producers. This is not always possible as a client may wish to use
their own director or producer or the Company may be producing more jobs than
its in-house personnel can accommodate. The Company does not retain any of the
intellectual property rights in its videos.
Once production begins, the Company hires the crew, which includes, the
actors, the lighting designer, the art director, the wardrobe person and the
hair and make-up artist. The Company also finds the locations for the videos,
rents the appropriate equipment for the production, builds the required sets,
obtains insurance, arranges for meals and produces a shooting schedule. The
video is typically shot in one to five days and a rough copy is then sent to the
appropriate individuals for review. If any editorial changes are requested, such
changes are made and then the final high quality video is delivered. This entire
process typically takes between one and three weeks.
The Company also produces music video television specials, and has also
produced a limited number of television commercials, the production of which is
similar in many ways to music video production. Following the Offering, the
Company will explore the possibility of expanding its television commercial
production operations.
Picture Vision has produced numerous music videos and television music video
specials for many well known artists. The Company has won MONITOR and ACE
awards. For work he directed for Picture Vision, Mr. Small was awarded the "1995
Music Video Director Of The Year" by the Country Music Association. See
"Management--Directors, Executive Officers and Key Personnel of the Company."
The Company believes that its video production business has begun to derive
benefits from the Company's other businesses. Producing television commercials
involves similar resources and skills to producing music videos. Through its
relationships with various people in the advertising industry, the commercial
music business can create opportunities in commercials for the video production
component of the Company. There can be no assurance that such efficiencies will
continue to be achieved.
MUSIC ARTIST MANAGEMENT
The Company's music artist management services are provided by All Access,
which was founded in 1994 by Brian Doyle and Richard Flynn, each an Executive
Vice President of the Company. In the music industry, artist management means
working with an artist in every facet of his or her career. For developing
artists, the Company provides assistance in the following ways: building a
support team for the artist (including an attorney, an account/business manager
and booking agent); securing appropriate recording and publishing contracts;
promoting sales of records; and developing touring opportunities. For
established artists, the Company provides strategic planning to help maintain
and advance the artists career in areas including touring, recording and record
sales; publishing and ancillary uses of the artists music (such as motion
picture sound tracks). The Company specializes in developing and implementing
strategic plans for its artists that include personalized marketing and
promotion strategies with continuous monitoring and follow through to hopefully
ensure the success of each phase of the plan. Additionally, the Company acts as
a liaison between its clients and all of their other advisors and also offers a
full range of administrative support with respect to every aspect of its clients
careers.
The Company has a variety of sources for new artists. The Company receives
many referrals from within the industry due to its reputation in the music
artist management business. Recorded music companies prefer to work with "known
entities" and will recommend management companies to newly acquired artists who
are unrepresented. Music industry attorneys, who often work with unsigned
artists in the expectation that they may eventually get signed and have a
career, are also a source of referrals. Likewise business managers, accountants,
producers and occasionally publishing companies serve as sources of referrals.
In addition, the Company's representatives spend a good deal of time in small
clubs and local music venues listening to new music and following up industry
leads. The Company receives approximately five to ten "demo" tapes a month
through referrals and directly from artists in search of management. Various
members of the staff will listen to these tapes searching for the "better"
talent. Only
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when the Company identifies what it believes to be an exciting prospect will the
Company consider pursuing that artist. The Company generally will hear an artist
four or five times in live performances before deciding to sign such artist. The
Company's philosophy is to develop a relationship with artists before actually
signing them. This relationship building process can take up to six months
before it is mutually agreed that the artist is ready for management. The artist
must demonstrate a willingness to listen to management, to take advice and
direction, and to pursue his or her career diligently.
The leading commercially successful artists typically have an exclusive
arrangement with a management company. A few management companies have under
contract a large number of artists (more than 10). The majority of management
companies have a relatively small number of artists under contract (less than
10). The balance of the industry consists of a number of very small shops that
principally represent a number of unsigned artists. To maximize client service
and minimize overhead, it is the intention of the Company to maintain a roster
of eight to ten artists (with three or four established artists and four or five
developing artists). In addition, as the Company builds relationships with new
artists, the Company may be working with up to six additional unsigned artists
that are not generating income.
The Company currently manages the careers of eight music artists and/or
music groups. For providing its services, the Company is paid commissions
typically ranging from 15% to 20% of the entertainment related gross earnings
(less certain minimal standard industry costs) of its clients. The Company's
policy, in accordance with industry practice, is to pay up to 5% of commissions
received to certain non-executive employees who either identify, develop and/or
manage such artists. With respect to music artist management, the Company's most
well known artists are Carly Simon and Daryl Hall & John Oates, who,
collectively, generated approximately 96% and 99% of the Company's music artist
management revenue in 1996 and 1995, respectively. The Company also represents
Daryl Hall, Thin Lizard Dawn, Screaming Headless Torsos, Stacy Wilde, Coward,
and Fat. In accordance with industry practice, the Company typically does not
enter into written management contracts with the artists it represents. However,
the Company does adhere to agreed upon fee structures with its artists and in
the future may try to enter into written agreements with certain of its artists
to the extent practicible.
The Company believes that its music artist management business has begun to
derive benefits from the Company's other businesses. Existing clients of the
Company's music artist management business may find the television commercial
opportunities provided by the Company's commercial music division to be
attractive. Additionally, with music videos becoming such an important
promotional tool for artists, being able to provide music video production
services gives the music artist management business an advantage in soliciting
potential clients. There can be no assurance that such efficencies will continue
to be achieved.
DEVELOPMENT OF RECORDED MUSIC BUSINESS
GENERAL
The Company will enter into the recorded music business by establishing one
independent record label under a soon-to-be formed subsidiary, PRM. It is
anticipated that this record label will be a contemporary label featuring
alternative and adult contemporary artists. The Company will seek to sign
artists believed to have commercial appeal, but who will not require substantial
advances or special production facilities. Typically these artists will be
commercially unknown recording artists. The Company will also seek to hire
established producers who are attracted to the potentially greater independence
and flexibility which it is believed can be offered by an independent music
company. PRM will be under the direction of Brian Doyle and Richard Flynn and
will, to the extent practicable, utilize the in-house recording studios and
video production services of the Company. Until it can support a higher level of
overhead, PRM will, to the extent practicable, use the existing resources of the
Company, particularly those employed in its artist management services business.
Based on industry and demographic trends, the Company has chosen to position its
record label as a contemporary label featuring alternative and adult
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contemporary artists. The Company believes that this format will expand as
people over 30 years old continue to purchase music and constitute a growing
percentage of music purchasers.
Following the Offering, the Company will explore the acquisition of
additional record labels in accordance with its acquisition program, and may
also seek to enter other areas of the recorded music business depending on the
opportunities present in such areas. Currently, the Company has no agreements or
plans with respect to such additional labels and has no agreements or plans to
enter into any such other areas of the recorded music business. There can be no
assurance that the Company will establish any record labels other than its
initial label or will ever enter into any other area of the recorded music
business.
PRODUCTION
Average music production costs for the Company's releases will be budgeted
below what the Company believes to be the industry average. The Company believes
that part of the budget savings will come from the use, to the extent possible,
of its integrated facilities and services by its artists as well as from the
willingness of its artists to forgo the substantial advances and other benefits
paid to the top recording artists by the major music companies. It is also
important to note that most independent music companies do not have the
facilities and services which the Company currently owns and can provide.
Consequently, the Company believes that it will experience a cost advantage over
other small independent music companies. The Company will also try to keep
production costs low by utilizing producers and musicians with whom the Company
has a relationship.
The Company's average accompanying video production costs (when applicable)
will be budgeted below the industry average for a high quality video. This will
be possible because, to the extent practicable, videos will be produced by the
Company's video production division.
As an artist gains recognition, it is common practice to allocate larger
production budgets to their subsequent releases. The Company will follow this
strategy on a selective basis.
MANUFACTURING AND DISTRIBUTION
The Company currently has no manufacturing capability. Following the
Offering, the Company anticipates that it will be able to enter into agreements
with other companies to provide for the manufacturing of the Company's products.
There can, however, be no assurance that such an agreement will be reached or,
if reached, that the terms will be advantageous to the Company.
Historically, the strategy of the major music companies has been to control
distribution channels. Nevertheless, the market shares of independent
distributors, rack jobbers (independent contractors that manage music
departments of department stores such as K-Mart and Wal-Mart), mail order
companies, touch-tone 800 number sales and television sales have all increased,
and the Company believes that this growth, fueled by ongoing changes in the
marketplace, will continue. Another trend is the consolidation of retail outlets
into large retail chains, thus making it easier to place products in more stores
while dealing with fewer people. The Company also expects that interactive,
in-home marketing through the internet, telephone, satellite relays, or other
evolving technologies will have a significant effect on distribution in the
future. However, there is little agreement as to precisely what this effect will
be. The Company believes that control and ownership of the creative products
will be a key factor in the new market where distribution can be accomplished
more quickly and inexpensively.
Typical distribution for an independent recorded music company is through
either a major recorded music company-owned branch system or through independent
distributors. The major recorded music company-owned companies offer national
distribution, consistent market visibility, accounts receivable and collection
administration. Independent distributors offer similar services, but normally on
a much smaller scale.
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Currently, the Company has no distribution agreements. Following the
Offering, the Company will commence negotiations for distribution. There can,
however, be no assurance that such an agreement will be reached or, if reached,
that the terms will be advantageous to the Company.
The Company may in the future enter into agreements with one or more foreign
distributors for distribution of its albums outside of the United States. Such
agreements will not be entered into unless the Company believes that one or more
of its albums can be sold profitably in foreign markets or that such
distribution strategically positions the Company for future sales. The Company
has no present plans with respect to foreign sales and there is no assurance
that the Company will develop or pursue any such plans in the future.
PROMOTION
The traditional and most effective means of promoting recorded music is by
radio air play. Obtaining radio air play for a new release is an extremely
competitive process. The trend by radio stations to focus more on particular
music formats has made it easier for independent producers to target those
stations most likely to air a specific recording. Independent regional promoters
are often hired to gain air play and, in certain markets, they are quite
effective in gaining air play for a release. Public and college radio stations
are useful venues for lesser known artists. Music videos are also a vital means
of promoting artists and records.
Songs that are aired on a major radio station are chosen by the program
director, often in conjunction with a format consultant. Once a recording is
aired, the amount of repeat play it receives depends upon listener requests and
feedback, as well as actual sales data. Since listener response and sales depend
in large measure on how often a release is aired, building a commercial hit
depends on an ongoing cycle of air play and sales. Nurturing this cycle requires
constant marketing attention and careful coordination with advertising, concert
schedules and other promotional activities. Other promotional tools include
print advertising, retail promotions and concert tours. Additionally, getting
music video airplay on MTV or VH-1, or other video stations or programs, or on
their niche oriented programs, is also essential to the success of a recording
music artist and their records.
The key to finding an audience for new artists is to properly coordinate all
these promotional activities to maximize awareness and exposure. The Company
will, where possible, use its in-house expertise to direct or assist with the
promotional activities with respect to its artists. By coordinating or providing
assistance with these activities, to the extent practicable, in-house, costs
will be further kept under control. Following the Offering, the Company will
hire additional promotional personnel.
RELATIONSHIP WITH ARTISTS
Following the Offering, the Company's plan is to sign and develop new or
emerging music artists and, to the extent practicable, sign established artists.
The Company intends to recruit new and emerging artists and to enter into
exclusive, long-term recording contracts (expected to cover an initial album,
with options to record four to seven additional albums, at the Company's
discretion). The Company will concentrate its resources on a small number of
artists, developing a tailored marketing and promotion plan for each. There can
be no assurance that the Company will be able to attract new and emerging music
talent or established artists, or, if the Company is able to attract such
talent, that the Company will be able to develop that talent successfully or in
such a manner so as to produce significant sales.
If the Company develops commercially successful music artists, there can be
no assurance that the Company will be able to maintain its relationships with
such artists even if it has entered into exclusive recording contracts with
them. Furthermore, performing artists occasionally request releases from their
exclusive recording agreements. Among the reasons that may cause an artist to
engage in so-called "label jumping" are expectations of greater income, advances
or promotional support by a competing label. There can be no assurance that any
given artist developed by the Company will not determine to request a
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release from his or her agreement with the Company. Because of the highly
personal and creative nature of the artist's contractual obligations to the
Company, it is not feasible to force an unwilling artist to perform the terms of
his or her contract with the Company. If the Company does release a "label
jumping" artist from his or her contract, it may be able to obtain an "override
royalty" as consideration for the release. Override royalties are customarily
paid by the released artist's new recording company and are based on a
percentage of the suggested retail selling price or wholesale price (depending
on the particular label in question), subject to certain deductions. Such
royalties are payable with respect to a negotiated number of the artist's albums
after release from his or her existing contract.
The Company will seek to contract with its artists on an exclusive basis for
the marketing of their recordings in return for a percentage royalty on the
retail selling price of the recording. The Company will generally seek to obtain
rights on a worldwide basis. A typical contract for an artist may provide for a
number of albums to be delivered, with advances against royalties being paid
upon delivery of each album, although advances are often made prior to
recording. The Company will generally have an option to take each album that the
artist is contracted to deliver, exercisable within an agreed period of time,
usually a few months following delivery of the previous album. Normally, if an
option is not exercised, the artist has no obligation to deliver additional
albums. Provisions in contracts with established artists vary considerably and
may, for example, require the Company to release a fixed number of albums and/or
contain an option exercisable by the Company covering more than one album. The
Company will seek to obtain rights to exploit product delivered by the artists
for the life of the product's copyright. Under the contracts, advances are
normally recoupable against royalties payable to the artist. The Company will
seek to recoup a portion of certain marketing and tour support costs, if any,
against artist royalties.
Contracts either provide for the artists to deliver completed recordings or
for the Company to undertake the recording with the artist. If the recording
costs are advanced by the Company, they are added to the advances paid to the
artist and recouped against royalties payable to the artist. The Company's staff
is involved in selecting producers, recording studios, any additional musicians
needed and songs to be recorded, as well as supervising the output of recording
sessions, although for experienced artists, such involvement may be less. The
Company will produce music videos of single songs for promotional purposes
(clips) and longer music programs (for example, concert programs). Income from
music videos is derived from the sale of videocassettes and from the publishing
of music included in such videos. It is unlikely that the Company will provide
artist management services to an artist with whom it has entered into a
recording agreement.
ACQUISITION PROGRAM
The music and entertainment industry includes six major companies in the
area of recorded music and thousands of smaller independent music entities in
the area of recorded music and the broader music business. The Company believes
that many owners of independent music entities do not enjoy certain benefits
which the Company intends to offer. These benefits include the ability to
provide a broader range of services to their clients and greater liquidity and
potential for capital enhancement through ownership of a publicly traded entity.
Other benefits that the Company believes it can provide acquired entities are
access to capital, management expertise and a broad range of industry contacts.
The Company's acquisition program will concentrate on small complementary
music driven businesses in the music and entertainment industry. The Company
believes that it can implement its acquisition strategy based on the following:
SIZE. Initially, the Company will focus on transactions of up to $5
million in cost. The Company believes that there are acquisition
opportunities in this price range and that targets of this size often get
overlooked because smaller music companies generally do not have sufficient
capital or the requisite expertise to engage in such transactions while
larger companies typically focus on larger
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transactions. If the assets of the Company increase, it may review
acquisitions in excess of $5 million. However, the significant portion of
its acquisitions are still expected to be $5 million or below.
TYPE. The Company will focus its acquisition activities on small
complementary music driven businesses such as independent record labels and
small independent entities in the music and entertainment industry which
operate in, among other areas, the areas of video production, commercial
music, music artist management, marketing, publishing, and music oriented
television production. The Company will focus on what the Company believes
are established companies with a financial performance history.
EFFICIENCY. Targeting acquisitions in areas as to which the Company's
existing management has expertise will allow the Company to attempt to
achieve efficiencies by hopefully permitting the Company to merge much of
the overhead of acquired companies into the Company's existing
infrastructure, thereby hopefully reducing costs.
MOMENTUM. The Company will focus on acquiring companies which are
complementary to the Company's current businesses and which can hopefully be
integrated into the Company's current operations. This is intended to enable
the Company to strengthen its current businesses while expanding into new
areas of the music industry. If the Company continues to strengthen its core
businesses and expand into other aspects of the music industry, the Company
believes it will become easier for the Company to acquire the pieces which
it needs to hopefully develop and grow according to its strategy.
CONSIDERATION. The Company intends to pursue its acquisition program by
acquiring companies with Common Stock, cash, debt instruments or a
combination thereof.
COMPLEXITY. Due to the complexity involved in acquiring and integrating
additional entities and their assets, many smaller entities with whom the
Company competes do not have the expertise or desire to compete for such
acquisitions.
There can be no assurance that the acquisition program will be successful,
that companies acquired by the Company will be profitable or that the Company
will grow into a profitable mid-sized independent music and entertainment
company. See "Risk Factors."
COPYRIGHTS
The Company's intended recorded music business, like that of other companies
involved in recorded music, will primarily rest on ownership or control and
exploitation of musical works and sound recordings. The Company's music
products, including its commercial music, are and will be protected under
applicable domestic and international copyright laws.
Although circumstances vary from case to case, rights and royalties relating
to a particular recording typically operate as follows: When a recording is
made, copyright in that recording vests either in the recording artist (and is
licensed to the recording company) or in the record company itself, depending on
the terms of the agreement between them. Similarly, when a musical composition
is written, copyright in the composition vests either in the writer (and is
licensed to a music publishing company) or in a publishing company. A public
performance of a record will result in money being paid to the writer and
publisher. The rights to reproduce songs on soundcarriers are obtained by record
companies or publishers from the writer. The manufacture and sale of a
soundcarrier results in mechanical royalties being payable by the record company
to the performer at industry agreed or statutory rates for the use of the
composition and by the record company to the recording artists for the use of
the recording. The Company operates in an industry in which revenues are
adversely affected by the unauthorized reproduction of recordings for commercial
sale, commonly referred to as "piracy," and by home taping for personal use.
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Potential publishing revenues may be derived from the Company's ownership
interest in musical compositions, written in whole or in part by the Company's
artists. Management anticipates securing a partial ownership position in the
copyright to any compositions written by its recording artists, where such
rights are available and have not been previously sold or assigned. Generally,
revenues from publishing are generated in the form of: (1) mechanical royalties,
paid by the record company to the publisher for the mechanical duplication of
the copyright to a particular composition (as distinct from the copying of the
artist's performance of that composition); (2) performance royalties, collected
and paid by performing rights entities such as ASCAP and BMI for the actual
public performance of the composition as represented by radio airplay, Musak, or
as a theme or jingle broadcast in synchronization with a visual image via
television; (3) sub-publishing revenues derived from copyright earnings in
foreign territories, and publishers in those territories acting as designated
collection agents for the Company; and (4) licensing fees derived from printed
sheet music, uses in synchronization with images as in video or film scores,
computer games and other software applications, and any other use involving the
composition.
Following the Offering, the Company may be engaged, with respect to its
recorded music business, in licensing activities involving both the acquisition
of rights to certain master recordings and compositions for its own projects and
the granting of rights to third parties in the master recordings and
compositions it owns. There can be no assurance that the Company will be able to
obtain licenses from third parties on terms satisfactory to the Company or at
all.
COMPETITION
The Company currently competes with numerous other businesses and
individuals who produce original music scores and advertising themes for
television, radio and film, produce music videos and music specials for
television and provide music artist management. Currently, the production of
original music scores and advertising themes for television, radio and film, the
production of music videos and music video specials for television, and music
artist management are carried out by individuals and/or small privately held
niche companies. Generally, each such individual and/or small company engages in
only one of the businesses. Many of these businesses and individuals including
Crushing Enterprises, Elias Associates and JSM Music, Inc., with respect to
commercial music, The End, Propaganda and DNA, with respect to video production
and Gold Mountain Entertainment, Left Bank Management and H.K. Management, with
respect to artist management, have greater financial resources, and in many
instances longer operating histories, than the Company.
Following the Offering, the Company intends to establish an independent
record label. With respect to this and future record labels, if any, the Company
will face intense competition for discretionary consumer spending from numerous
other record companies and other forms of entertainment offered by film
companies, video companies and others. The Company will compete directly with
other recorded music companies, including the six major recorded music
companies, which distribute contemporary music, as well as with other record
companies for signing artists and acquiring music catalogs. Many of these
competitors have significantly longer operating histories, greater financial
resources and larger music catalogs than the Company. The Company's ability to
compete successfully in the recorded music business will be largely dependent
upon its ability to sign and retain successful artists and to introduce music
products which are accepted by consumers.
The Company does not believe that there are currently any independent music
companies which offer the range of services which will be provided by the
Company following the completion of the Offering.
EMPLOYEES/INDEPENDENT CONTRACTORS
As of December 11, 1996, the Company had 9 employees, of whom 5 were located
at the Company's New York offices and 4 were located in Nashville, Tennessee.
The Company's employees consist of its
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executive officer and support staff. None of the Company's employees is
represented by a labor union. The Company has not experienced any work stoppage
and considers relations with its employees to be good.
As is customary in the music business, the Company also utilizes the
services of artists, performers, composers, producers, engineers, roadies,
booking agents and others who are independent contractors. These independent
contractors hire out their services on an as needed basis and receive a set fee
from the Company per assignment. Independent contractors are utilized because
the individuals providing these services do so only on this basis, the services
performed by these independent contractors are not needed on a full time basis
or the services of independent contractors are less expensive than having full
time employees perform these services.
