UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1997
----------------------------------
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________________ to ____________________
Commission file number 1-12635
---------------------------------------------------------
PARADISE MUSIC & ENTERTAINMENT, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 13-3906452
- ------------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
53 West 23rd Street, New York, New York 10010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number (212) 590-2100
-----------------------------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
At February 10, 1998, the Issuer had 2,230,559 shares of Common Stock,
$.01 par value, outstanding.
Transitional Small Business Disclosure Format Yes |_| No |X|
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 (Unaudited) and June 30, 1997 3
Consolidated Statements of Operations for the
Six and Three Months Ended December 31, 1997
and 1996 (Unaudited) 4
Consolidated Statements of Stockholders' Equity
for the Six Months Ended December 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1997 and 1996 (Unaudited) 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-10
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-14
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 1997
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,107,758 $ 5,086,118
Accrued interest receivable 8,006 23,162
Accounts receivable, less reserve for returns
of $497,000 at December 31, 1997 1,734,542 52,240
Prepaid video production costs 417,002 235,645
Prepaid record master costs 273,395 350,160
Other current assets 157,550 46,216
----------- -----------
Total current assets 4,698,253 5,793,541
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 207,560 146,754
----------- -----------
CONSTRUCTION IN PROGRESS 733,541
----------- -----------
OTHER:
Restricted cash 350,000
Other 36,487 14,072
----------- -----------
386,487 14,072
----------- -----------
$ 6,025,841 $ 5,954,367
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenues $ 694,811 $ 501,073
Accrued payroll and related expenses 137,993 374,590
Accrued expenses and other current liabilities 1,235,650 371,058
----------- -----------
Total current liabilities 2,068,454 1,246,721
----------- -----------
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,
issued and outstanding 2,230,559 and
2,228,333 shares, respectively 22,305 22,283
Capital in excess of par value 5,793,861 5,752,317
Accumulated deficit (1,858,779) (1,066,954)
----------- -----------
Total stockholders' equity 3,957,387 4,707,646
----------- -----------
$ 6,025,841 $ 5,954,367
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 6,491,032 $2,275,356 $ 2,303,047 $1,187,368
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Cost of sales 4,426,581 1,330,987 1,246,897 771,286
Selling, general and
administrative 2,940,606 861,242 1,657,803 406,082
----------- ---------- ----------- ----------
Total operating
expenses 7,367,187 2,192,229 2,904,700 1,177,368
----------- ---------- ----------- ----------
OPERATING INCOME (LOSS) (876,155) 83,127 (601,653) 10,000
INTEREST INCOME 93,330 34,716
----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES (782,825) 83,127 (566,937) 10,000
INCOME TAX PROVISION
(BENEFIT) 9,000 3,700 (4,000) 2,500
----------- ---------- ----------- ----------
INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ (791,825) $ 79,427 $ (562,937) $ 7,500
=========== ========== =========== ==========
BASIC AND DILUTED INCOME
(LOSS) PER COMMON SHARE $ (.36) $ .08 $ (.25) $ .01
=========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN
COMPUTING BASIC AND DILUTED
INCOME (LOSS) PER COMMON SHARE 2,228,801 1,039,167 2,229,240 1,039,167
=========== ========== =========== ==========
PRO FORMA DATA
INCOME BEFORE PRO FORMA INCOME
TAXES $ 83,127 $ 10,000
PRO FORMA INCOME TAXES 25,000 3,000
---------- ----------
PRO FORMA NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS $ 58,127 $ 7,000
========== ==========
PRO FORMA BASIC AND DILUTED
INCOME PER COMMON SHARE $ .06 $ .01
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN COMPUTING
PRO FORMA BASIC AND DILUTED
INCOME PER COMMON SHARE 1,039,167 1,039,167
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended December 31, 1997
(Unaudited)
Common Stock Capital in
------------------ Excess of Accumulated
Shares Amount Par Value Deficit
--------- ------- ----------- -----------
BALANCES, June 30, 1997 2,228,333 $22,283 $ 5,752,317 $(1,066,954)
COMMON STOCK, issued to
outside directors 2,226 22 8,978
WARRANTS GRANTED FOR
SERVICES 34,233
INITIAL PUBLIC OFFERING
EXPENSES (1,667)
NET LOSS (791,825)
--------- ------- ----------- -----------
BALANCES, December
31, 1997 2,230,559 $22,305 $ 5,793,861 $(1,858,779)
========= ======= =========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
-----------------------
1997 1996
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (791,825) $ 79,427
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 249,876 12,502
Expenses recorded in connection with warrants
granted 34,233
Provision for returns 508,649
Common stock issued to outside directors 9,000
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Accounts receivable (2,190,951) (41,158)
Accrued interest receivable 15,156
Prepaid video production costs (181,357) 8,255
Prepaid record master costs (95,805)
Other current assets (144,668) (1,946)
Other (23,747)
Deferred revenues 193,738 (9,652)
Accrued payroll and related expenses (236,597) 53,481
Retirement contributions payable (30,000)
Accrued expenses and other current liabilities 864,592 (25,636)
----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,789,706) 45,273
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (103,446) (36,674)
Construction in progress (733,541)
Restricted cash (350,000)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,186,987) (36,674)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for deferred registration costs (165,307)
Proceeds from note payable, bank 100,000
Proceeds from issuance of common stock, net of
expenses (1,667) 210,587
----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,667) 145,280
----------- ---------
NET INCREASE (DECREASE) IN CASH (2,978,360) 153,879
CASH, beginning of period 5,086,118 82,813
----------- ---------
CASH, end of period $ 2,107,758 $ 236,692
=========== =========
See accompanying notes to consolidated financial statements.