FACILITIES
The Company leases office space at three locations. Its headquarters and
commercial music recording studios are located in New York City, where it
sub-leases approximately 9,000 square feet at an annual rate of $50,000,
pursuant to a sub-lease that will expire in May 1997. The Company's artist
management business leases space in New York City at an annual rate of $41,481
pursuant to a lease that will expire in February 1997. It is anticipated that
such lease will be extended to August 1997. The Company's music video production
business leases 2,050 square feet of office space in Nashville, Tennessee, at an
annual rate of $17,000 pursuant to a lease expiring in August 2000. The Company
has entered into a lease for approximately 15,000 square feet of space in New
York City, which lease has a 12-year term. The rent, including operating expense
increases, under such lease is an average of approximately $160,000 per annum in
years one to five, an average of approximately $222,000 per annum in years six
to ten and approximately $286,000 per annum in years eleven and twelve. Such
lease also contains tax escalations. This lease is currently being held in
escrow and will become effective only if and when the Company pays the landlord
the first months rent and the security deposit thereunder. If such payments are
not made by February 1, 1997, this lease will not become effective and the
Company will have no further obligations thereunder. The Company anticipates
that this lease will become effective prior to February 1, 1997 and that it will
move all of its New York operations to these new facilities by May 1997.
Recording studios will be constructed at the cost of the Company at these
facilities prior to when the Company moves in.
33
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE COMPANY
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
John Loeffler.......................... 45 President, Chief Executive Officer and Chairman of the Board
Jon Small.............................. 49 Executive Vice President and Director
Brian Doyle............................ 40 Executive Vice President and Director
Richard Flynn.......................... 39 Executive Vice President, Treasurer, Secretary and Director
Robert Klein........................... 43 Vice President Corporate Relations and Director
Paul Thomas Cohen...................... 44 Director
Thomas J. Edelman...................... 45 Director
</TABLE>
MR. JOHN LOEFFLER is a co-founder of the Company and has been President,
Chief Executive Officer and Chairman of the Board of Directors since the
Company's inception in 1996. From 1986 to September 1996, Mr. Loeffler was the
Chief Executive Officer and sole stockholder of Rave. From 1986 to 1995, Mr.
Loeffler was the President of Rave. Rave's roster of staff composers and
producers regularly produced four to five commercial soundtracks per week.
Rave's clients include: Domino's Pizza, Downey Fabric Softner, Hertz and Coca
Cola. Mr. Loeffler was awarded by ASCAP as one of television's "Most Performed"
composers in 1988 and 1989 for his title themes of the television shows "Kate &
Allie," "Another World," and NBC's "Friday Nite Videos." He also composed the
theme for New York City's Channel 4 NBC Evening News, and recently completed the
themes for the new syndicated TV show, "WMAC Masters", ESPN's "Survival of the
Fittest", Robin Leach's "Home Videos of the Stars", the New York Marathon and
ESPN's "US Open", as well as two NBC Summer Olympic '96 Specials. Prior to 1986,
Mr. Loeffler was a composer and producer at Sherman and Kahan, a commercial
music production company in New York City. Since 1979, he has also been a
consulting music director to Grey Advertising. Mr. Loeffler graduated from
Williams College, Cum Laude, in 1973.
MR. JON SMALL has been an Executive Vice President, and a director of the
Company since its inception in 1996. Since September 1996, Mr. Small has been
the Chief Executive Officer of Picture Vision. From 1984 to September 1996, Mr.
Small had been President and the sole stockholder of Picture Vision. Picture
Vision has produced, executively-produced and or directed over 300 video musical
productions of such performers as Whitney Houston, Madonna, Anita Baker, Ray
Charles, Van Morrison, Rod Stewart, Reba McEntire, Billy Joel, Garth Brooks and
Sting. Previously, as a musician/performer, Mr Small toured, or recorded with
The Kinks, The Doobie Brothers, and Billy Joel. While at Picture Vision, Mr.
Small produced and or directed specials for Disney and HBO and has received
several Grammy nominations. While at Picture Vision, Mr. Small also produced and
directed specials and long form programs including NBC's 1994 Thanksgiving
Special "Reba! Live in Concert", the Disney special "Billy Joel Live at Yankee
Stadium", Julio Iglesias's "Non Stop Far East Tour", Van Morrison's "The
Concert", Billy Joel's "Live from Long Island", Anita Baker's "One Night of
Rapture", Hall & Oates' "Live from the Apollo Theater", Donald Fagen's "New York
Rock and Soul Revue", and several shows for the ABC Network's series "Live in
Concert". While at Picture Vision, Mr. Small has won Ace and Monitor awards for
Best television Music Specials and has received two Grammy nominations for his
work with Billy Joel. He received Country Music awards for Best Video of the
Year, awards for Cable Excellence (ACE), and Monitor Awards. He has been awarded
Gold Medals by the International Film & TV Festival. In addition, the Academy of
Country Music set a precedent by choosing two of Mr. Small's videos out of the
final five in the "Videos of the Year" category.
MR. BRIAN DOYLE has been an Executive Vice President and a director of the
Company since the Company's inception in 1996. Since September 1996, Mr. Doyle
has been the Chief Executive Officer of
34
<PAGE>
All Access. He founded All Access in late 1994 and until September 1996 had been
the President and co-owner of All Access. He currently manages Daryl Hall and
John Oates, Carly Simon, and others. From 1991 to 1994 Mr. Doyle served as
CEO/President of Horizon Entertainment and Management Group, Inc. ("Horizon").
Horizon's clients included Mariah Carey, John Mellencamp, and Daryl Hall & John
Oates. His responsibilities included managing the overall achievement of the
company's strategic objectives, development and control of the client roster,
coordinating worldwide marketing efforts for clients, serving as artists liaison
to MTV, VH-1 and other media outlets, and interfacing on behalf of clients with
record companies and professional services consultants. In addition, he provided
specialized personal management services for clients including career planning
and development, music development, and song acquisition. Mr. Doyle has also
produced HBO and Lifetime television specials.
MR. RICHARD FLYNN has been an Executive Vice President and Secretary of the
Company since its inception, has been a director since October 9, 1996 and has
been Treasurer since December 1996. Since September 1996 Mr. Flynn has been
President of All Access. From September 1994 to September 1996, Mr. Flynn has
been the Managing Partner and co-owner of All Access. From March 1990 until
September 1994. Mr. Flynn served as General Counsel to Horizon. He provided
legal services to Horizon and its clients Mariah Carey, John Mellencamp, Daryl
Hall & John Oates, and other artists. In addition, Mr. Flynn assisted in all
aspects of artist management for Horizon's clients. Since 1983, Mr. Flynn has
been a practicing attorney in New York State specializing in entertainment,
corporate and public sector law. Since 1989, he has provided legal
representation, financial management, and consulting services to artists and
entertainers, including negotiating recording, publishing, production,
performance and endorsement contracts.
MR. ROBERT KLEIN is a co-founder of the Company, was an Executive Vice
President and Treasurer of the Company from inception through December 1996, has
been a director of the Company since its inception and has been Vice President
Corporate Relations since December 1996. From 1992 to 1996 Mr. Klein was an
independent financial consultant. Prior to that time, from 1990 and 1992 Mr.
Klein was a Senior Vice President of Corporate Finance at Laidlaw Holdings, Inc.
From 1986 to 1990 Mr. Klein worked at D.H. Blair & Company, Inc. Prior to 1986
Mr. Klein worked for various companies including Shearson Lehman Brothers. Mr.
Klein will be involved with corporate relations and will consult on
acquisitions.
MR. PAUL THOMAS COHEN has been a director of the Company since October 9,
1996. Since 1987, Mr. Cohen has been an investment banker and a consultant to
the media and entertainment industries. As an advisor to such clients as
Time-Life, Time Inc., The New York Times, NBC, and Rolling Stone Magazine, he
has been involved in licensing, alliances and other strategic initiatives
involving new media activities in both the on-line services and CD-ROM arenas.
From 1984 to 1987, Mr. Cohen served as Co-Executive Officer of Herzfeld & Stern,
a mid-size brokerage firm. Mr. Cohen graduated from Williams College in 1974 and
received an MBA from Columbia University in 1976.
MR. THOMAS J. EDELMAN has been a director of the Company since October 9,
1996. Since 1981, Mr. Edelman has been a director and president of Snyder Oil
Corporation. In 1996, Mr. Edelman was appointed Chairman and Chief Executive
Officer of Patina Oil and Gas Corporation, an affiliate of Snyder Oil. He is
also chairman and chairman of the board of Lomak Petroleum, Inc. From 1980 to
1981, Mr. Edelman was a Vice President of The First Boston Corporation. From
1975 through 1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb Incorporated.
Mr. Edelman received his Bachelor of Arts Degree from Princeton University and
his Masters Degree in finance from Harvard University's Graduate School of
Business Administration. Mr. Edelman is also a director of Petroleum Heat &
Power Co., Inc., a Connecticut-based fuel oil distributor, and Star Gas
Corporation, a private company which distributes propane.
The Executive Advisory Committee, consisting of Brian Doyle, Richard Flynn,
John Loeffler, Jon Small and Robert Klein, advises the Board of Directors on
important matters affecting the Company.
35
<PAGE>
The Compensation and Stock Option Committee, consisting of Paul Thomas Cohen
and Thomas Edelman, makes recommendations to the Board of Directors concerning
compensation, including incentive arrangements, of the Company's officers and
key employees and others and administers the Option Plan and determines the
officers, key employees and others to be granted options under the Option Plan
and the number of shares subject to such options.
The Audit Committee, consisting of Paul Thomas Cohen and Thomas Edelman,
reviews the engagement of the Company's independent accountants and the
independence of the accounting firm, the audit and non-audit fees of the
independent accountants and the adequacy of the Option Plan and the Company's
internal control procedures.
All directors of the Company are elected by the stockholders, or in the case
of a vacancy, by the directors then in office, to hold office until the next
annual meeting of stockholders of the Company and until their successors are
elected and qualified or until their earlier resignation or removal.
All officers of the Company serve at the discretion of the Board of
Directors. There are no family relationships between any director, executive
officer or person nominated or chosen to become a director or officer and any
other such persons.
The Company also employs the following key employees and/or advisors:
ROBERT FEAD, Corporate Development Advisor. From 1992 to the present Mr.
Fead has been the President of Burt Bachrach Music Group. From 1987 to 1992 Mr.
Fead was President and Chief Executive Officer of Paramounts Famous Music. From
1985 to 1987 Mr. Fead was President of Alpha Records and from 1984 to 1985 was
President of RCA Records. From 1968 to 1984 Mr. Fead was Director of Marketing
of A&M Records. Mr. Fead will assist in the Company's acquisition activities,
corporate development and label negotiations.
JOHN SIEGLER, President of Rave. Since 1995 Mr. Siegler has been President
of Rave. From 1989 to 1995 Mr. Siegler was a senior producer/composer for Rave.
Mr. Siegler has been a recipient of a number of gold and platinum record awards.
Mr. Siegler is a producer, composer, and performer who has worked, independent
of Rave, with: Bette Midler, Mick Jagger, Jeff Beck, Stevie Nicks, Roger Daltry,
Daryl Hall and John Oates, Meatloaf, Edgar Winter, Richie Havens, Herbie Mann,
Cher, Todd Rundgren, and others. Mr. Siegler has recorded over 100 albums as a
featured musician and musical collaborator.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has included in its Certificate of Incorporation provisions to
indemnify its directors and officers to the extent permitted by Delaware law.
The Company's Certificate of Incorporation also includes provisions to eliminate
the personal liability of its directors and officers to the Company and its
stockholders to the fullest extent permitted by Delaware law. Under current law,
such exculpation would extend to an officer's or director's breaches of
fiduciary duty, except for (i) breaches of such person's duty of loyalty, (ii)
those instances where such person is found not to have acted in good faith,
(iii) those instances where such person received an improper personal benefit as
the result of such breach and (iv) acts in violation of Section 174 of the
Delaware General Corporation Law.
The Company's By-Laws provide that the Company will indemnify its directors,
officers and employees against judgments, fines, amounts paid in settlement and
reasonable expenses.
The Company will enter into an Indemnification Agreement ("Indemnification
Agreement") with each of its directors and officers. Each Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any civil or criminal action or administrative proceeding
arising out of his or her performance of his or her
36
<PAGE>
duties as a director or officer, other than an action instituted by the director
or officer. Each Indemnification Agreement will permit the director or officer
that is party thereto to bring suit to seek recovery of amounts due under such
Indemnification Agreement and will require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal years ended June 30,
1996, 1995 and 1994 to John Loeffler, the Company's Chief Executive Officer and
to Jon Small, Brian Doyle and Richard Flynn, each an Executive Vice President of
the Company (collectively the "Named Executive Officers"). No other executive
officer received annual compensation in excess of $100,000 for the fiscal years
ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------------------------
<S> <C> <C> <C>
ANNUAL ALL OTHER
NAME AND PRINCIPAL CAPACITIES IN WHICH SERVED YEAR SALARY COMPENSATION(2)
- ---------------------------------------------------------------------------- --------- ---------- ----------------
John Loeffler............................................................... 1996 $ 218,000 $ 71,000
Chief Executive Officer 1995 170,000 77,000
1994 134,000 70,000
Jon Small................................................................... 1996 $ 88,000 $ 89,000
Executive Vice President 1995 184,000 172,000
1994 113,000 103,000
Brian Doyle................................................................. 1996 $ 101,000 $ 48,000
Executive Vice President 1995 0 35,000
Richard Flynn............................................................... 1996 $ 101,000 $ 48,000
Executive Vice President 1995 0 35,000
</TABLE>
- ------------------------
(1) The Company was incorporated in July 1996. Compensation for prior periods
represents amounts paid by Rave, Picture Vision and All Access to their
respective employees. All Access commenced operations in September 1995. See
"Business--Executive Compensation--Employee Agreements."
(2) Includes amounts paid by the Company which the Company deemed to be for the
benefit of such executive, including amounts paid for lodging,
transportation, insurance, entertainment and other perquisites.
The Company plans to obtain key-person life insurance coverage in the face
amount of $500,000 for each of Messrs. Loeffler, Small, Doyle and Flynn naming
the Company as beneficiary under such policies.
COMPENSATION OF DIRECTORS
Directors who are not employees or officers of the Company or associated
with the Company ("Outside Directors") receive $500 for each Board of Directors
and committee meeting attended. In addition all directors are reimbursed for
certain expenses in connection with attendance at Board of Directors and
committee meetings. Other than with respect to reimbursement of expenses,
Directors who are employees or officers of the Company or who are associated
with the Company do not receive additional compensation for service as a
director.
Additionally, for the period from January 1, 1997 through June 30, 1997, the
Outside Directors will, on July 1, 1997, receive $12,000, payable half in cash
and half in Common Stock valued at the initial public
37
<PAGE>
offering price. Thereafter, Outside Directors will be paid at the rate of
$18,000 per fiscal year, payable quarterly with such payment to be half in cash
and half in Common Stock valued on the last day of the applicable quarter.
Outside Directors will also receive non-qualified options to purchase 5,000
shares of Common Stock for each year of service, payable in advance, with the
first of such options to be granted to Paul Thomas Cohen and Thomas J. Edelman
upon the closing of the Offering. The initial options will be exercisable at the
initial public offering price. Thereafter, the option exercise price will be the
closing bid price of the Common Stock on the first trading day of each fiscal
year, commencing July 1, 1997. Such options will be fully vested upon grant, and
have a term of five years.
COMPENSATION AGREEMENTS
In October 1996, the Company entered into the Employment Agreements with
each of the Executives. Each of the Employment Agreements becomes effective upon
the closing of the Offering and is for a term of three years. Each of the
Executives is required to devote substantially all of his business efforts to
the affairs of the Company although specific, pre-existing limited activities
are permitted. Pursuant to the Employment Agreements, John Loeffler, who serves
as the Company's President, Chief Executive Officer and Chairman of the Board of
Directors and Jon Small, an Executive Vice President of the Company, earn a base
salary of $160,000, and Brian Doyle and Richard Flynn, who each serve as
Executive Vice Presidents of the Company, each earn a base salary of $150,000.
Pursuant to the Employment Agreements, four bonus plans have been
established primarily for the benefit of the Executives. Under the first bonus
plan, bonuses will be granted to each Executive based on earnings (as defined in
the Employment Agreements) of the respective subsidiary or division which the
Executive manages or co-manages. Generally the Executive receives approximately
60% of such earnings (with Messrs. Doyle and Flynn considered as one person for
purposes of this calculation) up to a maximum of $375,000 of earnings for each
of Rave and Picture Vision commencing with the fiscal year ending June 30, 1997
and $512,500 of earnings for All Access commencing with the fiscal year ending
June 30, 1998. Messrs. Doyle and Flynn receive all earnings of All Access up to
$325,000 of earnings for the year ending June 30, 1997. Each of the Executives
will have the right to allocate any portion of the bonus granted to him to any
of the employees of the respective subsidiary or division of such Executive.
Under the second bonus plan, a bonus pool equal to 10% of the consolidated
pretax earnings of the Company (after giving effect to the payment of all other
bonuses), will be established for each fiscal year. Awards under this bonus pool
will be granted to the Company's employees at the discretion of the Company's
Board of Directors. The third bonus plan has been established for the benefit of
Brian Doyle, Richard Flynn and others designated by them based on cumulative
profitability of the recorded music business to reward them based on a
successful launch of the record label. Under this bonus program, $250,000 will
be granted in the first fiscal year in which cumulative net pretax profits of
the record label, including Brian Doyle's base salary paid by the record label,
exceed $1,000,000. An additional bonus of $250,000 shall be granted in the first
fiscal year in which cumulative net pretax profits of the record label,
including Brian Doyle's base salary paid by the record label, exceed $2,000,000.
An additional bonus of $100,000 shall be granted in the first fiscal year in
which cumulative net pretax profits of the record label, including Brian Doyle's
base salary paid by the record label, exceed $2,400,000. No bonus will be
granted under this plan after fiscal 2001 and the maximum aggregate bonus under
this plan will be $600,000. The fourth bonus plan has been established as an
incentive for successful consummation of special projects pre-designated by the
Compensation Committee. Such plan provides for a bonus, if the net profits (as
defined in the Employment Agreements) from the special project exceed
$1,000,000. Such bonus will be calculated on 15% of net profits realized
therefrom in excess of any bonus paid to such Executive pursuant to the first
bonus plan. After the payment of any bonus pursuant to the fourth bonus plan,
there will be payable 15% of future royalty revenue derived from such special
project.
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<PAGE>
Upon the closing of the Offering, John Loeffler and Jon Small will each
receive an initial advance on possible future bonuses of $56,250. Upon the
closing of the Offering, Richard Flynn and Brian Doyle will each receive an
initial advance on possible future bonuses of $81,250 and $81,250 respectively.
Thereafter, in each subsequent fiscal quarter the Company may grant, at the
request of the Executives and upon approval of the Compensation Committee,
additional advances to be offset against bonuses payable.
Each of the Executives has the right to participate in the benefit plans
established by the Company for the benefit of its key executives. If an
Executive is discharged for cause, the Company is entitled to immediately
terminate such Executive's Employment Agreement. If an Executive dies or is
unable to perform his duties on account of illness or other incapacity and such
Executive's Employment Agreement is terminated, he or his legal representative
is to receive the Executive's base salary for the remainder of the term of the
Employment Agreement. If an Executive voluntarily terminates his employment with
the Company, he is entitled to receive compensation accrued through the date of
termination. Additionally, the Employment Agreements contain confidentiality and
non-competition clauses.
Prior to the consummation of the Offering, the Company will enter into a
Consulting Agreement with Mr. Thomas J. Edelman, a director of the Company,
which agreement will commence on January 1, 1997 and terminate on July 1, 1998.
Pursuant to such agreement, Mr. Edelman will receive a payment of $90,000 on
July 1, 1998 in exchange for making his services available through June 30,
1998. Such agreement will not cover acquisitions which are introduced to the
Company by Mr. Edelman, transactions on which he is asked to assist in an
advisory capacity or payments for services, if any, beyond those which would
normally be provided by a director. Mr. Edelman will receive additional
compensation, as determined by the Company's Board of Directors, for such
services.
STOCK OPTIONS
In October 1996, the Board of Directors adopted and the stockholders
approved the 1996 Option Plan (the "Option Plan"). The Option Plan allows for
the grant of incentive stock options ("ISOs") (within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), non-qualified
stock options ("NQSOs") and/or Stock Appreciation Rights ("SARs") to directors,
agents and employees of, and consultants to, the Company. The Option Plan
further provides for the grant of NQSOs to directors, agents of, and consultants
to, the Company, whether or not employees of the Company. The purpose of the
Option Plan is to attract and retain exemplary employees, agents, consultants
and directors. Options and SARs granted under the Option Plan may not be
exercisable for terms in excess of 10 years from the date of grant. In addition,
no options or SARs may be granted under the Option Plan later than 10 years
after the Option Plan's effective date. The total number of shares of Common
Stock with respect to which options and SARs will be granted under the Option
Plan is 185,000. The shares subject to and available under the Option Plan may
consist, in whole or in part, of authorized but unissued stock or treasury stock
not reserved for any other purpose. Any shares subject to an option or SAR that
terminates, expires or lapses for any reason, and any shares purchased pursuant
to an option and subsequently repurchased by the Company pursuant to the terms
of the option, shall again be available for grant under the Option Plan.