6
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Six Months Ended
December 31,
------------------
1997 1996
-------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Stock issued in exchange for services $ 9,000 $ 12,000
======== ========
Warrants granted $ 34,233 $ --
======== ========
Reclassification of prior "S" corporation retained
earnings $ -- $192,162
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION,
cash paid during the period for income taxes $ 10,010 $ --
======== ========
See accompanying notes to consolidated financial statements.
7
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements included herein have been prepared by
Paradise Music & Entertainment, Inc. and Subsidiaries (the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of results of operations for
interim periods. Certain information and footnote disclosures have been
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's June 30, 1997 Form 10-KSB.
NOTE 2 - BUSINESS AND ORGANIZATION:
The Company was formed on July 18, 1996 and in July 1996 issued 125,000
shares of common stock. In October 1996, the Company issued 873,000
shares of common stock in exchange for the outstanding stock of its
subsidiaries in a transaction accounted for as a pooling of interest,
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. In February 1997, the Company incorporated a
new subsidiary, Push Records Inc. ("Push") to operate in the recorded
music business.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of Paradise Music & Entertainment, Inc. and its
wholly-owned subsidiaries, Rave, Picture Vision, All Access and Push.
All significant intercompany transactions and balances have been
eliminated in consolidation.
Cash and Equivalents - For the purpose of preparing the statement of
cash flows, cash and equivalents include cash on hand and highly liquid
investments with maturities of less than three months from the purchase
date, which at times exceeds the Federal Deposit Insurance Corporation
coverage of $100,000. Management regularly monitors the financial
condition of the financial institutions in order to keep the potential
risk to a minimum.
8
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 and, in accordance with industry
custom, the Company frequently 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. Record label revenues
are recognized when records are shipped and a reserve for returns is
established against gross revenues. Costs incurred in connection with
the start-up of the Company's record label have been expensed. Costs
which are directly related to the production of the records are
capitalized and amortized over the expected life of the record, to the
extent there is reasonable assurance that these costs will be
recoverable from future sales. The Company is accounting for these
costs in accordance with Statement of Financial Accounting Standards
(SFAS) No. 50, "Financial Reporting in the Record and Music Industry".
Income (Loss) Per Common Share - Effective December 31, 1997, the
Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". SFAS No. 128 requires dual presentation of basic
and diluted earnings per share for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Prior period
income (loss) information has been restated as required by the SFAS
No. 128. The restatement had no effect on previously reported income
per share.
9
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - COMMITMENTS:
In October 1996, the Company entered into employment agreements, as
amended (the "Agreements"), with four of its executives (the
"Executives"). Each of the Agreements was for a period of three years
and provided for annual base salaries of $150,000 plus bonuses.
Effective July 1, 1997, these agreements were replaced by new
agreements. Each of the new agreements is for a period of two years and
provides for annual salaries between $300,000 and $325,000. If an
Executive's subsidiary reports a pretax loss, such related Executive's
salary will be reduced, but not below $150,000 per annum, to reflect a
pretax breakeven and such reduction will be recorded as an advance with
interest payable at prime plus 1% and will be payable over three years.
In addition, such Executive's salary will be reduced for the subsequent
year by the amount of such reduction but not below $150,000. Pursuant
to these agreements, two bonus plans have been established for the
benefit of the Executives based upon attainment of certain financial
results.
On October 1, 1997, the Company entered into an employment agreement
(the "Agreement") with an individual who will manage the Company's Los
Angeles commercial music division. The Agreement provides for the
individual to receive as compensation an amount equal to 75% of the
first $350,000 of the division's gross margin and 15% of the division's
gross margin above $350,000. In addition, this individual has been
granted options to purchase 100,000 shares of the Company's common
stock at $4.75 per share which vest at various times during the term of
the Agreement.
For the six and three months ended December 31, 1997 approximately
$623,000 and $317,000 has been expensed under the bonus plans and
employment agreements and are included in selling, general and
administrative expenses.
NOTE 5 - ECONOMIC DEPENDENCY:
Approximately $158,000 and $135,000 of commercial production revenues
for the six months ended December 31, 1997 and 1996, respectively, were
derived from one advertising agency. For the three months ended
December 31, 1997 and 1996 approximately $103,000 and $36,000 of
commercial production revenues were derived from the same advertising
agency, respectively. Approximately $370,000 and $193,000 of musical
talent management revenues for the six months ended December 31, 1997
and 1996, respectively, were derived from one and three musical
artists. For the three months ended December 31, 1997 approximately
$124,000 of musical talent management revenues were derived from one
musical artist. For the six months ended December 31, 1997 and 1996,
approximately $2,716,000 and $160,000, respectively, of video
production revenues were derived from one artist. For the three months
ended December 31, 1997 and 1996 approximately $108,000 and $630,000 of
video production revenues were derived from one and seven artists,
respectively. For the six months ended December 31, 1997, approximately
$1,510,000 of record label revenues were derived from one customer. For
the three months ended December 31, 1997, approximately $1,124,000 of
record label revenues were derived from one customer. At December 31,
1997, approximately $1,534,000 was owed in the aggregate to the Company
from these artists and customers.