The Option Plan will be administered by the Compensation and Stock Option
Committee which will be composed solely of two or more "Non-Employee Directors"
within the meaning of paragraph (b)(3) of Rule 16b-3 promulgated under the
Exchange Act, which will determine, in its discretion, among other things, the
recipients of grants, whether a grant will consist of ISOs, NQSOs or SARs, or a
combination thereof, and the number of shares of Common Stock to be subject to
such options or SARs. The exercise price of options granted under the Option
Plan shall not be less than the fair market value per share on the date of
grant, as determined by such committee.
The Option Plan contains certain limitations applicable only to ISOs granted
thereunder. To the extent that the aggregate fair market value, as of the date
of grant, of the shares to which ISOs become
39
<PAGE>
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the ISO will be treated as a NQSO. In addition, if an optionee owns
more than 10% of the Company's stock at the time the individual is granted an
ISO, the option price per share cannot be less than 110% of the fair market
value per share and the term of the option cannot exceed five years.
In December 1996, the Company, pursuant to the Option Plan, granted options
to purchase 5,000, 5,000 and 15,000 shares of Common Stock to Messrs. Loeffler,
Small and Edelman, respectively. Such options are fully vested, have a term of
five years and have an exercise price equal to the initial public offering
price.
Outside Directors will also receive non-qualified options to purchase 5,000
shares of Common Stock for each year of service, payable in advance, with the
first of such options to be granted to Paul Thomas Cohen and Thomas J. Edelman
as of the closing of the Offering. The initial options will be exercisable at
the initial public offering price. Thereafter, the option exercise price will be
the closing bid price of the Common Stock on the first trading day of each
fiscal year, commencing July 1, 1997. Such options will be fully vested upon
grant, and have a term of five years.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information as to the stock ownership of (i) each of the Company's directors,
(ii) the Named Executive Officers, (iii) the Company's executive officers and
directors as a group and (iv) all persons known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock of
the Company prior to the Offering and giving pro forma effect to the sale of the
Units offered hereby.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP OF ALL
COMMON STOCK OUTSTANDING
------------------------------
NUMBER OF SHARES
OF
COMMON STOCK IMMEDIATELY IMMEDIATELY
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) THE OFFERING THE OFFERING(2)
- ---------------------------------------------- ---------------- ------------- ---------------
<S> <C> <C> <C>
John Loeffler................................. 341,000(3) 31.4% 16.4%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Paul Thomas Cohen............................. 13,333(3) 1.2% *
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Brian Doyle................................... 145,500 13.5% 7.0%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Thomas J. Edelman............................. 28,333(4) 2.6% 1.3%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Richard Flynn................................. 145,500 13.5% 7.0%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Robert Klein.................................. 85,000 7.9% 4.1%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
Jon Small..................................... 291,000(3) 26.8% 13.9%
c/o Paradise Music & Entertainment, Inc.
420 West 45th Street
5th Floor
New York, NY 10036
All executive officers and directors as a
group (7 persons)........................... 1,049,666(5) 94.1% 49.6%
</TABLE>
41
<PAGE>
- ------------------------
* Denotes less than 1%
(1) All shares are beneficially owned and sole voting and investment power is
held by the persons named, except as otherwise noted. See "Description of
Securities--Common Stock."
(2) Does not give effect to any exercise of the Over-Allotment Option or the
Representative's Warrants.
(3) Includes options to purchase 5,000 shares of Common Stock.
(4) Includes options to purchase 20,000 shares of Common Stock.
(5) Includes options to purchase 35,000 shares of Common Stock.
CERTAIN TRANSACTIONS
On October 9, 1996, the Company entered into the Exchange Agreement with
each of John Loeffler, Jon Small, Brian Doyle and Richard Flynn, each of whom
was an executive officer and a director of the Company. Pursuant to the Exchange
Agreement, John Loeffler and Jon Small were each issued 291,000 shares of Common
Stock and Brian Doyle and Richard Flynn were each issued 145,500 shares of
Common Stock in exchange for all of the outstanding stock of each of Rave,
Picture Vision and All Access. The Company believes that this transaction was
fair from a financial point of view. This belief is based on the fact that the
Exchange Agreement, and the transactions consummated thereby, were analyzed and
approved by the Company's Board of Directors and by all of its then existing
stockholders.
On October 9, 1996, the Company entered into an Expense Allocation Agreement
(the "Expense Allocation Agreement") with each of All Access, Picture Vision,
Rave and Robert Klein. John Loeffler, Jon Small, Brian Doyle and Richard Flynn
were all directors and/or executive officers of the Company and were also
owners, directors, and executive officers of Rave, Picture Vision and All
Access, respectively, and Robert Klein was an executive officer and director of
the Company, when the Expense Allocation Agreement was executed. Pursuant to the
Expense Allocation Agreement, Rave, Picture Vision and All Access will
contribute, pro rata up to $41,667 each to the Company, and Robert Klein will
contribute up to $25,000, if the Offering does not occur. The Company believes
that this transaction was fair from a financial point of view. This belief is
based on the fact that the Expense Allocation Agreement, and the transactions
contemplated thereby, were analyzed and approved by the Company's Board of
Directors and by all of its then existing stockholders.
On October 9, 1996, the Registrant issued 78,333 shares of its Common Stock
to 11 individuals in a private placement (the "Private Placement") for $3.00 per
share. There were no underwriters involved in the Private Placement. The Common
Stock in the Private Placement was issued only to Accredited Investors, as such
term is defined in the Securities Act. The aggregate offering price of the
Private Placement was $234,999. Mr. Paul Thomas Cohen and Mr. Thomas Edelman,
each directors of the Company, each purchased 8,333 shares of Common Stock in
the Private Placement. The holders of these 78,333 shares have agreed not to
sell, transfer or dispose of these shares for a period of one year following the
date of this Prospectus. See "Offering By Selling Stockholders" and " Shares
Eligible for Future Sale."
John Loeffler, the President, Chief Executive Officer and a director of the
Company, is also a consultant to Grey Advertising, which is a major client of
the Company's commercial music production division. For such consulting services
Mr. Loeffler is paid by Grey approximately $45,000 per year. The Company derived
approximately $365,000 and $413,000 of commercial music production revenues
(approximately 10% and 12% of total revenues) from Grey Advertising for the year
ended June 30, 1996 and 1995, respectively and approximately $99,000 and
$141,000 of commercial music production revenues (approximately 9% and 12% of
total revenues) from Grey Advertising for the three months ended September 30,
1996 and 1995, respectively.
All previous and future transactions between the Company and its directors,
officers, and greater than five percent stockholders were or will be entered
into on terms that were or are no less favorable to the Company than those that
could or can be obtained from unaffiliated third parties. All prior, existing
and future transactions between such parties, including any forgiveness of
loans, will not be consummated
42
<PAGE>
without the prior written consent of the independent disinterested members of
the Company's Board of Directors.
OFFERING BY SELLING STOCKHOLDERS
An additional 78,333 shares of Common Stock (the "Selling Stockholder
Securities") have been registered pursuant to the Registration Statement under
the Securities Act, of which this Prospectus forms a part, for sale by the
holders thereof (the "Selling Stockholders"). The Company will not receive
proceeds from the sale of the Selling Stockholder Securities. All of the Selling
Stockholder Securities have been registered, at the Company's expense, under the
Securities Act and are expected to become tradable on or about the date of this
Prospectus, subject to a contractual restriction, which may not be waived by the
Representative, that such Common Stock may not be sold for one year after the
date of this Prospectus. Sales of Selling Stockholder Securities or even the
potential of such sales could have an adverse effect on the market prices of the
Common Stock and the Warrants. The Company has been informed by the
Representative that, other than the lock-up agreements, there are no agreements
between the Underwriters and any Selling Stockholder regarding the distribution
of the Selling Stockholder Securities. Other than with respect to Paul Thomas
Cohen and Thomas Edelman, each a director of the Company, Walter Epstein,
counsel to the Company, John Siegler, President of Rave, and the parents and
brother of John Loeffler, the president of the Company, there are no material
relationships between any of the Selling Stockholders and the Company, nor have
any such material relationships existed within the past three years.
The sale of the securities by the Selling Stockholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Stockholders) in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
Selling Stockholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Stockholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
for whom such broker-dealer may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Stockholder Securities may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period prior to the commencement of such distribution.
Accordingly, in the event any of the Underwriters is engaged in a distribution
of the Selling Stockholder Securities, such firm will not be able to make a
market in the Company's securities during the applicable restrictive period.
However, the Underwriters are not obliged to act as a broker/dealer in the sale
of the Selling Stockholder Securities and the Selling Stockholders may be
required, and in the event any of the Underwriters is a market maker, will
likely be required, to sell such securities through another broker/ dealer. In
addition, each Selling Securityholder desiring to sell Common Stock will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of share of the
Company's securities by such Selling Securityholder.
The Selling Stockholders and broker-dealers, if any, acting in connection
with such sales might be deemed to be "underwriters within the meaning of
Section 2(11) of the Securities Act and any commission received by them and any
profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
43
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.01 value per share, and 5,000,000 shares of preferred stock,
$.01 par value per share (the "Preferred Stock"). Immediately prior to the
Offering, there were outstanding 1,080,333 shares of Common Stock (held by 17
holders) and no outstanding shares of Preferred Stock.
UNITS
Each Unit consists of one share of Common Stock and one Warrant. Two
Warrants entitle the holder thereof to purchase one share of Common Stock. The
Common Stock and the Warrants included in the Units will be separately
transferable upon issuance. The Units will not trade separately subsequent to
issuance.
COMMON STOCK
Immediately prior to the Offering, there were 1,080,333 shares of Common
Stock outstanding held by 17 record holders. The holders of the Common Stock are
entitled to one vote per share with respect to all matters on which holders of
the Common Stock are entitled to vote.
Holders of the Common Stock have the right to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors and are
entitled to share ratably in all of the assets of the Company available for
distribution to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. Holders of Common Stock
do not have preemptive, subscription, or conversion rights. There are no
redemption or sinking fund provisions for the benefit of the Common Stock in the
Company's Certificate of Incorporation. All outstanding shares of Common Stock
are, and those shares of Common Stock offered hereby will be, validly issued,
fully paid and non-assessable. The Common Stock does not have cumulative voting
rights and, therefore, holders of shares entitled to exercise more than 50% of
the voting power are able to elect 100% of the directors of the Company.
WARRANTS
The holder of two Warrants is entitled, upon payment of the exercise price
of $7.20 per share, to purchase one share of Common Stock. Unless previously
redeemed, the Warrants are exercisable at any time commencing on the date of
this Prospectus through the close of business on , 2001, provided
that at such time a current prospectus relating to the Common Stock is in effect
and the Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws. The Warrants are transferable separately from
the Common Stock issued with such Warrants as part of the Units immediately upon
issuance.
The Warrants are subject to redemption by the Company at any time, upon 30
days' written notice, at a price of $.05 per Warrant, if the "closing price" of
the Common Stock for any 20 consecutive business days ending on the fifth day
prior to the date on which the notice of redemption is given has been equal to
or greater than 120% of the then exercise price of the Warrants. "Closing price"
shall mean the closing bid price if listed on the Nasdaq SCM or the last sale
price if listed on The Nasdaq National Market or a national securities exchange.
Holders of Warrants will automatically forfeit their rights to purchase the
Common Stock issuable upon exercise of such Warrants unless the Warrants are
exercised before the close of business on the business day immediately prior to
the date set for redemption. All of the outstanding Warrants must be redeemed if
any of that class are redeemed. A notice of redemption shall be mailed to each
of the registered holders of the Warrants by first class mail, postage prepaid,
upon 30 days' notice before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the redemption
price to be paid and that the right to exercise the Warrants shall terminate at
5:00 p.m. (New York City time) on the business day immediately preceding the
date fixed for redemption.
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<PAGE>
The Warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to the expiration of the redemption date (as explained above) at the
offices of the Company's warrant agent (the "Warrant Agent") with the
"subscription form" on the reverse side of the certificate(s) completed and
executed as indicated, accompanied by payment (in the form of certified or
cashier's check payable to the order of the Company) of the full exercise price
for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise thereof upon the occurrence of certain events, including
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events, provided, however, that no
such adjustment shall be made upon, among other things, (i) the issuance or
exercise of options or other securities under the Option Plan or other employee
benefit plans up to certain maximum amounts or (ii) the sale or exercise of
outstanding options or warrants or the Warrants offered hereby.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. The holder of the Warrants will not possess any rights
as a stockholder of the Company unless he or she exercises the Warrants.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series will
have such rights and preferences as are fixed by the Board of Directors in the
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board of Directors may, without further
action by the holders of Common Stock, fix the number of shares constituting
that series and fix the dividend rights, dividend rate, conversion rights,
voting rights (which may be greater or lesser than the voting rights of the
Common Stock), rights and terms of redemption (including any sinking fund
provisions) and the liquidation preferences of the series of Preferred Stock. It
is to be expected that the holders of any series of Preferred Stock, when and if
issued, will have priority claims to dividends and to any distributions upon
liquidation of the Company and that they may have other preferences over the
holders of the Common Stock.
The Board of Directors may issue series of Preferred Stock without action of
the stockholders of the Company. The issuance of Preferred Stock may adversely
affect the rights of the holders of the Common Stock. In addition, the issuance
of Preferred Stock may be used as an anti-takeover device without further action
on the part of the shareholders. Furthermore, the issuance of Preferred Stock
may dilute the voting power of holders of the Common Stock (such as by issuing
Preferred stock with super-voting rights) and may render more difficult the
removal of current management, even if such removal may be in the stockholders'
best interests. The Company has no current plans to issue any Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation, approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by persons who
are directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
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<PAGE>
Under Section 203, the restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors and
which transaction is approved or not opposed by the majority of the board of
directors then in office.
Section 203 generally defines a business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholders; (ii) any sale, transfer, pledge or other disposition of 10% or
more of the assets of the corporation to the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholders as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company which could prevent the Company's
stockholders from realizing a premium through a non-negotiated change in
control. The Company's stockholders, by adopting an amendment to the Certificate
of Incorporation or By-Laws of the Company, may elect not to be governed by
Section 203, effective twelve months after adoption. Neither the Certificate of
Incorporation nor the By-Laws of the Company currently excludes the Company from
the restrictions imposed by Section 203.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company anticipates that in the future, earnings, if any, will be retained for
use in the business of the Company or for other corporate purposes, and it is
not anticipated that cash dividends in respect of the Common Stock will be paid.
See "Dividend Policy."
THE COMPANY'S TRANSFER AGENT
Continental Stock Transfer & Trust Company, New York, NY, will serve as the
Company's Transfer Agent for the Common Stock and Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding
2,080,333 shares of Common Stock. All of the shares of Common Stock offered
hereby will be freely tradable without restriction or further registration under
the Securities Act except for any shares purchased by any person who is or
thereby becomes an affiliate of the Company, which shares will be subject to the
resale limitations contained in Rule 144 promulgated under the Securities Act.
Holders of the Warrants included in the Units offered hereby, will be
entitled to purchase an aggregate of 500,000 shares of Common Stock upon
exercise of the Warrants at any time during the four-year period following the
date of this Prospectus, provided that the Company satisfies certain securities
registration requirements with respect to the securities underlying the
Warrants. Any and all shares of Common Stock purchased upon exercise of the
Warrants will be freely tradeable, except for any shares purchased by any person
who is or thereby becomes an affiliate of the Company, provided such
registration requirements are met.
Up to 150,000 additional shares of Common Stock may be purchased by the
Representative through the exercise of the Representative's Warrants. Any and
all of such shares of Common Stock will be tradable without restriction,
provided that the Company satisfies certain securities registration requirements
in accordance with the terms of the Representative's Warrants. See
"Underwriting."
46
<PAGE>
Upon consummation of the Offering, the Company will have a total of
2,080,333 shares of Common Stock outstanding, of which the 1,000,000 shares of
Common Stock included in the Units will be eligible for immediate sale in the
public market without restrictions, unless they are held by "affiliates" of the
Company within the meaning of Rule 144 under the Securities Act and of which
1,080,333 shares will be "restricted" securities within the meaning of Rule 144
under the Securities Act. Additionally, the Company has granted options to
certain directors of the Company to purchase an aggregate of 25,000 shares of
Common Stock. The holders of such 1,080,333 shares of Common Stock and such
options have agreed that they will not directly or indirectly offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any other equity security of the Company, or any
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, Common Stock or any other equity
security of the Company, or enter into any agreement to do any of the foregoing,
for a period of two years from the date of this Prospectus, with respect to the
officers and directors, and for a period of one year with respect to the Selling
Stockholders who are not also directors. Upon the expiration of such one year
period, 61,667 of these shares will be eligible for resale and upon the
expiration of such two year period (or earlier upon the consent of Donald & Co.
Securities Inc., except that Donald & Co. Securities Inc. may not release the
lock-up with respect to 16,666 shares of Common Stock held by two Selling
Stockholders during the one year period following the effective date of the
Offering) the remaining 1,018,666 shares will become eligible for resale
commencing in October 1998 under Rule 144, subject to volume and other
limitations of Rule 144.
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including a person who may be deemed to be an affiliate
of the Company as that term is defined under the Securities Act, is entitled to
sell, within any three month period, a number of shares beneficially owned for
at least two years that does not exceed the greater of (i) one percent of the
number of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. Furthermore, a person who is not deemed to have been an affiliate
of the Company during the ninety days preceding a sale by such person and who
has beneficially owned such shares for at least three years is entitled to sell
such shares without regard to the volume, manner of sale or notice requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon the
exercise of options granted prior to the effective date of the Offering are
entitled to sell such shares 90 days after the effective date of the Offering
and in reliance on Rule 144 without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation, or notice provisions of
Rule 144.
Prior to the Offering, there has been no public market for the Company's
securities. Following the Offering, the Company cannot predict the effect, if
any, that market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by the existing stockholders of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices for the Company's securities. In addition, the availability for sale of
substantial amounts of Common Stock acquired through the exercise of the
Warrants and other options or the Representative's Warrants could adversely
affect prevailing market prices for the Common Stock.
The Commission has recently proposed shortening the basic Rule 144 holding
period from two years to one year; no assurance can be given as to when or
whether such change will occur.
47
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Donald & Co. Securities Inc. is
acting as Representative, have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,000,000 Units. The number of Units that each Underwriter has agreed to
purchase is set forth opposite its name:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Donald & Co. Securities Inc.
---------------
Total.................................................................... 1,000,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to approval of certain legal matters by counsel to the Underwriters
and various other conditions precedent, and that the Underwriters are obligated
to purchase all of the Units offered by this Prospectus (other than the Units
covered by the Over-Allotment Option described below), if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the Units to the public at the initial offering price set forth
on the cover page of this Prospectus and to certain dealers (who may include
Underwriters) at that price less a concession not in excess of $ per
Unit. The Underwriters may allow, and such dealers may reallow, a concession not
in excess of $ per Unit to certain other dealers. After the Offering,
the offering price and other selling terms may be changed by the Representative.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has granted to the Representative an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase from the
Company at the initial public offering price, less underwriting discounts and
the nonaccountable expense allowance, up to an aggregate of 150,000 additional
Units for the sole purpose of covering over-allotments, if any.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has also agreed to pay to the Representative an expense
allowance on a nonaccountable basis equal to 3% of the gross proceeds derived
from the sale of the Units underwritten (including the sale of any Units subject
to the Representative's Over-Allotment Option), $25,000 of which has been paid
to date.
The Company has granted the Representative for a period of three years from
the date hereof the right to have the Representative's designee present at all
meetings of the Company's Board of Directors and each of its committees. Such
designee will be entitled to the same notices and communications sent by the
Company to its directors and to attend directors' and committees' meetings, but
will not be entitled to vote thereat. Such designee will also be entitled to
receive the same compensation payable to directors as members of the Board and
its committees and all reasonable expenses in attending such meetings. The
Representative has not named such designee as of the date of this Prospectus.
In connection with the Offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants. The
Representative's Warrants are exercisable initially at $ per Unit (the
"Exercise Price") for a period of four years commencing one year from the
effective date of the Offering. The Representative's Warrants contain
antidilution provisions providing for adjustment of the Exercise Price upon the
occurrence of certain events, including any recapitalization,
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<PAGE>
reclassification, stock dividend, stock split, stock combination or similar
transaction. In addition, the Representative's Warrants grant to the holders
thereof certain demand and "piggy back" rights for periods of four and six
years, respectively, commencing one year from the date of this Prospectus with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the Representative's Warrants.
Subject to the rules of the National Association of Securities Dealers, Inc.
(the "NASD"), the Company has agreed to appoint the Representative as warrant
solicitation agent months after the date of this Prospectus, for which the
Representative will be entitled to a 5% fee upon the exercise of the Warrants
solicited by it. No solicitation fee will be paid in connection with the
exercise of the Representative's Warrants. In accordance with the NASD Notice to
Members 81-83, no fee will be paid: (i) upon exercise where the market price of
the underlying Common Stock is lower than the exercise price; (ii) for the
exercise of Warrants held in any discretionary account; (iii) upon the exercise
of Warrants where disclosure of compensation arrangements has not been made in
documents provided to customers both as part of the original offering and at the
time of exercise; or (iv) unless the Representative has been designated in
writing by the holder of the Warrant as having solicited the exercise of the
Warrant. Unless granted an exemption by the Commission from its rule 10b-6, the
Representative and any soliciting broker-dealers will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for a period of two or nine days, whichever
is applicable, prior to any solicitation of the exercise of the Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that the Representative and soliciting
broker-dealers may have to receive a fee for the exercise of Warrants following
such solicitation. As a result, the Representative and soliciting broker-dealers
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
The Company has agreed that, upon consummation of the Offering, it will
enter into a two year financial consulting agreement with the Representative
pursuant to which the Representative will provide the Company with investment
banking and financial consulting services at a fee of $72,000, at the rate of
$3,000 per month for the twenty-four months subsequent to the consummation of
the Offering. Such services will include consulting with the Company's
management with respect to, among other matters, stockholder relations,
corporate expansion and long term financial planning.