10
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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; the
management of music artists and the record business.
The Company believes the results of operations of its operating subsidiaries are
subject to seasonal variations. As such, the Company's results of operations
from period to period may be materially affected. The timing of new record
releases, for example, could materially impact the Company's operating results.
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.
During fiscal 1998, the Company expects to expand its four wholly-owned
subsidiaries (Rave, Picture Vision, All Access and Push), and implement its
acquisition program. The Company expects to initially target acquisitions and
joint venture arrangements with small complementary businesses in the music and
entertainment industry of up to $5,000,000. The Company's failure to expand its
business in an efficient manner could have a material adverse effect on its
business, operating results and financial condition.
Forward Looking Statements
Except for the historical information contained herein, this quarterly report on
Form 10-QSB may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including,
without limitation, risks associated with the Company being a recently
consolidated entity, dependence on senior management, risks inherent in the
recorded music industry such as the possibility of losses by the record label
and popularity of recording artists, the Company's ability to contract with
recording artists, the Company's ability to manage growth and the success of the
Company's music and entertainment acquisition program. The forward-looking
statements contained herein represent the Company's judgment as of the date of
this release hereof, and the Company cautions readers not to place undue
reliance on such statements.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Six Months Ended December 31, 1997 Compared to
Six Months Ended December 31, 1996
Commercial music production revenues increased to $608,988 for the six months
ended December 31, 1997 from $410,732 for the six months ended December 31,
1996, an increase of $198,256 or 48.3% while commercial music production costs
of sales increased to $239,611 for the six months ended December 31, 1997 from
$139,856 for the six months ended December 31, 1996, an increase of $99,755 or
71.3%. The increase in revenues was due to an increase of residual and royalty
income and the addition of revenue from Rave's new Los Angeles operation. The
increase in costs was primarily due to costs incurred in connection with a
television series which had no related revenues. 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. As a result of the foregoing, gross
profit as a percentage of commercial music production revenues decreased to
60.7% for the six months ended December 31, 1997 from 65.9% for the six months
ended December 31, 1996.
Video production revenues increased to $3,906,831 for the six months ended
December 31, 1997 from $1,472,253 for the six months ended December 31, 1996, an
increase of $2,434,578 or 165.4%, while video production costs of sales
increased to $3,358,805 for the six months ended December 31, 1997 from
$1,191,131 for the six months ended December 31, 1996, an increase of $2,167,674
or 182.0% which is in proportion to the increase in sales.
Gross profit from video production revenues increased to $548,026 for the six
months ended December 31, 1997 from $281,122 for the six months ended December
31, 1996 an increase of $266,904 or 94.9%. Gross profit as a percentage of video
production revenues decreased to 14% for the six months ended December 31, 1997
as compared to 19.1% for the comparable prior period. The current period's gross
profit includes the Garth Brooks HBO Special which was a very significant and
profitable project that was completed in August; however, the gross profit
percentage on this project was lower than the Company's historical gross profit
percentage on its smaller projects. If this project were excluded, the profit
percentage on the remaining projects would have been greater than last year.
Music artist management revenues increased to $464,362 for the six months ended
December 31, 1997 from $393,371 for the six months ended December 31, 1996, an
increase of $70,991 or 18.0%. The increase was attributable to an increase in
the number of 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.
Record label revenues for the six months ended December 31, 1997 were $1,510,851
and resulted from shipments of Daryl Hall & John Oates recently released album
"Marigold Sky". Gross margin amounted to $682,686. There were no record label
sales for the six months ended December 31, 1996.
The Company's selling, general and administrative expenses increased to
$2,940,606 for the six months ended December 31, 1997 from $861,242 for the six
months ended December 31, 1996, an increase of $2,079,364 or 241.4%. The
increase is primarily attributable to the start-up of Push, expenses to promote
"Marigold Sky", building an infrastructure to operate and manage a public
company and executive compensation.
The Company's income (loss) before income taxes resulted in a loss of $782,825
for the six months ended December 31, 1997 compared with a profit of $83,127 for
the six months ended December 31, 1996, a decrease of $865,952. The decrease was
primarily due to the increase in selling, general and administrative expenses
described above.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended December 31, 1997 Compared to
Three Months Ended December 31, 1996
Commercial music production revenues increased to $435,130 for the three months
ended December 31, 1997 from $231,357 for the three months ended December 31,
1996, an increase of $203,773 or 88.1% while commercial music production costs
of sales increased to $148,150 for the three months ended December 31, 1997 from
$75,049 for the three months ended December 31, 1996, an increase of $73,101 or
97.4%. The increase in revenues was primarily due to an increase of residual and
royalty income and the addition of revenue from Rave's new Los Angeles
operation. The increase in costs was primarily due to costs incurred in
connection with a television series which had no related revenues and an overall
increase in volume.
As a result of the foregoing, gross profit as a percentage of commercial music
revenues decreased to 65.9% for the three months ended December 31, 1997 from
67.6% for the comparable prior period.
Video production revenues decreased to $619,455 for the three months ended
December 31, 1997 from $837,560 for the three months ended December 31, 1996, a
decrease of $218,105 or 26.0%. Video production revenues were less in 1997 than
in 1996 primarily due to a decrease in the number of videos produced.
Cost of sales for video productions decreased to $461,755 for the three months
ended December 31, 1997 from $696,237 for the three months ended December 31,
1996, a decrease of $234,482 or 33.7%. The decrease was primarily attributable
to the decrease in video production revenues.
Gross profit as a percentage of video production revenues increased to 25.4% for
the three months ended December 31, 1997 from 16.9% for the three months ended
December 31, 1996, as the 1997 jobs were in the aggregate more profitable.
Music artist management revenues increased to $123,994 for the three months
ended December 31, 1997 from $118,451 for the three months ended December 31,
1996, an increase of $5,543 or 4.7%. The Company's music artist management
operations has no cost of sales associated with it.
Record label revenues for the three months ended December 31, 1997 were
$1,124,468 and resulted from shipments of Daryl Hall & John Oates recently
released album "Marigold Sky". Gross margin amounted to $487,476. There were no
record label sales for the three months ended December 31, 1996.
The Company's selling, general and administrative expenses increased to
$1,657,803 for the three months ended December 31, 1997 from $406,082 for the
three months ended December 31, 1996, an increase of $1,251,721 or 308.2%. The
increase is primarily attributable to the start-up of Push, expenses to promote
"Marigold Sky", building an infrastructure to operate and manage a public
company and executive compensation.
The Company's income (loss) before income taxes resulted in a loss of $566,937
for the three months ended December 31, 1997 compared with a profit of $10,000
for the three months ended December 31, 1996. The decrease was primarily
attributable to the increase in selling, general and administrative expenses as
noted above.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
During the six months ended December 31, 1997, the Company had used cash in
operating activities in the amount of $1,789,706 as compared to cash provided by
operating activities of $45,273 for the six months ended December 31, 1996. This
decrease was primarily attributable to decreases in net income, accrued payroll
and related expenses, and increases in accounts receivable, prepaid costs and
other current assets partially offset by increases in deferred revenues and
accrued expenses and other current liabilities.
During the six months ended December 31, 1997, the Company used cash for
investing activities in the amount of $1,186,987 as compared to cash used for
investing activities of $36,674 for the six months ended December 31, 1996. The
cash was used for the construction of the Company's newly leased facility and
the purchase of property and equipment and cash which collateralizes a letter of
credit in connection with the leased facility.
During the six months ended December 31, 1997, the Company had net cash provided
by financing activities of $1,667 compared to net cash used in financing
activities of $145,280 for the six months ended December 31, 1996. In the 1996
period the Company received net proceeds of approximately $210,000 from the sale
of 78,333 shares of common stock and $100,000 from a bank loan by Republic
National Bank to one of its subsidiaries, guaranteed by the Company. The Company
used approximately $165,000 for deferred registration costs.
During the current fiscal year, the Company expects to invest approximately
$300,000 in expanding its core businesses through increased marketing and
promotion efforts. This amount includes increasing the size of the Company's
marketing staff and certain equipment and computer purchases. In addition, the
Company will complete the construction of its newly leased facility. The
ultimate costs of the construction are expected to approximate $1.1 million. The
Company has begun to expend funds for the establishment of its record label.
The Company believes that cash generated from the proceeds of the initial public
offering, cash from operations and current cash balances will be sufficient to
meet the Company's operating capital requirements for at least the next 12
months. There can be no assurance, however, that the Company will not require
additional financing before the end of such 12 month period. A significant
factor which will affect the Company's need for additional financing is the
Company's acquisition program. The establishment of additional record labels or
other business in the future could also require the Company to obtain additional
capital. If the Company were required to obtain additional capital in the
future, there can be no assurance that sources of capital will be available on
terms acceptable to the Company.
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.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 Employment Agreement Amendment dated as of July 1, 1997 among
Registrant, Rave and John Loeffler
10.30 Employment Agreement Amendment dated as of July 1, 1997 among
Registrant, All Access and Richard Flynn
10.31 Employment Agreement Amendment dated as of July 1, 1997 among
Registrant, Push Records and Brian Doyle
10.32 Employment Agreement Amendment dated as of July 1, 1997 among
Registrant, Picture Vision and Jon Small
10.33 Employment Agreement dated as of December 1, 1997 between
Registrant and Joseph Gallo
10.34 Consulting Agreement dated January 15, 1998 between Registrant
and Thomas J. Edelman
10.35 Consulting Agreement dated January 15, 1998 between Registrant
and Thomas Cohen
10.36 Outside Director Compensation Agreement dated January 15, 1998
between Registrant and Thomas J. Edelman
10.37 Outside Director Compensation Agreement dated January 15, 1998
between Registrant and Thomas Cohen
10.38 Personal Services Agreement between Push Records and Bruce M.
Somers and Nancy Free p/k/a/ Kidney Thieves
10.39 Form of Licensing Agreement dated November 4, 1997 between
Push Records and Eagle Rock Entertainment, PLC.
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized
PARADISE MUSIC & ENTERTAINMENT, INC.
By: /s/ John Loeffler
-----------------------------------------
John Loeffler, Chairman of the Board,
Chief Executive Officer and President
By: /s/ Joseph A. Gallo
-----------------------------------------
Joseph A. Gallo, Senior Vice President
and Chief Financial Officer
Date: February 11, 1998
16
Amendment No. 1 ("Amendment No. 1") to Employment Agreement
("Employment Agreement") made as of the 1st day of July, 1997, by and among John
Leffler Music, Inc. d/b/a Rave Music Group, Inc. having offices at 53 West 23rd
Street, New York, NY 10010, (the "Company"), Paradise Music Entertainment, Inc.