Prior to the Offering there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Units and the
exercise price of the Warrants were determined by negotiation between the
Company and the Representative. Factors considered in determining such prices,
in addition to prevailing market conditions, included the history of and the
prospects for the industry in which the Company competes, an assessment of the
Company's management, the prospects of the Company, its capital structure and
such other factors as were deemed relevant.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
offered hereby will be passed upon for the Company by Rubin Baum Levin Constant
& Friedman, New York, New York. Parker, Duryee, Rosoff & Haft, New York, New
York, will pass upon certain legal matters for the Underwriters. Walter M.
Epstein who is of counsel to Rubin Baum Levin Constant & Friedman owns through
his retirement plan 10,000 shares of Common Stock and is listed as a Selling
Stockholder.
EXPERTS
The Consolidated Financial Statements of the Company as of June 30, 1996 and
for the years ended June 30, 1996 and 1995, included herein in the Registration
Statement, of which this Prospectus forms a part, have been audited by
Rothstein, Kass & Company, P.C., independent auditors, as set forth in their
Report thereon appearing elsewhere in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
SB-2 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement. Statements made in the Prospectus as to the contents
of any contract, agreement or other document are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected, without charge, at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information of issuers that file electronically with the
Commission.
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PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT...................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS..................................................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS........................................... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY................................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS........................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................... F-7-F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
PARADISE MUSIC & ENTERTAINMENT, INC.
New York, New York
We have audited the accompanying consolidated balance sheet of Paradise
Music & Entertainment, Inc. and Subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1996 and 1995. 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 audits 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 Paradise
Music & Entertainment, Inc. and Subsidiaries as of June 30, 1996, and the
results of their operations and their cash flows for the years ended June 30,
1996 and 1995 in conformity with generally accepted accounting principles.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
September 12, 1996, (except for Note 8, as
to which the date is October 9, 1996)
F-2
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- -------------
<S> <C> <C> <C>
JUNE 30,
1996
----------
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash................................................................. $ 82,813 $ 159,020 $ 159,020
Accounts receivable.................................................. 129,715 65,440 65,440
Prepaid production costs............................................. 17,255 32,001 32,001
Other current assets................................................. 5,830 5,830
---------- ------------- -------------
Total current assets............................................. 229,783 262,291 262,291
---------- ------------- -------------
PROPERTY AND EQUIPMENT, less accumulated depreciation and
amortization......................................................... 81,154 74,903 74,903
---------- ------------- -------------
OTHER ASSETS:
Security deposits.................................................... 14,072 14,072 14,072
Deferred registration costs.......................................... 5,000 10,000 10,000
---------- ------------- -------------
19,072 24,072 24,072
---------- ------------- -------------
$ 330,009 $ 361,266 $ 361,266
---------- ------------- -------------
---------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenues.................................................... $ 49,612 $ 66,289 $ 66,289
Accrued payroll and related expenses................................. 33,750 33,750
Accounts payable..................................................... 81,854 35,463 35,463
Retirement plan contributions payable................................ 30,000
Accrued expenses and other current liabilities....................... 28,563 13,857 13,857
---------- ------------- -------------
Total current liabilities........................................ 190,029 149,359 149,359
---------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000,000 shares, none
issued.............................................................
Common stock, $.01 par value, authorized 20,000,000 shares, 998,000
issued and outstanding............................................. 9,980 9,980 9,980
Capital in excess of par value....................................... 12,090 12,090 189,932
Retained earnings.................................................... 119,160 191,087 13,245
Common stock subscription receivable................................. (1,250) (1,250) (1,250)
---------- ------------- -------------
Total stockholders' equity....................................... 139,980 211,907 211,907
---------- ------------- -------------
$ 330,009 $ 361,266 $ 361,266
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................................. $ 3,638,192 $ 3,379,848 $ 1,087,988 $ 1,149,660
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of sales.......................................... 1,939,807 2,096,076 559,701 567,288
Marketing, selling, general and administrative......... 1,610,097 1,386,270 455,160 387,283
------------ ------------ ------------ ------------
Total operating expenses........................... 3,549,904 3,482,346 1,014,861 954,571
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (CREDITS).............. 88,288 (102,498) 73,127 195,089
INCOME TAXES (CREDITS)................................... 10,500 1,200 9,000
------------ ------------ ------------ ------------
NET INCOME (LOSS)........................................ $ 77,788 $ (102,498) $ 71,927 $ 186,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PRO FORMA DATA
INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES (CREDITS).... $ 88,288 $ (102,498) $ 73,127 $ 195,089
PRO FORMA INCOME TAXES (CREDITS)......................... 26,000 (37,000) 22,000 78,000
------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS).............................. $ 62,288 $ (65,498) $ 51,127 $ 117,089
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE............. $ .06 $ (.07) $ .05 $ .11
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING...................... 1,039,167 990,667 1,039,167 1,039,167
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON
COMMON STOCK CAPITAL IN STOCK
-------------------- EXCESS OF RETAINED SUBSCRIPTION
SHARES AMOUNT PAR VALUE EARNINGS RECEIVABLE
--------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, July 1, 1994................................ 707,000 $ 7,070 $ -- $ 143,870 $ (1,250)
SHARES ISSUED TO ACQUIRE ALL ACCESS ENTERTAINMENT
MANAGEMENT GROUP INC., September 1, 1994............ 291,000 2,910 12,090
NET LOSS.............................................. (102,498)
--------- --------- ---------- ----------- ------------
BALANCES, June 30, 1995............................... 998,000 9,980 12,090 41,372 (1,250)
NET INCOME............................................ 77,788
--------- --------- ---------- ----------- ------------
BALANCES, June 30, 1996............................... 998,000 9,980 12,090 119,160 (1,250)
NET INCOME (UNAUDITED)................................ 71,927
--------- --------- ---------- ----------- ------------
BALANCES, September 30, 1996 (UNAUDITED).............. 998,000 $ 9,980 $ 12,090 $ 191,087 $ (1,250)
--------- --------- ---------- ----------- ------------
--------- --------- ---------- ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---------- ----------- ---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $ 77,788 $ (102,498) $ 71,927 $ 186,089
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.............................. 23,413 12,981 6,251 5,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable...................................... 41,039 (136,976) 64,275 82,965
Prepaid production costs................................. 109,464 126,190 (14,746) 126,719
Other current assets..................................... 2,607 (519) (5,830) 1,031
Deferred revenues........................................ (32,510) (94,118) 16,677 (82,122)
Accrued payroll and related expenses..................... 33,750 51,500
Accounts payable......................................... (130,444) 174,722 (46,391) (141,733)
Retirement plan contributions payable.................... (15,000) 28,000 (30,000) (30,000)
Accrued expenses and other current liabilities........... (12,741) 32,477 (14,706) (4,363)
---------- ----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 63,616 40,259 81,207 195,086
---------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment.......................... (27,782) (67,482) (14,171)
Proceeds from (payments for) security deposits............... 3,209 (17,281) (50)
---------- ----------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES.......................... (24,573) (84,763) (14,221)
---------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on stockholders' loans.............................. (57,500) (57,500)
Payments for deferred registration costs..................... (5,000) (5,000)
Proceeds from stockholders' loans............................ 57,500
Proceeds from issuance of common stock....................... 15,000
---------- ----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............ (62,500) 72,500 (5,000) (57,500)
---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH................................ (23,457) 27,996 76,207 123,365
CASH, beginning of period...................................... 106,270 78,274 82,813 106,270
---------- ----------- ---------- -----------
CASH, end of period............................................ $ 82,813 $ 106,270 $ 159,020 $ 229,635
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND NATURE OF OPERATIONS:
Upon the execution of the exchange agreement (the "Agreement") (SEE NOTE 8),
Paradise Music & Entertainment, Inc. and Subsidiaries (the "Company") will be a
music and entertainment company focused on providing music driven content for
the expanding music and entertainment industry. The Company operates in three
areas of the music and entertainment business through its three wholly-owned
subsidiaries. The Agreement contemplates that Paradise Music and Entertainment,
Inc. ("Paradise"), which was formed in July 1996, will exchange 873,000 shares
of its common stock for all of the capital stock of its subsidiaries in a
transaction to be accounted for as a pooling of interests, whereby the financial
statements for all periods prior to the combination were restated to reflect the
combined operations of its subsidiaries, All Access Entertainment Management
Group, Inc. ("All Access"), a musical artist management company incorporated in
New York, Picture Vision, Inc. ("Picture Vision"), a video production company
incorporated in Tennessee, and John Leffler Music, Inc. (which operates under
the name of Rave Music and Entertainment) ("Rave") a creator of music scores and
advertising themes for television and radio, which was incorporated in New York
(SEE NOTE 9).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements give
effect to the execution of the Agreement (SEE NOTE 8) and include the accounts
of Paradise and its wholly-owned subsidiaries, Rave, Picture Vision and All
Access. All significant intercompany transactions and balances have been
eliminated in consolidation.
REVENUE RECOGNITION--Commercial music production revenues and the related
production costs are recognized upon acceptance of the music production by the
client. Royalty and residual income is recognized when received. For projects
which are short in duration, (primarily less than one month) video production
revenues and related production costs are recorded upon completion of the video.
For projects that have a longer term, video production revenues and related
production costs are recorded using the percentage-of-completion method which
recognizes income as work on the project progresses. Music artist management
revenues are recognized when received. In accordance with industry custom, the
Company currently operates its business based on oral agreements and purchase
orders with its artists and customers. Pursuant to these arrangements the
Company receives up to 20% of the gross revenues received in connection with
artist entertainment related earnings less certain standard industry costs.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
computed as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET USEFUL LIVES PRINCIPAL METHOD
- -------------------------------------------------- ---------------- --------------------
<S> <C> <C>
Furniture, fixtures and equipment................. 5-7 Years Declining-balance
Leasehold improvements............................ Term of Lease Straight-line
</TABLE>
DEFERRED REGISTRATION COSTS--The Company has incurred and will be incurring
additional costs relating to its proposed public offering (SEE NOTE 5). If the
offering is successful, these costs will be charged to capital in excess of par
value. If the offering is not successful, the costs will be charged to
operations.
F-7
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS--The Company periodically assesses the
recoverability of the carrying amount of long-lived assets, including intangible
assets. A loss is recognized when expected future cash flows (undiscounted and
without interest) are less than the carrying amount of the asset. The impairment
loss is determined as the difference by which the carrying amount of the asset
exceeds its fair value.
INCOME TAXES--Rave and All Access were "S" corporations prior to the
execution of the exchange agreement and, as a result, earnings and losses have
been included in the personal income tax returns of the respective stockholders.
Accordingly, no provision for federal income tax or benefits from operating
losses has been reflected in the consolidated financial statements for these
subsidiaries (SEE NOTE 6).
The Company complies with Statement of Financial Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes", which requires an asset and
liability approach to financial reporting of income taxes. Deferred income tax
assets and liabilities are computed annually for differences between financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to effect taxable income.
Valuation allowances are established, when necessary, to reduce the deferred
income tax assets to the amount expected to be realized.
NET INCOME (LOSS) PER COMMON SHARE--Net income (loss) per common share is
computed based on net income (loss) applicable to common shareholders divided by
the weighted average number of common shares outstanding. The weighted average
includes shares issued within one year of the Company's proposed initial public
offering (IPO) with an issue price less than the IPO price, using the treasury
stock method.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of the Company's assets
and liabilities which qualify as financial instruments under SFAS No. 107
approximate the carrying amounts presented in the consolidated balance sheets.
USE OF ESTIMATES--The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
UNAUDITED FINANCIAL STATEMENTS--The financial statements as of September 30,
1996 and for the three months ended September 30, 1996 and 1995 are unaudited.
These financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. All such adjustments, if any, are of a normal recurring nature.
F-8
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
---------- -------------
<S> <C> <C>
(UNAUDITED)
Furniture, fixtures and equipment.................................. $ 191,823 $ 191,823
Leasehold improvements............................................. 33,746 33,746
---------- -------------
225,569 225,569
Less accumulated depreciation and amortization..................... 144,415 150,666
---------- -------------
$ 81,154 $ 74,903
---------- -------------
---------- -------------
</TABLE>
Certain property and equipment was jointly purchased by Rave and an
unaffiliated company. Rave recorded 50% of the purchase price (approximately
$75,000) as an asset. At June 30, 1996 and September 30, 1996 (UNAUDITED), the
asset was fully depreciated.
NOTE 4--COMMITMENTS AND CONTINGENCIES:
On October 9, 1996, the Company entered into employment contracts with four
of the Company's executives (SEE NOTE 8).
On October 9, 1996, the Company entered into an expense allocation agreement
with Rave, Picture Vision, All Access, and the Company's Treasurer (SEE NOTE 8).
Rave rents office and commercial music recording studio space pursuant to a
sublease arrangement at an annual rate of $50,000, which expires in May 1997.
All Access and Picture Vision rent office space under leases which expire
between 1997 and 2001 and provide for future aggregate minimum annual rent,
exclusive of common area and other expenses, as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
- ----------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 93,000
1998.............................................................................. 17,000
1999.............................................................................. 17,000
2000.............................................................................. 17,000
2001.............................................................................. 3,000
----------
$ 147,000
----------
----------
</TABLE>
Rent expense approximated $114,000 and $107,000 for the years ended June 30,
1996 and 1995, respectively, and was approximately $30,000 and $31,000 for the
three months ended September 30, 1996 and 1995 (UNAUDITED), respectively (SEE
NOTE 8).
NOTE 5--PROPOSED PUBLIC OFFERING:
On May 22, 1996, the Company signed a letter of intent with an investment
banking firm for the purpose of underwriting an initial public offering for the
sale of 1,000,000 units at $6 to $7 per unit. Each
F-9
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--PROPOSED PUBLIC OFFERING: (CONTINUED)
unit consists of one share of common stock and one redeemable common stock
purchase warrant with two warrants entitling the holder to purchase one share of
common stock.
NOTE 6--INCOME TAXES (CREDITS):
The provision for income taxes (credits) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---------- ---------- --------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal...................................... $ 5,500 $ $ 4,000 $ 35,000
State........................................ 2,000 1,500 8,000
---------- ---------- --------- ----------
7,500 5,500 43,000
---------- ---------- --------- ----------
Deferred (asset):
Federal...................................... 2,000 (3,000) (28,000)
State........................................ 1,000 (1,300) (6,000)
---------- ---------- --------- ----------
3,000 (4,300) (34,000)
---------- ---------- --------- ----------
Total........................................ $ 10,500 $ $ 1,200 $ 9,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
The tax effect of the temporary differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---------- ---------- --------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Net operating loss carryforwards............... $ $ 14,000 $ $
Current provision for income taxes............. (7,500) (5,500) (43,000)
Accrual to cash accounting..................... (3,000) 8,000 4,300 34,000
---------- ---------- --------- ----------
(10,500) 22,000 (1,200) (9,000)
Valuation allowance............................ (22,000)
---------- ---------- --------- ----------
Total current and deferred income tax
liability.................................... $ (10,500) $ $ (1,200) $ (9,000)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
F-10
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--INCOME TAXES (CREDITS): (CONTINUED)
The following reconciles the computed income tax expense (credit) at the
federal statutory rate to the pro forma provision for income taxes.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Computed tax expense (credit) at
federal statutory rate......................... 34.00% (34.00)% 34.00% 34.00%
State provision less federal benefit............. 5.10 (5.10 ) 5.10 5.10
Surtax and other................................. (4.60 ) 16.60 (8.90 ) (5.90 )
Non-taxable income resulting from
Subchapter "S" election........................ (22.60 ) (28.60 ) (28.60 )
Valuation allowance.............................. 22.50
----------- ----------- ----------- -----------
11.90%% 1.60% 4.60%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The pro forma provision for income taxes reflects the income tax expense
(credit) that would have been reported if All Access and Rave Subchapter "S"
corporations had been "C" corporations and were consolidated along with Picture
Vision to form Paradise Music and Entertainment, Inc.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
--------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
--------- ---------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Current pro forma income taxes:
Federal........................................ $ 15,000 $ $ 10,000 $ 47,000
State.......................................... 11,000 10,000 12,000 31,000
--------- ---------- --------- ---------
26,000 10,000 22,000 78,000
--------- ---------- --------- ---------
Deferred (asset):
Federal........................................ (34,000)
State.......................................... (13,000)
--------- ---------- --------- ---------
(47,000)
--------- ---------- --------- ---------
Total.......................................... $ 26,000 $ (37,000) $ 22,000 $ 78,000
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
F-11
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--INCOME TAXES (CREDITS): (CONTINUED)
The following reconciles the computed income tax expense (credit) at the
federal statutory rate to the pro forma provision for income taxes.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Computed tax expense (credit)
at federal statutory rate...................... 34.00% (34.00)% 34.00% 34.00%
State provision, less federal benefit net........ 8.60 6.50 11.00 10.60
Surtax and other................................. (13.20 ) (8.60 ) (14.80 ) (4.60 )
----------- ----------- ----------- -----
29.40% (36.10 )% 30.20% 40.00%
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
The pro forma consolidated balance sheet reflects a reclassification of
$177,842 (unaudited) from retained earnings to capital in excess of par value in
connection with the termination of the Company's "S" Corporation status in
October 1996.
NOTE 7--ECONOMIC DEPENDENCY:
Approximately $365,000 and $413,000 of commercial production revenues for
the years ended June 30, 1996 and 1995, respectively, are derived from one
advertising agency. For the three months ended September 30, 1996 and 1995
(UNAUDITED) approximately $99,000 and $141,000 of commercial production revenues
are derived from the same advertising agency, respectively. Approximately
$700,000 and $185,000 of musical talent management revenues for the years ended
June 30, 1996 and 1995, respectively, are derived from two musical artists. For
the three months ended September 30, 1996 and 1995 (UNAUDITED) approximately
$273,000 and $320,000 of musical talent management revenues are derived from
three and two musical artists, respectively. For the years ended June 30, 1996,
approximately $518,000 and $778,000, respectively, of video production revenues
were derived from two and one artists. For the three months ended September 30,
1996 and 1995 (UNAUDITED) approximately $468,000 and $374,000 of video
production revenues were derived from six and five artists, respectively. At
June 30, 1996, approximately $21,000 was owed in the aggregate to the Company
from these artists and customers. At September 30, 1996 (UNAUDITED)
approximately $65,000 was owed in aggregate to the Company from these artists
and customers.
NOTE 8--SUBSEQUENT EVENTS:
On July 18, 1996, Paradise Music and Entertainment, Inc. was formed and on
July 22, 1996 issued 125,000 shares of common stock at $.01 par value to two
founding stockholders.
On October 9, 1996, the Company completed a private placement for the sale
of 78,333 shares of its common stock for $234,999 ($3.00 per share), prior to
deducting fees and expenses of approximately $15,000. All share amounts give
effect to this transaction.
On October 8, 1996, the Board of Directors adopted and the stockholders
approved the Option Plan. The Option Plan provides for the grant of incentive
stock options ("ISOs") (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified stock
F-12
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--SUBSEQUENT EVENTS: (CONTINUED)
options ("NQSOs") to certain directors, agents and employees of, and consultants
to, the Company and Stock Appreciation Rights (SARs). The Option Plan further
provides for the grant of NQSOs to directors, agents of, and consultants to, the
Company, whether or not employees of the Company. The purpose of the Option Plan
is to attract and retain exemplary employees, agents, consultants and directors.
Options and SARs granted under the Option Plan may not be exercisable for terms
in excess of 10 years from the date of grant. In addition, no options or SARs
may be granted under the Option Plan later than 10 years after the Option Plan's
effective date. The total number of shares of Common Stock with respect to which
options and SARs will be granted under the Option Plan is 185,000. The shares
subject to and available under the Option Plan may consist, in whole or in part,
of authorized but unissued stock or treasury stock not reserved for any other
purpose. Any shares subject to an option or SAR that terminates, expires or
lapses for any reason, and any shares purchased pursuant to an option and
subsequently repurchased by the Company pursuant to the terms of the option,
shall again be available for grant under the Option Plan.
On October 9, 1996, the Company issued 873,000 shares of its common stock in
exchange for the outstanding stock of Rave, Picture Vision and All Access in a
transaction accounted for as a pooling of interests. The accompanying
consolidated financial statements for all periods prior to the exchange were
restated to reflect the consolidated operations of the Company's.
On October 9, 1996, the Company entered into employment agreements, as
amended (the "Agreements"), with four of its executives (the "Executives"). Each
of the Agreements are for a period of three years, of which two Agreements
provide for annual base salaries of $160,000 and the other two Agreements
provide for annual base salaries of $150,000. Pursuant to the Agreements, four
bonus plans have been established primarily for the benefit of the Executives.
Under the first bonus plan, bonuses will be granted to each Executive based
on earnings (as defined in the Agreements) of the respective subsidiary or
division which the Executive manages or co-manages. Generally, the Executives
receive approximately 60% of such earnings (with the two Executives of All
Access considered as one person for purposes of this calculation) up to a
maximum of $375,000 of earnings for each of Rave and Picture Vision commencing
with the year ending June 30, 1997 and $512,500 of earnings for All Access
commencing with the year ending June 30, 1998. The Executives of All Access
receive all earnings of All Access up to $325,000 of earnings for the year
ending June 30, 1997. Each of the Executives will have the right to allocate any
portion of the bonus granted to him to any of the employees of the respective
subsidiary or division of such Executive. Under the second bonus plan, a bonus
pool equal to 10% of the consolidated pretax earnings of the Company (after
giving effect to all other bonuses) will be established for each fiscal year.
Awards under this bonus pool will be granted to the Company's employees at the
discretion of the Company's Board of Directors. The third bonus plan has been
established for the benefit of the Executives of All Access and others
designated by them based on cumulative profitability of the recorded music
business based on a successful launch of the record label. Under this bonus plan
$250,000 will be granted in the first fiscal year in which cumulative net pretax
profits of the record label, as defined in the Agreements, exceed $1,000,000. An
additional bonus of $250,000 shall be granted in the first fiscal year in which
cumulative net pretax profits of the record label, as defined in the Agreements,
exceed $2,000,000. An additional bonus of $100,000 shall be granted in the first
fiscal year in which cumulative net pretax profits of the record label, as
defined in the Agreements, exceed $2,400,000. No bonus will be granted under
this plan after June 30, 2001 and the maximum aggregate bonus granted under this
plan will be $600,000. The fourth bonus plan has been established as an
incentive for successful consummation of
F-13
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--SUBSEQUENT EVENTS: (CONTINUED)
special projects pre-designated by the Compensation Committee. Such plan
provides for a bonus, if net profits (as defined in the Agreements) from the
special project exceed $1,000,000. Such bonus will be calculated on 15% of net
profits realized therefrom in excess of any bonus paid to such Executive
pursuant to the first bonus plan. After the payment of any bonus pursuant to the
fourth bonus plan, there will be payable 15% of future royalty revenue derived
from such special projects. Two of the Executives are entitled to receive an
initial advance of $56,250, and two of the Executives are entitled to receive an
initial advance of $81,250. Quarterly advances may be made thereafter as
requested by the Executive and if approved by the Compensation Committee. Such
advances will be offset against bonuses.
On October 9, 1996, the Company entered into an expense allocation agreement
with Rave, Picture Vision, All Access, and the Company's Treasurer. The expense
allocation agreement provides that if the IPO is not consummated, each
participant will be liable, on a pro rata basis, for up to $41,667, other than
the Treasurer whose maximum liability is $25,000.
On October 9, 1996, the Company issued 4,000 shares of its common stock to
an attorney. As a result, deferred registration costs will increase by $12,000.
As of October 21, 1996 (unaudited), the Company entered into a lease for
approximately 15,000 square feet of space in New York City for a term of 12
years. The lease is currently being held in escrow and will become effective
only if and when the Company pays the landlord the first months rent and
security deposit thereunder. The rent, including operating expenses, under such
lease is an average of approximately $160,000 per annum in years one to five, an
average of approximately $222,000 per annum in years six to ten and an average
of approximately $286,000 per annum in years eleven and twelve. Such lease also
contains tax escalations. If the Company does not pay the landlord by February
1, 1997, this lease will not become effective and the Company will have no
further obligations thereunder.
In December 1996 (unaudited) one of the Company's subsidiaries borrowed
$100,000 from a bank. Such loan bears interest at 1.5% above the bank's prime
rate, is personally guaranteed by two officers of the Company and collateralized
by all of the assets of such subsidiary and a cross corporate guarantee by the
Company.
On December 19, 1996 (unaudited) the Company granted options to purchase an
aggregate of 25,000 shares of Common Stock to two officers and a director of the
Company at an excercise price equal to the initial public offering price. Such
options are fully vested and expire on December 19, 2001.
Prior to the consummation of the proposed public offering, the Company
expects it will enter into a consulting agreement with a director of the
Company. Such agreement will provide for a payment of $90,000 on July 1, 1998 in
exchange for such director making his services available through June 30, 1998.
F-14
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9--FINANCIAL DATA BY SUBSIDIARY:
The following financial data is presented for the Company's subsidiaries:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1995
YEAR ENDED JUNE 30, ----------------------------------
1995
------------------------------------ (UNAUDITED)
ALL PICTURE ALL PICTURE
RAVE ACCESS VISION RAVE ACCESS VISION
---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............................. $ 804,041 $ 185,817 $ 2,389,990 $ 175,620 $ 319,610 $ 654,430
Net income (loss).......................... 55,637 (29,351) (128,784) 9,414 154,971 21,704
</TABLE>
Total revenue, and net income (loss) include 10 months of activity in 1995
for All Access.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1996
YEAR ENDED JUNE 30, ----------------------------------
1996
------------------------------------ (UNAUDITED)
ALL PICTURE ALL PICTURE
RAVE ACCESS VISION RAVE ACCESS VISION
---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............................. $ 820,835 $ 726,969 $ 2,090,388 $ 179,375 $ 274,920 $ 633,693
Net income (loss).......................... (6,731) 48,954 35,565 27,388 40,044 4,495
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 15
Dividend Policy................................ 16
Dilution....................................... 17
Capitalization................................. 18
Selected Consolidated Financial and Operating
Data......................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 24
Management..................................... 34
Principal Stockholders......................... 41
Certain Transactions........................... 42
Offering by Selling Stockholders............... 43
Description of Securities...................... 44
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 49
Experts........................................ 49
Additional Information......................... 50
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,000,000 UNITS
CONSISTING OF
1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 REDEEMABLE
COMMON STOCK WARRANTS
PARADISE MUSIC &
ENTERTAINMENT, INC.
---------------------
PROSPECTUS
---------------------
DONALD & CO.
SECURITIES INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ALTERNATE PROSPECTUS PAGE
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
PARADISE MUSIC & ENTERTAINMENT, INC.
78,333 SHARES OF COMMON STOCK
This Prospectus relates to 78,333 shares of common stock, $.01 par value per
share (the "Common Stock"), of Paradise Music & Entertainment, Inc. (the
"Company"). See "Selling Stockholders." The holders of the Common Stock are
referred to herein collectively as the "Selling Stockholders." The Common Stock
held by such Selling Stockholders are referred to herein collectively as the
"Selling Stockholder Securities." See "Selling Stockholders and Plan of
Distribution."
The securities offered by this Prospectus may be sold from time to time by
the Selling Stockholders or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Stockholders.
The Selling Stockholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
The Company will not receive any of the proceeds form the sale of securities
by the Selling Stockholders. The Selling Stockholders have agreed that they will
not sell or transfer any of their securities covered by this Prospectus for a
period of one year from the date hereof. Such restrictions can not be waived by
Donald & Co. Securities Inc., acting as representative (the "Representative") of
the several underwriters. Selling Stockholder who are also directors of the
Company have agreed not to sell their securities covered by this Prospectus for
an additional one year period, which additional restrictions may be waived by
the Representative.
On , 1997, a registration statement under the Securities Act with
respect to a public offering by the Company (the "Offering") underwritten by the
Underwriters of 1,000,000 Units, each Unit consisting of one share of Common
Stock and one redeemable Common Stock purchase warrant, was declared effective
by the Securities and Exchange Commission (the "Commission"). The Company will
receive approximately $ in net proceeds from the Offering (assuming no
exercise of the Representative's over-allotment option) after payment of
underwriting discounts and commissions and estimated expense of the Offering.
THESE SECURITIES ARE SPECULATIVE. THIS OFFERING INVOLVES A HIGH DEGREE OF
RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREOF.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
ALTERNATE PROSPECTUS PAGE
PUBLIC OFFERING
On , 1997, a Registration Statement was declared effective under
the Securities Act with respect to an underwritten offering of 1,150,000 Units,
including a 45 day option granted to the Representative by the Company to
purchase 150,000 Units (the "Over-Allotment Option"), by the Company, each Unit
consisting of one share of Common Stock and one Warrant. Two Warrants entitle
the holder thereof to purchase, at an exercise price of $ per share (subject
to adjustment), one share of Common Stock.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 78,333 shares of Common Stock may be offered by
certain stockholders.
The following table sets forth certain information with respect to each
Selling Stockholder for whom the Company is registering securities for resale to
the public. The Company will not receive any of the proceeds from the sale of
such securities. Except as set forth below, there are no material relationships
between any of the Selling Stockholders and the Company, nor have any such
material relationships existed within the past three years, except as specified
below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK BENEFICIALLY OWNED AND
MAXIMUM NUMBER OF SHARES OF
SELLING STOCKHOLDERS COMMON STOCK TO BE SOLD
- ---------------------------------------------------------------- -----------------------------
<S> <C>
Thomas Bergen................................................... 3,334
Paul Thomas Cohen(1)............................................ 8,333
Louis Cortelizza................................................ 8,333
Thomas J. Edelman(1)............................................ 8,333
Walter M. Epstein(2)............................................ 10,000
Kenneth C. Kehoe................................................ 8,334
Dr. Jay Loeffler(3)............................................. 3,333
John Loeffler Jody A. Loeffler JTWROS(4)........................ 8,333
Charles Moss.................................................... 8,333
John Reetz, Jr.................................................. 8,334
John Siegler(5)................................................. 3,333
------
Total........................................................... 78,333
</TABLE>
- ------------------------
(1) Is a Director of the Company.
(2) Is legal counsel to the Company.
(3) Dr. Jay Loeffler is the brother of John Loeffler, the President of the
Company.
(4) John Loeffler and Jody A. Loeffler are the parents of John Loeffler, the
President of the Company.
(5) Is the President of Rave.
The sale of the securities by the Selling Stockholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Stockholders) in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale or at negotiated prices.
Selling Stockholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Stockholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
for whom such broker-dealer may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
<PAGE>
Alternate Prospectus Page
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Stockholder Securities may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period prior to the commencement of such distribution.
Accordingly, in the event the Representative is engaged in a distribution of the
Selling Stockholders Securities, the Representative will not be able to make a
market in the Company's securities during the applicable restrictive period.
However, the Representative has not agreed to and is not obliged to act as
broker/dealer in the sale of the Selling Stockholder Securities and the Selling
Stockholders may be required, and in the event the Representative is a market
maker, will likely be required, to sell such securities through another
broker/dealer. In addition, each Selling Stockholder desiring to sell Securities
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of the purchases and sales of share of the
Company's securities by such Selling Stockholders.
The Selling Stockholders and broker-dealers, if any, acting in connection
with such sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission or profit on the resale
of the securities received by them might be deemed to be underwriting discounts
and commissions under the Securities Act.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ALTERNATE BACK COVER]
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
Use of Proceeds................................
Dividend Policy................................
Dilution.......................................
Capitalization.................................
Selected Consolidated Financial and Operating
Data.........................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Principal Stockholders.........................
Certain Transactions...........................
Public Offering................................
Description of Securities......................
Shares Eligible for Future Sale................
Selling Stockholders and Plan Distribution.....
Legal Matters..................................
Experts........................................
Additional Information.........................
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
78,333 SHARES OF COMMON STOCK
PARADISE MUSIC &
ENTERTAINMENT, INC.
---------------------
PROSPECTUS
---------------------
DONALD & CO.
SECURITIES INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than underwriting discounts
and commissions) of the issuance and distribution of the securities being
registered, all of which will be paid by Paradise Music & Entertainment, Inc.
(the "Registrant").
<TABLE>
<S> <C>
SEC registration fee........................................... $ 4,429.87
NASD filing fee................................................ $ 1,961.84
Representative's Non-Accountable Expense Allowance............. $180,000.00
Nasdaq application fee......................................... $10,000.00
Boston Stock Exchange application fee.......................... $10,000.00
Printing expenses.............................................. $60,000.00
Fees and expenses of counsel................................... $165,000.00
Fees and expenses of accountants............................... $100,000.00
Transfer agent and registrar fees.............................. $ 3,500.00
Blue sky fees and expenses..................................... $45,000.00
Miscellaneous.................................................. $20,108.29
----------
Total...................................................... $600,000.00
----------
----------
</TABLE>
The Registrant intends to pay all expenses of registration, issuance and
distribution, excluding underwriters' discounts, with respect to the shares
being sold by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), the
Registrant has broad powers to indemnify its directors, officers and other
employees. This section (i) provides that the statutory indemnification and
advancement of expenses provisions of the DGCL are not exclusive, provided that
no indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (ii) establishes procedures for
indemnification and advancement of expenses that may be contained in the
certificate of incorporation or by-laws, or, when authorized by either of the
foregoing, set forth in a resolution of the stockholders or directors or an
agreement providing for indemnification and advancement of expenses, (iii)
applies a single standard for statutory indemnification for third-party and
derivative suits by providing that indemnification is available if the director
or officer acted in good faith, for a purpose which he reasonably believed to be
in the best interests of the corporation, and, in criminal actions, had no
reasonable cause to believe that his conduct was unlawful, and (iv) permits the
advancement of litigation expenses upon receipt of an undertaking to repay such
advance if the director or officer is ultimately determined not to be entitled
to indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled. Section 145(g) the
DGCL permits the purchase of insurance to indemnify a corporation or its
officers and directors to the extent permitted.
As permitted by Section 145(e) of the DGCL, the Registrant's By-laws provide
that the Registrant shall indemnify its officers and directors, as such, to the
fullest extent permitted by applicable law, and that expenses reasonably
incurred by any such officer or director in connection with a threatened or
actual
II-1
<PAGE>
action or proceeding shall be advanced or promptly reimbursed by the Registrant
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of such officer or director to repay such amount
if and to the extent that it is ultimately determined that such officer or
director is not entitled to indemnification.
Article Seventh of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be held personally liable to the
Registrant or its stockholders for damages for any breach of duty in his
capacity as a director unless a judgment or other final adjudication adverse to
him establishes that (1) he breached his duty of loyalty to the Registrant or
its stockholders, or (2) his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law, or (3) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled, or (4) his acts violated Section 174 of the DGCL.
The Registrant's By-Laws provide that the Registrant will indemnify its
directors, officers and employees against judgments, fines, amounts paid in
settlement and reasonable expenses.
The Registrant intends to obtain and maintain liability insurance for the
benefit of its directors and officers.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Registrant, its directors, certain
of its officers and persons who control the Registrant within the meaning of the
Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 9, 1996 the Company entered into the Exchange Agreement, pursuant
to which it issued an aggregate of 873,000 shares of Common Stock to John
Loeffler, Jon Small, Brian Doyle and Richard Flynn in exchange for all of the
outstanding common stock of each of Rave, Picture Vision and All Access. The
Registrant claimed an exemption from the registration requirements of the
Securities Act by relying on Section 4(2) of the Securities Act, which allows
for an exemption for transactions by an issuer not involving any public
offering, and the rules and regulations promulgated thereunder. The Company's
basis for this exemption was the fact that the individuals receiving shares of
Common Stock were the principals of each of the Company's constituent
corporations and thus had full access to all information regarding the Company.
On October 9, 1996, the Registrant issued 78,333 shares of its Common Stock
to 11 individuals in a private placement (the "Private Placement") for $3.00 per
share. There were no underwriters involved in the Private Placement. The Common
Stock in the Private Placement was issued only to Accredited Investors, as such
term is defined in the Securities Act. The Aggregate offering price of the
Private Placement was $210,000. The Registrant claimed an exemption from the
registration requirements of the Securities Act by relying on Section 4(2) of
the Securities Act, which allows for an exemption for transactions by an issuer
not involving any public offering, and Rule 506 of Regulation D promulgated
thereunder.
On October 9, 1996 the Company issued 4,000 shares of Common Stock to one
individual for professional service rendered. The Registrant claimed an
exemption from the registration requirements of the Securities Act by relying on
Section 4(2) of the Securities Act, which allows for an exemption for
transactions by an issuer not involving any public offering, and the rules and
regulations promulgated thereunder. The Company's basis for this exemption was
the fact that this individual is an attorney who represented All Access and who
had access to all information regarding the Company.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Registrant*
3.2 By-Laws of the Registrant*
4.1 Specimen of Registrant's Common Stock Certificate*
4.2 Specimen of Registrant's Warrant Certificate*
4.3 Form of Representative's Warrant Agreement including form of Warrant*
4.4 Form of Warrant Agreement between Registrant and Continental Stock Transfer and Trust Company*
5.1 Opinion of Rubin Baum Levin Constant & Friedman regarding legality
10.1 Exchange Agreement dated as of October 9, 1996 among the Registrant, Brian Doyle, Richard Flynn, John
Loeffler and Jon Small*
10.2 Employment Agreement dated as of October 9, 1996 between the Registrant and Brian Doyle*
10.3 Employment Agreement dated as of October 9, 1996 between the Registrant and Richard Flynn*
10.4 Employment Agreement dated as of October 9, 1996 between the Registrant and John Loeffler*
10.5 Employment Agreement dated as of October 9, 1996 between the Registrant and Jon Small*
10.6 Expense Allocation Agreement dated as of October 9, 1996 among the Registrant, Rave, Picture Vision, All
Access and Robert Klein*
10.7 Form of The Registrant's 1996 Stock Option Plan*
10.8 Lease Agreement dated June 24, 1992 between Not Just Jingles, Inc. and Newmark & Company Real Estate,
Inc.*
10.9 Lease Agreement dated October 28, 1994 between the Registrant and Silk & Halpern Realty Associates,
Inc.*
10.10 Lease Agreement dated April 4, 1995 between the Registrant and Cummins Station L.L.C.*
10.11 Sublease Agreement dated September 29, 1996 between the Registrant and Not Just Jingles, Inc.*
10.12 Financial Consulting Agreement*
10.13 Form of Consulting Agreement dated as of January 1, 1997 between the Company and Thomas J. Edelman**
10.14 Lease Agreement dated as of October 21, 1996 between the Registrant and Twenty Third Street Joint
Venture, together with Escrow Letter dated December 11, 1996.
21.1 Subsidiaries of Registrant*
23.1 Consent of Rothstein, Kass & Company, P.C.
23.2 Consent of Rubin Baum Levin Constant & Friedman (included in Exhibit 5.1)
24.1 Power of Attorney (included with the signature page to the registration statement)
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
All Schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the
financial statements or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) "The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at that tine shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(c) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
(e) The undersigned registrant hereby undertakes that
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
thereon, and the offering of such securities at that tine shall be deemed to be
the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York on
January 9, 1997.
PARADISE MUSIC & ENTERTAINMENT, INC.
BY: /S/ JOHN LOEFFLER
-----------------------------------------
John Loeffler
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints John Loeffler and Walter M.
Epstein, and each of them, his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and all documents relating thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone full power and authority to do and perform each and every act and
thing necessary or advisable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JOHN LOEFFLER Chairman of the Board, January 9, 1997
- ------------------------------ President and Chief
John Loeffler Executive Officer
(Principal Executive
Officer)
/s/ JON SMALL Executive Vice President, January 9, 1997
- ------------------------------ and Director
Jon Small
/s/ BRIAN DOYLE Executive Vice President January 9, 1997
- ------------------------------ and Director
Brian Doyle
/s/ ROBERT KLEIN Director January 9, 1997
- ------------------------------
Robert Klein
/s/ RICHARD FLYNN Executive Vice President, January 9, 1997
- ------------------------------ Treasurer, Secretary and
Richard Flynn Director (Principal
Financial and Accounting
Officer)
/s/ PAUL THOMAS COHEN Director January 9, 1997
- ------------------------------
Paul Thomas Cohen
/s/ THOMAS J. EDELMAN Director January 9, 1997
- ------------------------------
Thomas J. Edelman
II-6
<PAGE>
[LETTERHEAD]
January 9, 1997
Paradise Music & Entertainment, Inc.
420 West 45th Street, 5th Floor
New York, New York 10036
Ladies and Gentlemen:
We refer to the Registration Statement on Form SB-2, File No. 333-
13941 (the "Registration Statement"), filed by Paradise Music & Entertainment,
Inc. (the "Company") with the Securities and Exchange Commission for the purpose
of registering under the Securities Act of 1933, as amended:
(i) 1,150,000 Units, including Units to cover overallotments
("Units"), each Unit consisting of:
(a) one share of Common Stock, $.01 par value per share
(the "Common Stock"), of the Company; and
(b) one Redeemable Common Stock Purchase Warrant (the
"Warrants"), with two Warrants entitling the holder to purchase one share of
Common Stock,
for sale by the Company in an underwritten public offering, for an aggregate of
1,725,000 shares of Common Stock and 1,150,000 Warrants;
(ii) 100,000 Units pursuant to the representative's warrants (the
"Representative's Warrants") and the underlying securities, for an aggregate of
100,000 Warrants, and 150,000 shares of Common Stock; and
(iii) an additional 78,333 shares of Common Stock for sale by the
holders thereof as set forth in the Registration Statement (the "Selling
Stockholders").