("Paradise") and JOHN LOEFFLER, an individual with an address at 53 West 23rd
Street, New York, New York (the "Executive"). The Company and Paradise are
sometimes collectively referred to herein as the "Employer."
The parties hereto wish to amend the Employment Agreement in the
following respects:
1. Except as otherwise provided in this Amendment No. 1, the
terms used herein shall have the same meaning as the meaning
set forth in the Employment Agreement.
2. The effective date of Amendment No. 1 shall be July 1, 1997.
3. Section 4 (a)(v) of the Employment Agreement shall be amended
by deleting the first sentence thereof and substituting the
following:
"Any amounts which are deemed to be Loans to the
Executive (as computed in accordance with subsection (ii)
above) shall be repayable by the Executive to the Paradise as
follows: (x) 25% of the principal amount of the Loan at the
end of each of the first and second fiscal years following the
fiscal year on which the Loan occurred and (y) the remaining
principal balance of the Loan at the end of the third fiscal
year following the fiscal year in which the Loan occurred.
4. The third sentence of Section 4(b) of the Employment Agreement
shall be amended by deleting it in its entirety and
substituting the following therefor:
"For purposes hereof, the term "extraordinary items"
shall mean all expenses (in the aggregate amount of $10,000 or
more) incurred by Paradise outside the normal course of
business that are determined in the sole discretion of the
Compensation Committee of the Board of Directors of Paradise
to be extraordinary items for purposes of this Section 4(b).
5. The Employment Agreement as amended by this Amendment No. 1
shall
<PAGE>
remain in full force and effect.
IN WITNESS WHEREOF, the parties have set their hands and seals on and as
of the day and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
----------------------------------------------
Name:
Title:
JOHN LEFFLER MUSIC, INC.
D/B/A RAVE MUSIC GROUP, INC.
By:
----------------------------------------------
Name:
Title:
/s/ John Loeffler
-------------------------------------------------
John Loeffler
Amendment No. 1 ("Amendment No. 1") to Employment Agreement
("Employment Agreement") made as of the 1st day of July, 1997, by and among All
Access Entertainment Management Group, Inc., having offices at 53 West 23rd
Street, New York, NY 10010, (the "Company"), Paradise Music Entertainment, Inc.
("Paradise") and RICHARD FLYNN, an individual with an address at 53 West 23rd
Street, New York, New York (the "Executive"). The Company and Paradise are
sometimes collectively referred to herein as the "Employer."
The parties hereto wish to amend the Employment Agreement in the
following respects:
1. Except as otherwise provided in this Amendment No. 1, the
terms used herein shall have the same meaning as the meaning
set forth in the Employment Agreement.
2. The effective date of Amendment No. 1 shall be July 1, 1997.
3. Section 4 (a)(v) of the Employment Agreement shall be amended
by deleting the first sentence thereof and substituting the
following:
"Any amounts which are deemed to be Loans to the
Executive (as computed in accordance with subsection (ii)
above) shall be repayable by the Executive to the Paradise as
follows: (x) 25% of the principal amount of the Loan at the
end of each of the first and second fiscal years following the
fiscal year on which the Loan occurred and (y) the remaining
principal balance of the Loan at the end of the third fiscal
year following the fiscal year in which the Loan occurred.
4. The third sentence of Section 4(b) of the Employment Agreement
shall be amended by deleting it in its entirety and
substituting the following therefor:
"For purposes hereof, the term "extraordinary items"
shall mean all expenses (in the aggregate amount of $10,000 or
more) incurred by Paradise outside the normal course of
business that are determined in the sole discretion of the
Compensation Committee of the Board of Directors of Paradise
to be extraordinary items for purposes of this Section 4(b).
5. The Employment Agreement as amended by this Amendment No. 1
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seals on
and as of the day and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
----------------------------------------------
Name:
Title:
ALL ACCESS ENTERTAINMENT
MANAGEMENT, INC.
By:
----------------------------------------------
Name:
Title:
/s/ Richard Flynn
-------------------------------------------------
Richard Flynn
Amendment No. 1 ("Amendment No. 1") to Employment Agreement
("Employment Agreement") made as of the 1st day of July, 1997, by and among Push
Records, Inc. having offices at 53 West 23rd Street, New York, NY 10010, (the
"Company"), Paradise Music Entertainment, Inc. ("Paradise") and BRIAN DOYLE, an
individual with an address at 53 West 23rd Street, New York, N.Y. 10010 (the
"Executive"). The Company and Paradise are sometimes collectively referred to
herein as the "Employer."
The parties hereto wish to amend the Employment Agreement in the
following respects:
1. Except as otherwise provided in this Amendment No. 1, the
terms used herein shall have the same meaning as the meaning
set forth in the Employment Agreement.
2. The effective date of Amendment No. 1 shall be July 1, 1997.
3. Section 4 (a)(v) of the Employment Agreement shall be amended
by deleting the first sentence thereof and substituting the
following:
"Any amounts which are deemed to be Loans to the
Executive (as computed in accordance with subsection (ii)
above) shall be repayable by the Executive to the Paradise as
follows: (x) 25% of the principal amount of the Loan at the
end of each of the first and second fiscal years following the
fiscal year on which the Loan occurred and (y) the remaining
principal balance of the Loan at the end of the third fiscal
year following the fiscal year in which the Loan occurred.