<PAGE>
Page 2
As counsel to the Company, we have examined such corporate records,
documents, agreements and such matters of law as we have considered necessary or
appropriate for the purpose of this opinion. Upon the basis of such
examination, we advise you that in our opinion:
(i) the Common Stock contained in the Units to be sold by the
Company to Donald & Co. Securities Inc. (the "Representative"), if and when paid
for and issued in accordance with the terms of the Underwriting Agreement
between the Company and the Representative in the form of Exhibit 1.1 to the
Registration Statement (the "Underwriting Agreement"), will be validly issued,
fully paid and nonassessable;
(ii) the Common Stock issuable upon exercise of the Warrants
contained in the Units to be sold by the Company to the Representative, if and
when paid for and issued upon exercise of such Warrants in accordance with the
terms of the Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company in the form of Exhibit 4.4 to the Registration
Statement (the "Warrant Agreement") will be validly issued, fully paid and
nonassessable;
(iii) the Common Stock issuable upon exercise of the Representative's
Warrants, if and when paid for and issued upon exercise of the Representative's
Warrants in accordance with the terms of the Representative's Warrant Agreement
between the Company and the Representative in the form of Exhibit 4.3 to the
Registration Statement (the "Representative's Warrant Agreement"), will be
validly issued, fully paid and nonassessable;
(iv) the Common Stock issuable upon exercise of the Warrants
underlying the Representative's Warrants, if and when paid for and issued upon
exercise of such Warrants in accordance with the terms of the Representative's
Warrant Agreement, will be validly issued, fully paid and nonassessable;
(v) the Warrants to be sold by the Company to the Representative,
if and when paid for and issued in accordance with the terms of the Underwriting
Agreement and the Warrant Agreement, will be valid and binding obligations of
the Company;
(vi) the Representative's Warrants to be sold by the Company to the
Representative, if and when paid for and issued in accordance with the terms of
the Underwriting Agreement and the Representative's Warrant Agreement, will be a
valid and binding obligation of the Company;
<PAGE>
(vii) the Warrants issuable upon exercise of the Representative's
Warrants, if and when paid for and issued in accordance with the terms of the
Representative's Warrant Agreement and the Warrant Agreement, will be valid and
binding obligations of the Company; and
(viii) the Common Stock issued to the Selling Stockholders has been
validly issued and is fully paid and nonassessable.
The opinions expressed in paragraphs (v), (vi) and (vii) with regard
to the validity and binding nature of the obligations referred to therein are
limited to the extent that the validity and binding nature of such obligations
may be limited by bankruptcy, insolvency, moratorium or other similar laws or
equitable principles relating to or limiting creditors' rights generally.
We are members of the New York Bar, and the opinions expressed herein
are limited to questions arising under the laws of the State of New York, the
General Corporation Law of the State of Delaware and the Federal law of the
United States, and we disclaim any opinion whatsoever with respect to matters
governed by the laws of any other jurisdiction.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Reference is made to the sections of the Registration Statement entitled
"Offering by Selling Stockholders" and "Legal Matters" for a description of the
relationship of Walter M. Epstein, of counsel to this firm, to the Company,
including a description of ownership of the Company's securities by Mr. Epstein.
Very truly yours,
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
<PAGE>
Exhibit 10.13
CONSULTING AND COMPENSATION AGREEMENT
This Agreement is entered into effective as of January 1, 1997, by and
between PARADISE MUSIC & ENTERTAINMENT, INC. (the "Company") and Thomas J.
Edelman (the "Consultant").
WHEREAS, over the past six months the Consultant has provided various
services to the Company and the Company desires to retain the ability to
contract for the services of the Consultant in the future and the Consultant is
willing to make such services available subject to his other commitments.
NOW, THEREFORE, in consideration of the mutual convenants and conditions
hereafter set forth, the Company and the Consultant agree as follows:
1. ENGAGEMENT OF AVAILABILITY. The Company wishes to be able to call
upon the Consultant and the Consultant has agreed to be called upon by the
Company subject to his availability over the next 18 months upon the terms and
conditions set forth in the following paragraphs.
2. ENGAGEMENT PERIOD. The Company wishes to be in a position to engage
the Consultant during the period from January 1, 1997 through July 1, 1998 (the
"Term").
3. SERVICES. The Consultant will primarily aid and assist the Company
with respect to financial matters and corporate strategy, in addition to his
regular duties as a director of the Company.
4. OBLIGATIONS. The Consultant agrees that during the Term, he will
diligently endeavor to assist the Company subject to his other commitments, and
that he will attempt to devote time and attention to the affairs of the Company
on an as needed basis; provided, however, that this Agreement shall not restrict
the Consultant from engaging, directly or indirectly, in any other business or
activity.
5. COMPENSATION. The Consultant shall receive compensation as agreed
from time to time with the Company for any such services. In addition, for
making himself available during such period, consultant shall receive a payment
of $90,000 on July 1, 1998. Finally, the Consultant may introduce potential
acquisitions to the Company and may assist the Company, at the Company's
request, in an advisory capacity on other acquisitions being considered by the
Company. For such services, the Consultant shall be paid such additional
compensation as the Company may determine, it being understood and agreed that
such compensation must be approved by a majority of the directors of the company
other than the Consultant.
6. PARTIES IN INTEREST. This agreement shall be binding upon, and shall
inure to the benefit of the Company and its successors and assigns and any
person acquiring, whether by merger, consolidation, liquidation, purchase of
assets or otherwise, all or substantially all of the Company's equity, assets
and/or business.
<PAGE>
7. CHOICE OF LAW. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and prosecuted under and pursuant to
the laws of the State of New York and that in any action, special proceeding or
other proceeding that may be brought arising out of, in connection with, or by
reason of this agreement, the laws of the State of New York shall be applicable
and shall govern to the exclusion of the law of any other forum, without regard
to the jurisdiction in which any action or special proceeding may be instituted.
In the event of any dispute, the prevailing party shall be entitled to recover
legal fees and related expenses if such party receives any judgement against the
Company related hereto.
8. SEVERANCE OF INVALID PROVISIONS. In case any one or more of the
provisions, or provisions, or portions thereof, of this Agreement should be
determined to be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
9. INTEGRATED AGREEMENT. This Agreement shall constitute the entire
Agreement between the parties hereto relating to the Engagement of the
Consultant as a Consultant.
10. NOTICES. all notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been given upon
delivery personally or upon mailing by certified mail, return receipt requested,
to each party at the address set forth below, or at such other address as each
party may designate in writing to the other:
If to the Company:
Paradise Music & Entertainment, Inc.
420 West 5th Street, Fifth Floor
New York, New York 10036
If to the Consultant:
Thomas J. Edelman
c/o Snyder Oil Corporation
595 Madison Avenue, 27th Floor
New York, New York 10022
11. INDEPENDENT CONTRACTOR RELATIONSHIP. the Consultant shall serve as an
independent contractor to the Company pursuant to the terms and conditions of
this Agreement and this Agreement does not create and shall not be construed to
create a relationship of principal and agent, joint venturers, co-partners,
employer and employee, master and servant or any similar relationship between
the company and the consultant, and the parties hereto expressly deny the
existence of any such relationship.
<PAGE>
12. COUNTERPARTS; FACSIMILE SIGNATURE. (a) This Agreement may be
executed by the parties hereto individually or in any combination, in one or
more counterparts, each of which shall be an original and all of which shall
together constitute one and the same agreement.
(b) Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be as effective as delivery of a manually executed
counterpart of this Agreement.
IN WITNESS WHEREOF, the Consultant and the Company have each caused
this Agreement to be duly executed as of the date first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By: ________________________________________
Name:
Title:
_____________________________________________
Thomas J. Edelman
<PAGE>
Exhibit 10.14
[LETTERHEAD]
December 11, 1996
BY HAND
Sol Weinstein, Esq.
Weinstein & Soybel
36 West 44th Street
New York, N.Y. 10036
Re: 53-7 West 23rd Street, New York, N.Y.; 11th Floor
(the "Premises")
-------------------------------------------------
Dear Sol:
Enclosed herewith are two (2) copies of the Lease for the referenced
Premises signed by Paradise & Entertainment, Inc. (the "Tenant"). As we
previously discussed, the enclosed are to be held by you in escrow pending the
closing date of Tenant's initial public offering (the "Closing Date"). On the
Closing Date, Tenant shall deliver to you checks for the first month's rent and
the security deposit. In the event the Closing Date does not occur on or before
February 1, 1997, you are to return the enclosed copies to the undersigned and
the Lease shall be deemed null and void ab initio. With your permission, I have
amended Articles 50 and 51 of the Lease to reflect a rent commencement date of
June 1, 1997. Please indicate your agreement to the foregoing by signing the
enclosed duplicate original and returning the same to me in the envelope
provided.
Very truly yours,
Christine A. McGuinness
AGREED:
- -------------------------------
Sol Weinstein, Esq.
cc: Mr. John Loeffler
<PAGE>
Exhibit 10.14
AGREEMENT OF LEASE, made as of this 21st day of October 1996, between
TWENTY THIRD STREET JOINT VENTURE, party of the first part, hereinafter referred
to as LANDLORD, and PARADISE MUSIC & ENTERTAINMENT, INC. a Delaware corporation,
party of the second part, hereinafter referred to as TENANT,
W I T N E S S E T H:
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the
ENTIRE ELEVENTH (11TH) FLOOR in the building known as 53-7 WEST 23RD STREET
through to 34 WEST 24TH STREET, in the Borough of MANHATTAN, City of New York,
for the term of TWELVE (12) YEARS (or until such term shall sooner cease and
expire as hereinafter provided) to commence on the 1ST day of APRIL nineteen
hundred and NINETY-SEVEN, and to end on the 31st day of MARCH two thousand and
NINE both dates inclusive, at annual rental rates hereinafter set forth in
Article #51 which Tenant agrees to pay in lawful money of the United States
which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, in equal monthly installments in advance on the
first day of each month during said term, at the office of Landlord or such
other place as Landlord may designate, without any set off or deduction
whatsoever, except that Tenant shall pay the first monthly installment(s) on the
execution hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice to
Tenant add the amount of such arrearage to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT:
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY:
2. Tenant shall use and occupy demised premises for executive offices and
production studios for the music and entertainment industry and for no other
purpose.
ALTERATIONS:
3. Except as otherwise expressly permitted in this lease, Tenant shall
make no changes in or to the demised premises of any nature without Landlord's
prior written consent. Subject to the prior written consent of Landlord, and to
the provisions of this article, Tenant at Tenant's expense, may make
alterations, installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical lines, in or
to the interior of the demised premises by using contractors or mechanics first
reasonably approved by Landlord. All fixtures and all paneling, partitions,
railings and like installations, installed in the premises at any time, either
by Tenant or by Landlord in Tenant's behalf, shall, upon installation, become
the property of Landlord and shall remain upon and be surrendered with the
demised premises unless Landlord, by notice to Tenant no later than twenty days
prior to the date fixed as the termination of this lease, elects to relinquish
Landlord's right hereto and to have them removed by Tenant, in which event, the
same shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Nothing in this article shall be construed to give
Landlord title to or to prevent Tenant's removal of trade fixtures, moveable
office furniture and equipment, but upon removal of any such from the premises
or upon removal of other installations as may be required by Landlord, Tenant
shall immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair
<PAGE>
any damage to the demised premises or the building due to such removal. All
property permitted or required to be removed by Tenant at the end of the term
remaining in the premises after Tenant's removal shall be deemed abandoned and
may, at the election of Landlord, either be retained as Landlord's property or
may be removed from the premises by Landlord at Tenant's expense. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Landlord and Tenant agrees to carry and
will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Landlord may reasonably require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or not
done pursuant to this article, the same shall be discharged by Tenant within 30
days thereafter, at Tenant's expense, by filing the bond required by law.
REPAIRS:
4. Landlord shall maintain and repair the public portions of the
building, both exterior and interior. Tenant shall, throughout the term of this
lease, take good care of the demised premises and the fixtures and appurtenances
therein and at Tenant's sole cost and expense, make all non-structural repairs
thereto as and when needed to preserve them in good working order and condition,
reasonable wear and tear, obsolescence and damage from the elements, fire or
other casualty, excepted. Notwithstanding the foregoing, all damage or injury
to the demised premises or to any other part of the building, or to its
fixtures, equipment and appurtenances, whether requiring structural or
nonstructural repairs, caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant, Tenant's servants, employees, invitees or
licensees, shall be repaired promptly by Tenant at its sole cost and expense, to
the satisfaction of Landlord reasonably exercised. Tenant shall also repair all
damage to the building and the demised premises caused by the moving of Tenant's
fixtures, furniture or equipment. All the aforesaid repairs shall be of quality
or class equal to the original work or construction. If Tenant fails after ten
days notice to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Landlord at the expense of Tenant and the
expenses thereof incurred by Landlord shall bc collectible as additional rent
after rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin, Tenant shall at Tenant's expense, cause the same lo
bc exterminated from time to time to the satisfaction of Landlord. Tenant shall
give Landlord prompt notice of any defective condition in any plumbing, heating
system or electrical lines located in, servicing or passing through the demised
premises and following such notice, Landlord shall remedy the condition with due
diligence but at the expense of Tenant if repairs are necessitated by damage or
injury attributable to Tenant, Tenant's servants. agents, employees, invitees or
licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty which are dealt with in Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window
in the demised premises to be cleaned from the outside in violation of Section
202 of the New York State Labor Law or any other applicable law or of the Rules
of the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and
<PAGE>
all orders, rule and regulations of the New York Board of Fire Underwriters or
any similar body which shall impose any violation, order or duty upon Landlord
or Tenant with respect to the demised premises arising out of Tenant's use or
manner of use thereof, or with respect to the building if arising out of
Tenant's use or manner of use of the premises or the building. Except as
provided in Article 29 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has by its manner of use of the
demised premises other than the use permitted under Article #2 hereof or method
of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Landlord to Landlord's satisfaction against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorneys' fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to
Landlord, contest and appeal any such laws, ordinances, orders, rules,
regulations or requirements provided same is done with all reasonable promptness
and provided such appeal shall not subject Landlord to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Landlord may be obligated, or cause the demised premises or any part thereof to
be condemned or vacated. Tenant shall not do or permit any act or thing to be
done in or to the demised premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or other policies of
insurance at any time carried by or for the benefit of Landlord with respect to
the demised premises or the building of which the demised premises form a part,
or which shall or might subject Landlord to any liability or responsibility to
any person or for property damage, nor shall Tenant keep anything in the demised
premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Landlord by reason of Tenants' failure to
comply with the provisions of this article and if by reason of such failure the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Landlord which shall have been charged because of
such failure by Tenant, and shall make such reimbursement upon the first day of
the month following such outlay by Landlord. In any action or proceeding
wherein Landlord and Tenant are parties a schedule or "make-up" of rate for the
building or demised premises issued by the New York Fire Insurance Exchange, or
other body making fire insurance rates applicable to said premises shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rate then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designated to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and
position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant, at Tenant's expense, in
setting sufficient, in Landlord's reasonable judgment, to absorb and prevent
vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereinafter affect such leases or
the real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly and certificate that Landlord may
request.
PROPERTY -- LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Landlord or its agents shall not be liable for any damage to property
of Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the
<PAGE>
negligence of Landlord, its agents, servants or employees; nor shall Landlord or
its agents be liable for any such damage caused by other tenants or persons in,
upon or about said building or caused by operations in construction of any
private, or public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Landlord's own acts, Landlord shall not be liable
for any damage Tenant may sustain thereby and Tenant shall not be entitled to
any compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constituted an eviction.
Tenant shall not move any safe, heavy machinery, heavy equipment, bulky matter,
or fixtures into or out of the building without Landlord's prior written
consent. If such safe, machinery, equipment bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Landlord may
designate. Tenant shall indemnify and save harmless Landlord against and from
all liabilities, obligations, damages, penalties, claims, costs and expenses for
which Landlord shall not be reimbursed by insurance, including reasonable
attorneys fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees, or licensees, of any covenant
or condition of this lease, or the carelessness, negligence or improper conduct
of the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
subtenant, and any agent, contractor, employee, invitee or licensee of any sub-
tenant. In case any action or proceeding is brought against Landlord by reason
of, any such claim, Tenant, upon written notice from Landlord, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by
Landlord in writing, such approval not to be unreasonably withheld. Landlord
hereby approves any counsel provided by Tenant's insurance company.
Rider to be added if necessary.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Landlord
and this lease shall continue in full force and effect except as hereinafter set
forth.
(b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Landlord and the rent, until such repair shall
be substantially completed, shall be apportioned from the date following the
casualty according to the part of the premises which usable.
(c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the premises shall have been repaired and restored by Landlord, subject to
Landlord's right to elect not to restore the same as hereinafter provided.
(d) If the demised premises are rendered wholly unusable or (whether
or not the demised premises are damaged in whole or in part) if the building
shall be so damaged that Landlord shall decide to demolish it or to rebuild it,
then, in any of such events, Landlord may elect to terminate this lease by
written notice to Tenant given within 90 days after such fire or casualty
specifying a date for the expiration of the lease, which date shall not be more
than 60 days after the giving of such notice, and upon the date specified in
such notice the term of the lease shall expire as fully and completely as if
such date were the date set forth above for the termination of this lease and
Tenant shall forth with quit, surrender and vacate the premises without
prejudice however to Landlord's rights and remedies against Tenant under the
lease provisions in effect prior to such termination, and any rent owing shall
be paid up to such date and any payments or rent made by Tenant which were on
account of any period subsequent to such date shall be returned to Tenant.
Unless Landlord shall serve a termination notice as provided for herein,
Landlord shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition subject to delays due to adjustment
of insurance claims, labor troubles and cause beyond Landlord's control (SEE
ADDENDUM). After any such casualty, Tenant shall cooperate with Landlord's
restoration by removing from the premises as promptly reasonably possible, all
of Tenant's salvageable inventory and movable equipment, furniture, and other
property. Ten-
<PAGE>
ant's liability for rent shall resume five (5) days after written notice from
Landlord that the premises are substantially ready for Tenant's occupancy.
(e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law,
Landlord and Tenant each hereby releases and waives a right of recovery against
the other or any one claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be in force
only if both releasors' insurance policies contain clause providing that such a
release or waiver shall not invalidate the insurance and also, provided that
such a policy can be obtained without additional premiums. Tenant acknowledges
that Landlord will not carry insurance on Tenant's furniture and/or furnishings
or any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Landlord will not be obligated to repair any damage thereto or
replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Landlord in each instance.
If this lease be assigned or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, under-tenant or occupant, and apply
the net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to an assignment or
underletting shall not in any wise be construed to relive Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
underletting. This Article is modified by Article #53.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in
Landlord's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no wise make Landlord
liable or responsible to Tenant, for any loss, damages or expenses which Tenant
may sustain.
ACCESS TO PREMISES:
13. Landlord or Landlord's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonably times, to examine the same and to make such repairs,
replacements and improvements as Landlord may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Landlord may elect to perform following Tenant's failure to make repair or
perform any work which Tenant is obligated to perform under the lease, or for
the purpose of complying with laws, regulations and other directions of
governmental authorities. Tenant shall permit Landlord to use and maintain and
replace pipes and conduits in and through the demised premises and to erect new
pipes and conduits therein. Landlord may, during the progress of any work in
the demised
<PAGE>
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent which such work is in progress not to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof
Landlord shall have the right upon notice to Tenant (which may be oral) to enter
the demised premises at reasonable hours for the purpose of showing the same to
prospective purchases or mortgagees of the building, and during the last six
months of the term for the purpose of showing the same to prospective tenants.
If Tenant is not present to open and permit an entry into the premises, Landlord
or Landlord's agents may enter the same whenever such entry may be necessary or
permissible by master key or forcibly and provided reasonable care is exercised
to safeguard Tenant's property and such entry shall not render Landlord or its
agents liable therefor, nor in any event shall the obligations of Tenants
hereunder be affected. Landlord shall have the right at any time, without the
same constituting an eviction and without incurring liability to Tenant therefor
to change the arrangement and/or location of public entrances, passageways,
doors, doorways corridors, elevators, stairs, toilets, or other public parts of
the building and to change the name, number or designation by which the building
may be known.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Landlord
makes no representation as to the location of the property line of the building.
All vaults and vault space and all such areas not within the property line of
the building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Landlord shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Landlord's work, if
any. In any event, Landlord makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations whether or
not of record.
BANKRUPTCY:
16. (a) If at the date fixed as the commencement of the term of this
lease or if at any time during the term hereby demised there shall be filed by
or against Tenant in any court pursuant to any statute either of the United
States or of any state, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenants property, and within 60 days thereof. Tenant fails to secure
a dismissal thereof, or if Tenant make an assignment for the benefit of
creditors or petition for or enter into an arrangement, this lease, at the
option of Landlord, exercised within a reasonable time after notice of the
happening of any one or more of such events, may be cancelled and terminated by
written notice to the Tenant (but if any of such events occur prior to the
commencement date, this lease shall be ipso facto cancelled and terminated) and
whether such cancellation and termination occur prior to or during the term,
neither Tenant nor any person claiming through or under Tenant by virtue of any
statute or of any order of any court, shall be entitled to possession or to
remain in possession of the premises demised but shall forthwith quit and
surrender the premises, and Landlord, in addition to the other rights and
remedies Landlord has by virtue of any other provision herein or elsewhere in
this lease contained or by virtue of any statute or rule of law, may retain as
liquidated damages, any rent, security deposit or moneys received by him from
Tenant or others in behalf of Tenant. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be applicable
only to the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Landlord shall forthwith,
<PAGE>
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Landlord for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Landlord to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent, or if
the demised premises become abandoned; or if the demised premises are damaged by
reason of negligence or carelessness of Tenant, its agents, employees or
invitees; or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease between Landlord and Tenant; then, in any one or more
of such events, upon Landlord serving a written ten (10) day notice upon Tenant
specifying the nature of said default and upon the expiration of said ten (10)
days, if Tenant shall have failed to comply with or remedy such default, or if
the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said ten (10) day period, and if
Tenant shall not have diligently commenced curing such default within such ten
(10) day period, and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such default, then Landlord may serve a written
five (5) days' notice of cancellation of this lease upon Tenant, and upon the
expiration of said five (5) days, this lease and the term thereunder shall end
and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term thereof and Tenant shall then quit and surrender the demised
premises to Landlord but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid, or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required
for a period of 20 days after the due date, then and in any such events Landlord
may without notice, re-enter the demised premises either by force or otherwise,
and the legal representative of Tenant or other occupant of demised premises and
remove their effects and hold the premises as if this lease had not been made,
and Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Landlord may cancel and terminate such renewal or extension agreement by
written notice.
REMEDIES OF LANDLORD AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration, together
with such reasonable expenses as Landlord may incur for legal expenses,
attorneys' fees, brokerage, and/or putting the demised premises in good order,
or for preparing the same for re-rental; (b) Landlord may re-let the premises or
any part or parts thereof, either in the name of Landlord or otherwise, for a
term or terms, which may at Landlord's option be less than or exceed the period
which would otherwise have constituted the balance of the term of this lease and
may grant concessions or free rent or charge a higher rental than that in this
lease, and/or (c) Tenant or the
<PAGE>
legal representatives of Tenant shall also pay Landlord as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
lease or leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The failure of
Landlord to re-let the premises or any part or parts thereof shall not release
or affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such reasonable expenses as Landlord
may incur in connection with re-letting, such as legal expenses, attorneys'
fees, brokerage, advertising and for keeping the demised premises in good order
or for preparing the same for re-letting. Any such liquidated damages shall be
paid in monthly installments by Tenant on the rent day specified in this lease
and any suit brought to collect the amount of the deficiency for any month shall
not prejudice in any way the rights of Landlord to collect the deficiency for
any subsequent month by a similar proceeding. Landlord, in putting the demised
premises in good order or preparing the same for re-rental may, at Landlord's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Landlord, in Landlord's sole judgment, considers advisable
and necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid.
Landlord shall in no event be liable in any way whatsoever for failure to re-let
the demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Landlord hereunder. In the event of a breach
or threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity as of re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this lease of any particular
remedy, shall not preclude Landlord from any other remedy, in law or in equity.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord obtaining possession of
demised premises, by reason of the violation by Tenant of any of the covenants
and conditions of this lease, or otherwise.
FEES AND EXPENSES:
19. If tenant shall default in the observance or performance of any term
or covenant on tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, landlord may immediately or at any
time thereafter and without notice perform the obligation of tenant thereunder,
and if landlord, in connection therewith or in connection with any default by
tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or
proceeding, such sums so paid or obligations incurred with interest and costs
shall be deemed to be additional rent hereunder and shall be paid by tenant to
landlord within five (5) days of rendition of any bill or statement to tenant
therefor, and if tenant's lease term shall have expired at the time of making of
such reasonable expenditures or incurring of such obligations, such sums shall
be recoverable by landlord as damages.
NO REPRESENTATION BY LANDLORD:
20. Neither Landlord nor Landlord's agents have made any representations
or promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition, and agrees to take
the same "as is" except as otherwise expressly provided in this lease and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are
<PAGE>
merged in this contract, which alone fully and completely expresses the
agreement between Landlord and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
END OF TERM:
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear excepted, and Tenant shall remove all
its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
QUIET ENJOYMENT:
22. Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
33 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
23. If Landlord is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building, being constructed, because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certificate of occupancy has not been procured or for
any other reason, Landlord shall not be subject to any liability for failure to
give possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for the inability to obtain possession) until after
Landlord shall have given Tenant written notice that the premises are
substantially ready for Tenant's occupancy. If permission is given to Tenant to
enter into the possession of the demised premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such occupancy shall be
deemed to be under all the terms, covenants, conditions and provisions of this
lease, except as to the covenant to pay rent. The provisions of this article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
NO WAIVER:
24. The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations set forth or hereafter adopted by Landlord, shall
not prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach and no provision of this lease shall
be deemed to have been waived by Landlord unless such waiver be in writing
signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this lease provided. No act or thing done by
Landlord or Landlord's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee or
Landlord or Landlord's agent shall have any power to accept the keys of said
premises prior to the termination of the lease and the delivery of keys to any
such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
<PAGE>
WAIVER OF TRIAL BY JURY:
25. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever mature or description in any such proceeding (other
than compulsory counterclaims).
INABILITY TO PERFORM:
26. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by reason of strike
or labor troubles or any cause whatsoever including but not limited to,
government preemption in connection with a National Emergency or by reason of
any rule, order or regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
BILLS AND NOTICES:
27. Except as otherwise in this lease provided, a bill, statement, notice
or communications which Landlord may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant at
the building of which the demises premises form a part at the last known
residence address or business address of Tenant and the time of the rendition of
such bill or statement and of the giving of such notice or communication shall
be deemed to be the time when the same is delivered to Tenant, mailed, or left
at the premises as herein provided. Any notice by Tenant to Landlord must be
served by registered or certified mail addressed to Landlord at the address
first hereinabove given or at such other address as Landlord shall designate by
written notice.
WATER CHARGES:
28. If Tenant requires, uses or consumes water for any purpose in addition
to ordinary lavatory purposes (of which fact Tenant constitutes Landlord to be
the sole judge) Landlord may install a water meter and thereby measure Tenant's
water consumption for all purposes. Tenant shall pay Landlord for the cost of
the meter and the cost of the installation thereof and throughout the duration
of Tenant's occupancy Tenant shall keep said meter and installation equipment in
good working order and repair at Tenant's own cost and expense in default in
which Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant. Tenant agrees to pay for water consumed,
as shown on said meter as and when bills are rendered, and on default in making
such payment Landlord may pay such charges and collect the same from Tenant.
Tenant covenants and agrees to pay the sewer rent, charge or any other tax,
rent, levy or charge which now or hereafter is assessed, imposed or a lien upon
the demised premises or the realty of which they are part pursuant to law, order
or regulation made or issued in connection with the use, consumption,
maintenance or supply of water, water system or sewage or sewage connection or
system. The bill rendered by Landlord shall be payable by Tenant as additional
rent. If the building or the demised premises or any part thereof be supplied
with water through a meter through which water is also supplied to other
premises Tenant shall pay to Landlord as additional rent, on the first day of
each month, % ($45.00) of the total meter charges, as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Landlord
hereinabove or elsewhere in this lease, Landlord may sue for and collect any
monies to be paid by Tenant or paid by Landlord for any of the reasons or
purposes hereinabove set forth.
SPRINKLERS:
29. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York
<PAGE>
Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official of the federal, state or city government require
or recommend the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, changes, modifications, alterations, additional sprinkler heads
or other such equipment, become necessary to prevent the imposition of a penalty
or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company.
Tenant shall, at Tenant's expense, promptly make such sprinkler system
installations, changes, modifications, alterations, and supply additional
sprinkler heads or other equipment as required whether the work involved shall
be structural or nonstructural in nature. Tenant shall pay to Landlord as
additional rent the sum of $45.00 on the first day of each month during the term
of this lease, as Tenant's portion of the contract price for sprinkler
supervisory service.
ELEVATORS, HEAT, CLEANING:
30. As long as Tenant is not in default in the payment of rent or
additional rent under this lease Landlord shall: (a) provide necessary elevator
facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m.; (b) furnish heat to the demised premises, when and as required by
law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1
p.m.; (c) at Landlord's expense cause to be kept clean the public halls and
public portions of the building, which are used in common by all tenants.
Tenant shall at Tenant's expense, keep the demised premises clean and in order,
to the satisfaction of Landlord, and for that purpose shall employ the person or
persons, or corporation approved by Landlord. Tenant shall pay to landlord the
cost of removal of any of Tenant's refuse and rubbish from the building. Bills
for the same shall be rendered by Landlord to Tenant at such time as Landlord
may elect and shall be due and payable when rendered, and the amount of such
bills shall be deemed to be, and be paid as, additional rent. Tenant shall,
however, have the option of independently contracting for the removal of such
rubbish and refuse in the event that Tenant does not wish to have same done by
employees of Landlord. Under such circumstances, however, the removal of such
refuse and rubbish by others shall be subject to such rules and regulations as,
in the judgment of landlord, are necessary for the proper operation of the
building. Landlord reserves the right to stop service of the heating, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Landlord desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. And
Landlord shall have no responsibility or liability for failure to supply heat,
elevator, plumbing and electric service, during said period or when prevented
from so doing by strikes, accidents or by any cause beyond Landlord's control,
or by laws, orders or regulations of any Federal, State or Municipal Authority,
or failure of coal, oil or other suitable fuel supply, or inability by exercise
of reasonable diligence to obtain coal, oil or other suitable fuel. If the
building of which the demised premises are a part supplies manually operated
elevator service, Landlord may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Landlord pursues with due diligence the completion of the alterations.
SECURITY:
31. Tenant has deposited with Landlord the sum of $35,180 - as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Landlord may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Landlord may expand or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord. In the event that Tenant shall fully and
<PAGE>
faithfully comply with all of the terms, provisions, covenants and conditions of
this lease, the security shall be returned to Tenant after the date fixed as the
end of the Lease and after delivery of entire possession of the demised premises
to Landlord. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part. Landlord shall have the
right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Landlord solely for the return of
said security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. See Article #52.
CAPTIONS:
32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS:
33. The term "Landlord" as used in this lease means only the owner, or the
mortgagee in possession, for the time being of the land and building (or the
owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Landlord shall be and hereby is entirely
freed and relieved of all covenants and obligations of Landlord hereunder, and
it shall be deemed and construed without further agreement between the parties
or their successors in interest, or between the parties and the purchaser, at
any such sale, or the said lessee of the building, or of the land and building,
that the purchaser or the lessee of the building, or of the land and building,
that the purchaser or the lessee of the building has assumed and agreed to carry
out any and all covenants and obligations of Landlord hereunder. The words "re-
enter" and "re-entry" as used in this lease are not restricted to their
technical legal meaning. The term "business days" as used in this lease shall
exclude Saturdays (except such portion thereof as is covered by specific hours
in Article 30 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION--SHORING:
34. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Landlord, or diminution or abatement
of rent.
RULES AND REGULATIONS:
35. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as Landlord may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Landlord within ten (10) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or terms, covenants or conditions in any other lease, as against
any other tenant and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
<PAGE>
GLASS:
36. Landlord shall replace, at the expense of Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Landlord may insure, and keep insured, at Tenant's expense,
all plate and other glass in the demised premises for and in the name of
Landlord. Bills for the premiums therefor shall be rendered by Landlord to
tenant at such times as Landlord may elect, and shall be due from, and payable
by, Tenant when rendered, and the amount thereof shall be deemed to be, and be
paid as, additional rent.
SUCCESSORS AND ASSIGNS:
37. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
Riders containing Articles 38 through 63 inclusive, annexed hereto and forming
part of this lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
<PAGE>
Witness for Landlord: TWENTY THIRD STREET JOINT
VENTURE
By: ADAMS & CO. REAL ESTATE,
INC., Agent
- -------------------------------
By:
---------------------------------
Executive Director of Leasing
Witness for Tenant: PARADISE MUSIC &
ENTERTAINMENT, INC.
By:
- ------------------------------- ---------------------------------
I.D.#: 13-3906452
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE LANDLORD
STATE OF NEW YORK, )
) SS.:
COUNTY OF )
On this day of , 19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
LANDLORD, that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
----------------------------------------------------------------------
INDIVIDUAL LANDLORD
STATE OF NEW YORK, )
) SS.:
COUNTY OF )
On this day of , 19 , before me personally came
to me known and known to me to be the individual described in and who, as
LANDLORD, executed the foregoing instrument and acknowledged to me that he
executed the same.
----------------------------------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, )
) SS.:
COUNTY OF )
On this day of , 19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
LANDLORD, that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
----------------------------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, )
) SS.:
COUNTY OF )
On this day of , 19 , before me personally came
to me known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
----------------------------------------------------------------------
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the demised premises and for delivery or merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards. If said premises are situate on the ground floor
of the building Tenant thereof shall further, at Tenant's expense, keep the
sidewalks and curb in front of said premises clean and free from ice, snow, dirt
and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the
<PAGE>
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose clerks, agents, employees
or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building; and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building, and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the building by reason of noise,
odors and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigar or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Landlord, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and directory tablet shall be inscribed or affixed for
each Tenant by Landlord at the expense of such Tenant, and shall be of a size,
color and style acceptable to Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum,
or other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Landlord all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by such Tenant, and in the event of the loss
of any keys, so furnished such Tenant shall pay to Landlord the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises except from persons authorized by Landlord, and
at hours and under regulations fixed by Landlord. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall co-operate to
prevent the same.
10. Landlord reserves the right to exclude from the building between the hours
of 6 p.m. and 8 a.m. and at all hours on Sundays, and legal holidays all persons
who do not present a pass to the building signed by Landlord. Landlord will
furnish passes to persons for whom any Tenant requests same in writing. Each
Tenant shall be responsible for all persons for whom he requests such pass and
shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlord's opinion, tends to impair the reputation of the building or
its desirability as a building for offices, and upon written notice from
Landlord,
<PAGE>
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible or explosive fluid, material, chemical or
substance or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the demised
premises.
<PAGE>
This WORK ORDER shall apply ONLY in connection with lease dated ______________
made between the undersigned:
Building 53-7 West 23rd Street Space Entire 11th floor
thru to --------------------------------------
34 West 24th Street
-----------------------
Tenant Paradise Music & Business executive offices & production
---------------- ---------------------------------
Entertainment, Inc. studios for the music &
----------------------- ---------------------------------
entertainment industry
---------------------------------
Lease begins 4/1/97 Lease expires 3/31/2009
-------------------- ----------------------------
The following work ONLY is to be done by Landlord:
SEE ARTICLE #62.
All work will commence as scheduled and will be prosecuted diligently,
subject to anything beyond Landlord's control, including but not limited to
strikes, labor troubles, governmental intervention, wars or other emergencies.
Progress of work specified above shall not affect payment of rent. Where work
as above mentioned is held up pending Tenant's request, either verbal or
written, the Landlord shall not be obligated to perform such work within the
period of the last six months of the lease and no liability shall result because
of failure on the Landlord's part to perform such work.
TWENTY THIRD STREET JOINT VENTURE
BY: ADAMS & CO. REAL ESTATE, INC., AGENT
BY:
-----------------------------------------
Executive Director of Leasing
PARADISE MUSIC & ENTERTAINMENT, INC.,
TENANT
BY:
-----------------------------------------
<PAGE>
Address 34 West 24th Street
Premises Entire 11th Floor
- ---------------------------------------------
- ---------------------------------------------
TWENTY THIRD STREET JOINT VENTURE
TO
PARADISE MUSIC & ENTERTAINMENT, INC.
- ---------------------------------------------
- ---------------------------------------------
STANDARD FORM OF
LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK
- ---------------------------------------------
- ---------------------------------------------
Dated October 21, 1996
Rent per Year See Article #51
Rent per Month See Article #51
Term 12 years
From 4/1/97
To 3/31/2009
Drawn by Checked by
--------------------- ----------
Entered by Approved by
------------------- ----------
Adams & Co. Real Estate Inc.
411 Fifth Avenue
New York, New York 10016
(212) 679-5500
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
ELECTRICITY
(a) Tenant may make its own arrangements with the public utility company
servicing the demised premises for the payment of all charges for electricity
consumed at the demised premises by Tenant. In no event shall Landlord be
responsible for charges for electricity consumed at the demised premises by
Tenant. Notwithstanding the foregoing, if electric current be supplied by
Landlord, which Landlord reserves the right to do at its sole option, Tenant
covenants and agrees to purchase the same from Landlord or Landlord's designated
agent at terms and rates set by Landlord in subparagraph (b) below. Where more
than one meter measures the service of Tenant in the building, the service
rendered through each meter may be computed and billed separately in accordance
with the rates herein. Bills therefor shall be rendered at such times as
Landlord may elect in the amount computed from a meter. In the event that such
bills are not paid within fifteen (15) days after the same are rendered,
Landlord may, without further notice, discontinue the service of electric
current to the demised premises without releasing Tenant from any liability
under this lease and without Landlord or Landlord's agent incurring any
liability for any damage or loss sustained by Tenant by such discontinuance of
service. Landlord shall not in any wise be liable or responsible for any loss
or damage or expense which Tenant may sustain or incur if either the quantity or
character of electric service is changed or is no longer available or suitable
for Tenant's electrical requirements. Any riser or risers to supply Tenant's
electrical requirements, upon written request of Tenant, will be installed by
Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole
judgment, the same are necessary and will not cause permanent damage or injury
to the building or demised premises or cause or create a dangerous or hazardous
condition or entail excessive or unreasonable alterations, repairs or expense or
interfere with or disturb other tenants or occupants of the building. In
addition to the installation of such riser or risers, Landlord will also at the
sole cost and expense of Tenant, install all other equipment proper and
necessary in connection therewith subject to the aforesaid terms and conditions.
Tenant covenants and agrees that at all times its use of electric current shall
never exceed the capacity of existing feeders to the building or the risers or
wiring installations. Landlord may discontinue any of the aforesaid services
upon thirty (30) days notice to Tenant without being liable to Tenant therefor
or without in any way affecting this lease or the liability of Tenant hereunder
or causing a diminution of rent and the same shall not be deemed to be lessening
or diminution of services within the meaning of any law, rule or regulation now
or hereafter enacted, promulgated or issued. In the event Landlord gives such
notice of discontinuance Landlord shall permit Tenant to receive such service
direct from a public utility company. Tenant shall make no alteration or
addition to the electric equipment and/or appliances without prior written
consent of Landlord in each instance. Rigid conduit only will be allowed. If
any tax is imposed upon Landlord's receipt from the sale or resale of electrical
energy or gas or telephone service to Tenant by any Federal, State or Municipal
Authority, Tenant covenants and agrees that, where permitted by law, Tenant's
pro-rata share of such taxes shall be passed on to, and included in the bill and
paid by Tenant to Landlord.
(b) The Tenant shall purchase electricity from the Landlord or Landlord's
Agent at a charge which shall be computed by adding 10% to the total of (1) the
meter readings for energy use, the demand, and fuel adjustments charged to
Landlord under Consolidated Edison Service Classification 4, and (2) all taxes
imposed on each of such components plus sales tax. All charges incurred by the
Tenant under this Article shall be additional rent and collectible by the
Landlord as such.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
38. It is specifically understood and agreed that this lease is offered to the
Tenant for signature by the Managing Agent of the building solely in its
capacity as such Agent and subject to the Landlord's acceptance and approval,
and that the Tenant has hereunto affixed its signature with the understanding
that the said lease shall not in any way bind the Landlord or its Agent until
such time as the Landlord has approved said lease and same is executed and
delivered to the Tenant.
39. The Tenant will indemnify and save harmless the Landlord from and against
any and all liability, penalties, losses, damages, expenses, suits and judgments
arising from injury during the term of this lease to person or property of any
nature, in the building of which the demised premises form a part from any
matter or thing growing out of the use or occupation of the demised premises and
the Tenant agrees throughout the term of this lease to keep the Landlord insured
against General Public Liability in limits of $1,000,000. per person,
$3,000,000. per incident and against Property Damage in the amount Of $500,000.
Such policies of insurance and certificates thereof shall be obtained by the
Tenant and delivered to the Landlord showing the payment of the premium thereon.
On the failure of the Tenant to obtain and pay for such insurance, the Landlord
may, but shall not be obligated to, procure the same and pay the premiums
thereon, and the cost thereof shall be added to the monthly rent next due and
shall be collectible as additional rent.
40. Prior to installing new or additional air conditioning unit or units in the
premises, the Tenant shall first obtain the written consent of the Landlord or
its Managing Agent. Tenant shall pay for all electrical current consumed in the
operation thereof. In the event such unit or units utilize circulating water,
it shall be equipped with an approved water conserving device and in connection
therewith, Tenant shall install and maintain in good working order, at its own
cost and expense, a water meter which shall meter all make-up water used in such
air conditioning equipment and shall pay for such water as per meter reading and
in addition thereto, sewerage or any other charge, tax or levy which now or
hereafter is imposed by the City of New York in connection with said use of
water. Any charge for electricity or water consumed as herein provided, shall
be deemed to be additional rent and payable as such.
41. If the Landlord or any successor in interest be an individual, joint
venture, tenancy in common, co-partnership, unincorporated association, or other
unincorporated aggregate of individuals (all of which are referred to below,
individually and collectively, as an "unincorporated Landlord"), then, anything
elsewhere to the contrary notwithstanding, Tenant shall look solely to the
estate and property of such unincorporated Landlord in the land and building of
which the leased premises are a part, for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord in the event of any default or breach by Landlord
with respect to any of the terms, covenants and conditions of the lease to be
observed and/or performed by Landlord, and no other property or assets of such
unincorporated Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies.
42. The provisions of Article #19 of this lease shall apply to any action or
special proceeding the Landlord may institute should the Tenant fail to vacate
the premises at the expiration of the term of this lease.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
43. (a) For the purpose of this Article, the term "lease year" shall mean the
period of twelve (12) months commencing with the term commencement date and
ending on the following MARCH 31ST and each successive period of twelve (12)
months thereafter during the term. The term "base year" as applied to real
estate taxes, shall mean the City tax year July 1, 1996 to June 30, 1997.