4. The third sentence of Section 4(b) of the Employment Agreement
shall be amended by deleting it in its entirety and
substituting the following therefor:
"For purposes hereof, the term "extraordinary items"
shall mean all expenses (in the aggregate amount of $10,000 or
more) incurred by Paradise outside the normal course of
business that are determined in the sole discretion of the
Compensation Committee of the Board of Directors of Paradise
to be extraordinary items for purposes of this Section 4(b).
5. The Employment Agreement as amended by this Amendment No. 1
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seals on and as
of the day and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
----------------------------------------------
Name:
Title:
PUSH RECORDS, INC.
By:
----------------------------------------------
Name:
Title:
/s/ Brian Doyle
-------------------------------------------------
Brian Doyle
Amendment No. 1 ("Amendment No. 1") to Employment Agreement
("Employment Agreement") made as of the 1st day of July, 1997, by and among
Picture Vision, Inc. having offices at 209 Tenth Avenue South, Suite 425,
Nashville, TN 37203 (the "Company"), Paradise Music Entertainment, Inc.
("Paradise") and JON SMALL, an individual with an address at 209 Tenth Avenue
South, Suite 425, Nashville, TN 37203 (the "Executive"). The Company and
Paradise are sometimes collectively referred to herein as the "Employer."
The parties hereto wish to amend the Employment Agreement in the
following respects:
1. Except as otherwise provided in this Amendment No. 1, the
terms used herein shall have the same meaning as the meaning
set forth in the Employment Agreement.
2. The effective date of Amendment No. 1 shall be July 1, 1997.
3. Section 4 (a)(v) of the Employment Agreement shall be amended
by deleting the first sentence thereof and substituting the
following:
"Any amounts which are deemed to be Loans to the
Executive (as computed in accordance with subsection (ii)
above) shall be repayable by the Executive to the Paradise as
follows: (x) 25% of the principal amount of the Loan at the
end of each of the first and second fiscal years following the
fiscal year on which the Loan occurred and (y) the remaining
principal balance of the Loan at the end of the third fiscal
year following the fiscal year in which the Loan occurred.
4. The third sentence of Section 4(b) of the Employment Agreement
shall be amended by deleting it in its entirety and
substituting the following therefor:
"For purposes hereof, the term "extraordinary items"
shall mean all expenses (in the aggregate amount of $10,000 or
more) incurred by Paradise outside the normal course of
business that are determined in the sole discretion of the
Compensation Committee of the Board of Directors of Paradise
to be extraordinary items for purposes of this Section 4(b).
5. The Employment Agreement as amended by this Amendment No. 1
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seals on and as
of the day and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
----------------------------------------------
Name:
Title:
PICTURE VISION, INC.
By:
----------------------------------------------
Name:
Title:
/s/ Jon Small
-------------------------------------------------
Jon Small
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of December, 1997, by and between
Paradise Music Entertainment, Inc. ("Paradise") having offices at 53 West 23rd
Street, New York, N.Y. 10010 and JOSEPH GALLO, an individual with an address at
53 West 23rd Street, New York, New York (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed as the Senior Vice President
and Chief Financial Officer of Paradise under the terms of a Memorandum of
Understanding effective October 1, 1997 ("Prior Memorandum").
WHEREAS Paradise and the Executive wish to set forth the terms and
conditions of the Executive's employment by Paradise effective as of December 1,
1997 ("Effective Date") and wish to terminate the Prior Memorandum as of the
Effective Date.
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. The Company agrees to employ the Executive for the Term
specified in Section 2 and in the capacities set forth in Section 3 and the
Executive agrees to accept such employment, upon the terms and conditions
hereinafter set forth.
2. Term. This Agreement shall be for a term commencing on the Effective
Date and expiring on November 30, 1998 unless otherwise sooner terminated as
provided in this Agreement (the "Term"). This Agreement shall automatically be
extended for additional one year periods unless either party advises the other,
in writing delivered not less than 90-days prior to the expiration of the Term
then in effect, of its intention not to be extend this Agreement. If this
Agreement is so extended, then the "Term" shall also be deemed to include such
extensions. If the Term is not extended by Paradise at any time other than as
provided in Section 7 (as to which no severance shall be payable), the Executive
shall be entitled to a one time severance payment equal to 50% of his annual
salary.
3. Duties and Responsibilities.
(a) During the Term, the Executive shall serve Senior Vice President
and Chief Financial Officer of Paradise and shall be responsible for the
direction and control of all financial reports and controls of Paradise
including without limitation the preparation of all financial information
necessary to support internal management requirements, tax requirements,
requirements of Paradise's outside auditors and required reports for the
Securities and Exchange Commission.
<PAGE>
(b) The Executive shall devote substantially all his business
efforts to the affairs of Paradise. The Executive will (i) devote his best
efforts, skill and ability to promote the Paradise's interests; (ii) carry out
his duties in a competent and professional manner; and (iii) work with other
employees of the Paradise in a competent and professional manner.
4. Compensation.
(a) As compensation for services rendered hereunder the Company
shall pay the Executive during the Term, in accordance with the Company's normal
payroll practices, compensation at an annual rate of $125,000 ("Annual Salary").