(b) In the event that the real estate taxes payable with respect to the
building and the land on which it is located, during any lease year shall be
greater than the amount of such taxes due and payable during the base year,
whether by reason of an increase in either the tax rate or the assessed
valuation or by reason of the levy, assessment or imposition of any tax on real
estate as such, not now levied, assessed or imposed, or for any other reason,
Tenant shall pay to Landlord, as additional rent for the lease year in which
such increase occurs, an amount equal to 8% of the difference between the amount
of such tax or installment and the corresponding tax or installment paid during
the base year. Such additional rent shall be paid in twelve (12) equal monthly
installments beginning on the first day of the month next succeeding receipt by
the Tenant of a bill therefor. The amount of such taxes actually paid by
Landlord during the base year shall determine the amount of additional rent
payable under this paragraph (b) until, as the result of a final determination
in legal proceedings or otherwise, the amount of such taxes shall be reduced.
In the event of such a final determination, the reduced amount of such taxes
shall thereafter determine the amount of additional rent payable by Tenant
pursuant to this paragraph (b), the additional rent theretofore payable
hereunder shall be recomputed on the basis of such reduction, and Tenant shall
pay to the Landlord such additional rent in twelve (12) equal monthly
installments after being billed therefor, any deficiency between the amount of
such additional rent as theretofore computed and the amount thereof due as the
result of such recomputation. If Landlord shall be the lessee under an
underlying lease, the term "real estate taxes" as used in this paragraph (b)
shall be deemed to mean and include the amounts payable as additional rental
under said underlying lease based on the taxes payable with respect to said
building and land.
(c) If the amount of additional rent payable by Tenant pursuant to the
foregoing paragraph (b) shall be affected by any application filed by or on
behalf of Landlord for a reduction in the assessed valuation of the said
building and land or by any proceedings instituted by or on behalf of Landlord
in a court of competent jurisdiction for judicial review of said assessed
valuation, and if, after Tenant shall have made a payment of additional rent
under said paragraph (b) Landlord shall receive a refund of any portion of the
real estate taxes on which such payment shall have been based as the result of
any such application or proceeding, Landlord shall pay to Tenant 8% of the
refund less any amount owing by Tenant for REASONABLE expenses ACTUALLY INCURRED
BY LANDLORD in connection WITH ANY SUCH APPLICATION, COURT ACTION OR OTHERWISE.
Nothing in this paragraph (c) contained shall be deemed or construed to require
Landlord to pay to Tenant any portion of a refund of taxes paid by Landlord
during the base year.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
44. If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew the lease, but such
holding over thereafter shall continue upon the covenants and conditions herein
set forth except that the charge for use and occupancy of such holding over for
each calendar month or part thereof (even if such part shall be a small fraction
of a calendar month) shall be the sum of:
(a) 1/12 of the highest base annual rental rate set forth on page one of
this lease times 1.5, plus
(b) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this lease had
this lease not expired, plus
(c) those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this lease, had this
lease not expired,
which total sum Tenant agrees to pay to Landlord promptly upon demand, in full,
without set-off or deduction. Neither the billing nor the collection of use and
occupancy in the above amount shall be deemed a waiver of any right of Landlord
to collect damages for Tenant's failure to vacate the demised premises after the
expiration or sooner termination of this lease.
The aforesaid provisions of this Article shall survive the expiration or
sooner termination of this lease.
45. Tenant's obligation to pay additional rent under this lease for the final
lease year shall survive the expiration of the term of this lease, and any
additional rent due for any partial lease year shall be prorated.
46. If Tenant is late in making any payment due to Landlord from Tenant under
this lease for five (5) or more days, Tenant shall pay Landlord a late charge of
$.05 for each $1.00 which remains unpaid after such period to compensate
Landlord for additional expense in processing such late payment. In addition,
if Tenant is late in making any payment due to Landlord under this lease for
five (5) or more days, then interest shall become due and owing on such payment
and shall be paid by Tenant to Landlord from the date when it was due until the
date payment is made, computed at a rate equal to the lesser of TWELVE (12%) per
cent per annum or the highest rate permitted by law.
47. All charges which are the obligation of the Tenant shall be additional rent
and collectible as such.
48. The Landlord agrees to accept checks in payment of any obligations of the
Tenant under this lease provided, however, they are drawn on bank, which has an
office or branch in the City of New York. In the event any check tendered in
payment of rent or additional rent is dishonored for any reason whatsoever, its
substitute shall be a certified or bank check and all future checks tendered to
the Landlord shall be certified or bank checks.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
49. Every notice, invoice, or demand given by the Landlord to the Tenant for
any item of additional rent under this lease shall be conclusive and binding
upon the Tenant unless within 30 days after the giving of such notice, invoice
or demand the Tenant shall notify the Landlord in writing as required by the
pertinent provisions of this lease that the Tenant disputes the correctness of
the notice, invoice or demand, specifying the particular item claimed to be
incorrect. In the event the dispute shall not thereafter be settled by
agreement between the parties within 30 days thereafter the Landlord shall
within the next 90 days institute a summary proceeding or an action to determine
the issue. During the pendency of such action or proceeding the Tenant shall
pay all of the items on such notice, invoice or demand including the disputed
items without prejudice to Tenant's position on such disputed items and in the
event there is a final determination in Tenant's favor the Landlord shall
forthwith refund to the Tenant the amount overpaid.
50. It is understood and agreed that the Tenant shall be entitled but not
obligated to take possession of the demised premises on or after DECEMBER 1,
1996, free of base rent through May 31, 1997, otherwise subject to the terms and
conditions hereof, and with the express understanding that the Tenant shall pay
all items of additional rent and other charges reserved under this lease
commencing with the date the Tenant receives an executed copy of this lease.
51. The Tenant shall pay the following annual rental rates during the term of
this lease in the manner set forth in this lease:
$150,000. ($12,500.00 per mo.) from JUNE 1, 1997 to MARCH 31, 1998;
$154,500. ($12,875.00 per mo.) from APRIL 1, 1998 to MARCH 31, 1999;
$159,135. ($13,261.25 per mo.) from APRIL 1, 1999 to MARCH 31, 2000;
$163,909. ($13,659.08 per mo.) from APRIL 1, 2000 to MARCH 31, 2001;
$168,826. ($14,068.83 per mo.) from APRIL 1, 2001 to MARCH 31, 2002;
$205,579. ($17,131.58 per mo.) from APRIL 1, 2002 to MARCH 31, 2003;
$213,802. ($17,816.83 per mo.) from APRIL 1, 2003 to MARCH 31, 2004;
$222,354. ($18,529.50 per mo.) from APRIL 1, 2004 to MARCH 31, 2005;
$231,248. ($19,270.67 per mo.) from APRIL 1, 2005 to MARCH 31, 2006;
$240,498. ($20,041.50 per mo.) from APRIL 1, 2006 to MARCH 31, 2007;
$280,118. ($23,343.17 per mo.) from APRIL 1, 2007 to MARCH 31, 2008; and
$291,323. ($24,276.92 per mo.) from APRIL 1, 2008 to MARCH 31, 2009;
(each being the base rent for the period involved).
52. The security as set forth in Article #31 hereof shall be deposited in
Citibank, N.A. located at 411 Fifth Avenue, New York, NY 10016, IN AN
INTEREST-BEARING ACCOUNT FOR THE BENEFIT OF THE TENANT, LESS ONE (1%) PER CENT
ADMINISTRATIVE FEE WHICH SHALL BE RETAINED BY LANDLORD.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
53. (A) Subject to the provisions of paragraph (F) of this Article, the
provisions of Article #11 of this lease are amended to the extent that, Landlord
agrees that it will not withhold its consent unreasonably to a subletting of the
entire demised premises or an assignment of this lease provided that (a) as to a
sublease, Tenant delivers to Landlord a copy of the proposed ESSENTIAL TERMS OF
THE sublease in form to be executed, together with reasonably detailed
statements of the proposed subtenant's business and financial references; (b) as
to an assignment, Tenant delivers to Landlord reasonably detailed statements of
the proposed assignee's business and financial references; (c) the purpose for
which the proposed subtenant or assignee intends to use the demised premises are
uses expressly permitted by and not expressly prohibited by this lease; (d) the
date when the proposed sublease or assignment is to become effective is at least
30 days after the submission to Landlord of the aforesaid [documentation; (e)
Tenant shall not be in default in the performance of any of its obligations
under this lease; (f) the proposed subtenant or assignee is not then a tenant of
any space in the building of which the demised premises form a part; (g) no
advertisement with respect to the demised premises shall quote a rental below
that of the demised premises or comparable space in the building; (h) any
request for consent to such subletting or assignment shall be made by notice
pursuant to the provisions of Article #27 of this lease.
(B) Any such subletting or assignment shall not release the Tenant herein
from any liability or responsibility under the terms, covenants or conditions of
the within lease.
(C) It is expressly agreed that in the event of an assignment, the
Assignee shall assume all the obligations of the lease jointly with the Tenant
herein, and the Tenant shall deliver to the Landlord a duplicate-original of
such assignment and the assumption by the Assignee, duly executed and
acknowledged by the Tenant and such Assignee as soon as same has been executed.
(D) No further or additional subletting of the demised premises or
assignment of this lease shall be made, except with the prior written approval
of the Landlord pursuant to this Article.
(E) It is further understood and agreed that the Tenant shall designate
Adams & Co. Real Estate, Inc. as Tenant's exclusive Agent to effect any sublet,
assignment or release, and Tenant shall pay to Adams & Co. Real Estate, Inc.
upon the execution of such subleasing, assignment or release, a commission
computed in accordance with the rates and rules established by Adams & Co. Real
Estate, Inc., PROVIDED SAID RATES ARE CUSTOMARY.
(F) Notwithstanding the provisions of this Article, in the event Tenant
requests Landlord's consent to a subletting of the entire demised premises or an
assignment of this lease, Landlord shall have the right to cancel and terminate
this lease as of the effective date set for such proposed subletting or
assignment by giving Tenant notice to that effect within 15 days from the
receipt of such request and thereupon, on such effective date, this lease shall
terminate and come to an end as though that were the date originally set forth
for the termination of this lease. Tenant agrees to vacate and surrender
possession of the premises to the Landlord on or before said date, leaving same
broom clean, in good order and condition. Thereupon, both parties will be
released and relieved from further liability under the within lease, except that
Tenant's obligations to perform all of the terms, obligations and covenants,
including the obligation to pay rent and additional rent, up to and including
the date of termination, shall survive such termination.
SEE ADDENDUM
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
54. It is understood and agreed that, in the event the Tenant complies with all
of the terms, conditions and covenants of this lease up to and including MARCH
31, 1998 and MARCH 31, 1999 respectively, it shall have possession of the
demised premises free of base rent for the months of APRIL and MAY, 1998 and
APRIL and MAY, 1999, otherwise subject to the terms and conditions hereof, and
with the express understanding that the Tenant shall pay all items of additional
rent under this lease during said months.
55. It is understood and agreed that in the event at any time during the term
of this lease, THE TENTH (10TH), the Eleventh (11th) AND TWELFTH (12TH) FLOORS
in either 49 West 23rd Street or 30 West 24th Street OR THE TENTH (10TH) AND
TWELFTH (12TH) FLOORS IN THE WITHIN BUILDING BECOME available for rent, the
Tenant herein shall have first option or privilege of leasing said space UPON
THE SAME TERMS AND CONDITIONS AS HEREIN PROVIDED EXCEPT THAT THE TERM AND ANNUAL
RENTAL SHALL BE mutually agreed upon between the parties hereto. This
provision, however, does not preclude the Landlord from renewing the lease with
the existing Tenant of the premises.
The Landlord agrees to notify the Tenant by registered or certified mail
whenever such space is available for rent and the Tenant agrees to advise the
Landlord by registered mail within a period of ten (10) days from the receipt of
such notice, that it will accept or reject the privilege of renting said space.
In the event the Tenant accepts same, it agrees to execute a lease within a
period of five (5) days after said lease has been submitted to the Tenant for
signature. The term of said lease shall commence on the first day of the month
succeeding receipt of such notice from the Landlord and shall expire on the same
date as this lease. In the event the Tenant fails to notify the Landlord of its
intention to lease said space or fails to execute a lease as herein provided,
the Landlord shall be released from any further obligation to the Tenant herein
with respect to such space offered and the Landlord shall be free to rent the
space to any other prospective tenant.
56. Subject to all of the terms and conditions of Article #3 of the within
lease, permission is hereby granted to the Tenant to make, at its own cost and
expense, all alterations, improvements and installations in the demised premises
including the installation of two (2) twenty-five ton air conditioning units on
the roof of the building.
Prior to the commencement of any and all work and installations, Tenant
shall submit to the Landlord or its Managing Agent, for its approval in writing,
plans and specifications for all work and installations, which approval Landlord
agrees shall not be unreasonably withheld or delayed. All work shall be in
strict conformity with all rules, regulations and ordinances of any governmental
authority or bureau having jurisdiction thereof, including the New York Board of
Fire Underwriters or any other similar body, and the Tenant agrees to procure
any permits needed in connection with such work prior to the commencement
thereof. In the event the Tenant is required to do any work in connection with
the building sprinkler system, water and/or electrical risers or any other
building riser or facility, the Tenant agrees that all work in connection
therewith shall be done by plumbing, electrical, sprinkler and/or other
contractors designated by the Landlord at the Tenant's sole cost. Tenant
further agrees that it shall require its contractors and/or subcontractors to
furnish the Landlord with Certificates of Insurance for Workers' Compensation,
Public Liability and Property Damage, as provided for in Article #3 of this
lease and otherwise comply with the terms and conditions of this lease and
particularly Article #3 thereof.
57. Landlord represents that (i) the sprinkler system COMPLIES WITH ALL LAWS
AND IS IN GOOD WORKING ORDER AND (II) THE DEMISED PREMISES ARE FREE OF FRIABLE
ASBESTOS.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
58. The Tenant hereby agrees to pay as additional rent the monthly charge of
$120.00 in the manner provided for in this lease for the payment of rent, as
Tenant's contribution toward the Landlord's cost for furnishing guard service in
the passenger lobby of the building Monday through Friday five (5) days per week
during the hours from 8:00 A.M. to 8:00 P.M. In the event the Landlord's cost
for such service is increased, the Tenant agrees to pay its proportionate share
of such increase. The Tenant understands that the Landlord is not obligated to
maintain this service and Landlord may discontinue this additional service at
any time without notice to the Tenant at which time the Tenant's contribution
shall cease.
59. Tenant and Landlord represent that THEY dealt with no broker except ADAMS &
CO. REAL ESTATE, INC. and BRANFORD PROPERTIES, INC. LANDLORD AND Tenant agree
to hold EACH OTHER harmless from and against any and all claims or demands for
brokerage commissions arising out of or in connection with the execution of this
lease or any conversations or negotiations thereto with any broker other than
the above named broker. LANDLORD AGREES TO PAY ALL COMMISSIONS DUE TO THE
ABOVE-NAMED BROKERS.
60. Upon the execution of this lease the Tenant shall furnish to the Landlord a
list of all of its officers and their respective residence addresses. If during
the term of this lease there is any change in the officers or addresses, the
Landlord shall be notified of the same within TEN (10) days thereafter. This is
a substantial obligation of this lease.
made or relevant law is complied with.
61. NOTWITHSTANDING ANYTHING CONTAINED IN THIS LEASE TO THE CONTRARY, IF THERE
IS AN INTERRUPTION OF SERVICES OR LANDLORD FAILS TO MAKE ANY REPAIRS OR COMPLY
WITH ANY LAWS EXCEPT AS MAY BE CAUSED BY REASON OF STRIKE OR LABOR TROUBLES OR
ANY CAUSE WHATSOEVER INCLUDING, BUT NOT LIMITED TO, GOVERNMENT PREEMPTION IN
CONNECTION WITH A NATIONAL EMERGENCY OR BY REASON OF ANY RULE, ORDER OR
REGULATION OF ANY DEPARTMENT OR SUBDIVISION THEREOF OF ANY GOVERNMENT AGENCY OR
BY REASON OF THE CONDITIONS OF SUPPLY AND DEMAND WHICH HAVE BEEN OR ARE AFFECTED
BY WAR OR OTHER EMERGENCY, AND SUCH CONDITION SHALL CONTINUE FOR ANY REASON IN
EXCESS OF 30 CONSECUTIVE DAYS OR IF SUCH INTERRUPTION OR FAILURE TO REPAIR OR
COMPLY RESULTS IN THE DENIAL TO TENANT OF ACCESS TO THE DEMISED PREMISES OR
OTHERWISE RENDERS IMPOSSIBLE OR IMPRACTICABLE THE INTENDED USE OF A SIGNIFICANT
PORTION OF THE DEMISED PREMISES TENANT SHALL BE ENTITLED, UPON 5 DAYS' WRITTEN
NOTICE TO LANDLORD, TO AN ABATEMENT OF RENT FOR THE PERIOD OF SUCH INTERRUPTION
OR FAILURE, AND IF SUCH INTERRUPTION OR FAILURE CONTINUES FOR A PERIOD IN EXCESS
OF 60 CONSECUTIVE DAYS, TENANT MAY TERMINATE THIS LEASE BY GIVING 5 DAYS'
WRITTEN NOTICE TO LANDLORD DURING WHICH PERIOD THE RESTORATION, REPAIR OR
COMPLIANCE WITH LAW MAY BE COMPLETED, AND ANY GROUND LESSOR OR MORTGAGEE (TO
WHICH TENANT HAS PRIOR WRITTEN NOTICE) AT ANY TIME BEFORE SUCH SERVICES ARE
RESTORED OR REPAIRS
62. FROM THE DATE OF DELIVERY OF AN EXECUTED COPY OF THE LEASE TO THE LANDLORD,
THE FOLLOWING WORK WILL BE PERFORMED BY THE LANDLORD WITHIN FIFTEEN (15) WORKING
DAYS:
PROVIDE SUFFICIENT ALTERNATING CURRENT TO A PULL BOX LO Q TED ON THE
11TH FLOOR (6-8 WATTS PER SQUARE FOOT DEPENDING ON TENANT'S NEEDS);
REPLACE EXISTING GLASS ON WINDOW LOCATED ON THE WEST SIDE OF THE
DEMISED PREMISES WITH CLEAR WIRE GLASS;
PUT TOILET ROOM FIXTURES IN GOOD WORKING ORDER AND REPLACE ANY BROKEN
FIXTURES.
63. LANDLORD REPRESENTS THAT THE PREMISES MAY BE USED FOR THE PURPOSES SET
FORTH IN ARTICLE #2 OF THIS LEASE.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated October 21, 1996, Premises: Entire 11th Floor -- 53-7 West 23rd
Street through to 34 West 24th Street, Between Twenty-Third Street Joint
Venture, as Landlord, and Paradise Music & Entertainment, Inc., as Tenant.
ADDENDUM TO ARTICLE #9:
PROVIDED TENANT SHALL HAVE VACATED THE ENTIRE DEMISED PREMISES AS A RESULT OF
SUCH CASUALTY AND IF LANDLORD SHALL NOT HAVE COMPLETED THE RESTORATIONS OR
REPAIRS WITH 120 DAYS AFTER NOTICE TO LANDLORD FROM TENANT UNDER PARAGRAPH (A)
WAS GIVEN, SUBJECT TO EXTENSIONS NOT TO EXCEED 30 DAYS FOR DELAYS DUE TO
ADJUSTMENT OF INSURANCE CLAIMS, LABOR TROUBLES AND FORCE MAJEURE (THE
"CANCELLATION DATE"), PROVIDED SUCH FIRE OR OTHER CASUALTY WAS NOT CAUSED BY
TENANT, ITS AGENTS, CONTRACTORS OR EMPLOYEES, TENANT SHALL HAVE THE RIGHT TO
CANCEL THIS LEASE BY GIVING LANDLORD WRITTEN NOTICE OF ITS INTENTION TO DO SO
WITHIN 10 DAYS AFTER THE CANCELLATION DATE, AND THIS LEASE SHALL TERMINATE AS OF
THE DATE SUCH NOTICE IS RECEIVED BY LANDLORD. IN THE EVENT OF SUCH TERMINATION
THE ABOVE PROVISIONS OF THIS ARTICLE SHALL APPLY.
ADDENDUM TO ARTICLE #53:
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, TENANT SHALL BE
PERMITTED WITHOUT THE PRIOR CONSENT OF LANDLORD TO TRANSFER (BY ASSIGNMENT OR
SUBLEASE) THE LEASE TO ANY AFFILIATED COMPANY (AS HEREINAFTER DEFINED) WHICH, IN
THE CASE OF AN ASSIGNMENT, ASSUMES IN WRITING ALL OF TENANT'S OBLIGATIONS
HEREUNDER. THE ASSUMPTION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
LANDLORD. TENANT WILL BE REQUIRED TO GIVE NOTICE OF ANY SUCH TRANSFER PRIOR TO
THE DATE UPON WHICH THE TRANSFER BECOMES EFFECTIVE. THE TERM "AFFILIATED
COMPANY" SHALL MEAN ANY COMPANY OR OTHER ENTITY WHICH DIRECTLY OR INDIRECTLY
CONTROLS, OR IS UNDER COMMON CONTROL WITH, OR IS CONTROLLED BY TENANT.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of Paradise Music &
Entertainment, Inc. on Form SB-2 of our report dated September 12, 1996 except
for Note 8 as to which the date is October 9, 1996 on the financial statements
of Paradise Music & Entertainment, Inc. and to the reference to our firm under
the caption 'Experts' in such Prospectus.
<TABLE>
<S> <C>
/s/ ROTHSTEIN, KASS & COMPANY, P.C.
---------------------------------------------
Rothstein, Kass & Company, P.C.
</TABLE>
Roseland, New Jersey
January 13, 1997