(b) The Executive shall also be entitled to bonuses including cash,
stock and/or stock options, if any, awarded to him by the Board of Directors or
the Compensation Committee of Paradise.
(c) The Executive will be granted effective as of December 1, 1997,
in lieu of any prior obligations under the Prior Memorandum to grant options to
Executive, a five year option to purchase 25,000 shares of Paradise Common Stock
under its Incentive Stock Option Plan at the average of the bid and the asked
price of Paradise Common Stock as of the close of business on December 1, 1997
("A Option") and a five year option to purchase an additional 25,000 shares of
Paradise Common Stock at $1.00 above the average of the bid and the asked price
of Paradise Common Stock as of the close of business on December 1, 1997 ("B
Option"). Each of the A and B Options will vest in three segments of 8,333,
8,333 and 8,334 shares respectively at the end of each of the first three years
of Executive's continuous employment, giving Executive credit for continuous
service commencing October 1, 1997.
5. Benefits.
(a) During the Term, the Executive shall be entitled to participate
in the benefit plans established by Paradise for the benefit of its key
executives including a health benefit plan. If in the future no health benefit
plan is then in effect, the Executive shall be entitled to either purchase
health coverage reasonably acceptable to the Company and be reimbursed for such
purchase or the Company shall directly purchase such coverage. All of the
foregoing assumes no pre-existing condition which would make such coverage
either impossible or prohibitively expensive to obtain0.
(b) The Executive shall be entitled to three (3) weeks of paid
vacation.
(c) The Executive shall be entitled to participate in the retirement
plan of Paradise (the "Plan") qualified under Sections 401(a) and 501(a) of the
Internal Revenue Code of
- 2 -
<PAGE>
1986, as amended (the "Code"). The Plan shall provide for a contribution by
Paradise to the retirement account for Executive established under the Plan.
(d) Paradise hereby agrees to indemnify, release and hold harmless
the Executive when and if: (i) he is the subject of any claim or is or becomes a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative,
investigative or criminal by reason of the fact that he is or was an officer,
director, employee, consultant or agent to Paradise, or by reason of any action
alleged to have been taken or omitted in such capacity; (ii) against any and all
costs, charges and expenses, including, without limitation, reasonable
attorneys' and other fees and expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Executive in connection
therewith and any appeal therefrom if the Executive acted in good faith and in a
manner he reasonably believed to be in the best interests of the Company, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any civil action, suit or
proceeding by settlement or consent decree shall not, of itself, create a
presumption that the Executive did not satisfy the foregoing standard of conduct
to the extent applicable thereto.
6. Key Man Insurance. Paradise shall have the right to obtain key man life
insurance for the benefit of Paradise on the life of the Executive. If requested
by Paradise, the Executive shall submit to such physical examination and
otherwise take such actions and execute and deliver such documents as may be
reasonably necessary to enable Paradise to obtain such life insurance. The
Executive has no reason to believe that his life is not insurable with a
reputable insurance company at rates now prevailing in the City of New York for
healthy men of his age.
7. Discharge by Paradise. Paradise shall be entitled to immediately
terminate the Term and to discharge the Executive for cause, which shall be
limited to the following grounds:
(a) Conviction of a felony; or
(b) Commission of a willful or intentional act which could
materially injure the reputation, business or business relationships of Paradise
including the violation of the terms of Sections 10 hereof.
8. Disability, Death.
(a) If the Executive shall be unable to perform his duties hereunder
by virtue of illness or physical or mental incapacity or disability (from any
cause or causes whatsoever) in substantially the manner and to the extent
required hereunder prior to the commencement of such disability as determined by
a competent medical doctor (all such causes being herein referred to as
"Disability") and the Executive shall fail to have performed substantially such
duties for 90 consecutive days or for periods aggregating 180 days, whether or
not continuous, in any
- 3 -
<PAGE>
continuous period of one year (such 90th or 180th day to be known as the
"Disability Date"), Paradise shall have the right to terminate the Executive's
employment hereunder as at the end of any calendar month thereafter upon written
notice to him. The Executive shall be entitled to his Annual Salary for the
remainder of the Term for the year of the Term in which the Disability Date
occurred plus any bonuses earned through the Disability Date.
(b) In case of the death of the Executive, this Agreement shall
terminate and Paradise shall be obligated to pay to the Executive's estate or as
otherwise directed by the Executive's duly appointed and authorized legal
representative, the Annual Salary for the remainder of the Term and any bonuses
earned through the date of death.
9. Voluntary Termination. If the Executive voluntarily terminates his
employment prior to the end of the Term, he shall only be entitled to receive
compensation accrued through the date of termination;
10. Confidential Information. The Executive recognizes that he will occupy
a position of trust with respect to business and technical information of a
secret or confidential nature which is the property of Paradise, or any of its
affiliates, and which has been and will be imparted to him from time to time in
the course of his employment with Paradise. In light of this understanding, the
Executive agrees that:
(a) the Executive shall not at any time knowingly use or disclose,
directly or indirectly, any of the confidential information or trade secrets
which is the property of Paradise, or any of its affiliates, to any person,
except that he may use and disclose to authorized Paradise personnel, licensees
or franchisees in the course of his employment; and
(b) within five (5) days from the date upon which his employment
with Paradise is terminated, for any reason or for no reason, or otherwise upon
the request of Paradise, he shall return to Paradise any and all documents and
materials which constitute or contain the confidential information or trade
secrets of Paradise, or any of its affiliates.
For purposes of this Agreement, the terms "confidential information" or "trade
secrets" shall include all information of any nature and in any form which is
owned by Paradise, or any of its affiliates, and which is not publicly available
or generally known to persons engaged in businesses similar to that of Paradise,
or any of its affiliates. Notwithstanding the foregoing, when the Executive's
employment with Paradise is terminated, for whatever reason, the limitations
provided in this Section 10 shall not prevent the Executive from using for his
own benefit any information which he acquired prior to the Effective Date.
11. Resolution of Disputes. Any dispute by and among the parties hereto
arising out of or relating to this Agreement, the terms, conditions or a breach
thereof, or the rights or obligations of the parties with respect thereto, shall
be arbitrated in the City of New York, New York before and pursuant to then
applicable commercial rules and regulations of the American
- 4 -
<PAGE>
Arbitration Association, or any successor organization. The arbitration
proceedings shall be conducted by a panel of three arbitrators, one of whom
shall be selected by Paradise, one by the Executive (or his legal
representative) and the third arbitrator by the first two so chosen. The parties
shall use their best efforts to assure that the selection of the arbitrators
shall be completed within 30 days and the parties shall use their best efforts
to complete the arbitration as quickly as possible. In such proceeding, the
arbitration panel shall determine who is a substantially prevailing party and
shall award to such party its reasonable attorneys', accountants' and other
professionals' fees and its costs incurred in connection with the proceeding.
The award of the arbitration panel shall be final, binding upon the parties and
nonappealable and may be entered in and enforced by any court of competent
jurisdiction. Such court may add to the award of the arbitration panel
additional reasonable attorneys' fees and costs incurred by the substantially
prevailing party in attempting to enforce such award.
12. Enforceability. The failure of either party at any time to require
performance by the other party of any provision hereunder shall in no way affect
the right of that party thereafter to enforce the same, nor shall it affect any
other party's right to enforce the same, or to enforce any of the other
provisions of this Agreement; nor shall the waiver by either party of the breach
of any provision hereof be taken or held to be a waiver of any subsequent breach
of such provision or as a waiver of the provision itself.
13. Assignment. This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of Paradise
hereunder shall be binding upon and run in favor of the successors and assigns
of Paradise. If any assignment or transfer of rights hereunder is attempted by
the Executive contrary to the provisions hereof, Paradise shall have no further
liability for payments hereunder.
14. Modification. This Agreement may not be canceled, changed, modified or
amended orally, and no cancellation, change, modification or amendment shall be
effective or binding, unless it is in writing, signed by both parties to this
Agreement.
15. Severability; Survival. If any provision of this Agreement is held to
be void and unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement nevertheless shall be binding upon the parties with
the same effect as though the void or enforceable part has been severed and
deleted.
16. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or by
telex, telecopier or telegraph, charges prepaid, to the following address:
To the Employer: Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
- 5 -
<PAGE>
with a copy to: Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attn: Walter M. Epstein, Esq.
To the Executive: Joseph Gallo
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
17. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. No Conflict. The Executive represents and warrants that he is not
subject to any agreement, instrument, order, judgment or decree of any kind, or
any other restrictive agreement of any character, which would prevent him from
entering into this agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this agreement.
19. Entire Agreement. This agreement represents the entire agreement
between Paradise and the Executive with respect to the subject matter hereof,
and all prior agreements relating to the employment of the Executive, written or
oral, are nullified and superseded hereby.
IN WITNESS WHEREOF, the parties have set their hands and seals on and as
of the day and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
-----------------------------------------
Name:
Title:
/s/ Joseph Gallo
--------------------------------------------
Joseph Gallo
- 6 -
Paradise Music & Entertainment, Inc.
53 West 23rd Street - 7th Floor
New York, N.Y. 10010
January 15, 1998
Mr. Thomas J. Edelman
Patina Oil & Gas Corporation
667 Madison Avenue -22nd Floor
New York, N.Y. 10021
Re: Consulting Services
Dear Tom:
The purpose of this letter is to set forth our agreement for the
calendar year 1998 with respect to having you provide consulting services to
Paradise Music & Entertainment, Inc. (the "Company").
You have agreed that you will provide the Company with consulting
services as reasonably requested by the Company in connection with matters
beyond your responsibilities as an outside director. Matters covered by your
consulting services hereunder shall principally involve assistance in the
preparation and review of press releases, assistance and advice with respect to
presentations made by the Company in its Federal Securities law filings and
other matters such as attention to certain day to day business questions as to
which you have rendered advice in the past.
For your consulting services you shall be paid quarterly in arrears
at the rate of $1,500 per month no later than the fifteenth day of the month
following the end of each quarter. Services which the Company requests you to
provide on acquisitions and other significant transactions are not covered by
this Agreement and will be subject to separate agreed upon compensation.
This agreement may be terminated by either the Company or you on
three months prior written notice. Except as terminated by either party, this
Agreement shall continue for a two year period. Will you please indicate your
acceptance of the terms of this agreement by signing and returning a copy of
this letter in the space indicated below.
Very truly yours,
Paradise Music & Entertainment, Inc.
/s/ John Loeffler, President
-----------------------------------------
By: John Loeffler, President
Accepted and Agreed
/s/ Thomas J. Edelman
- -------------------------------
Thomas J. Edelman
[Letterhead of Paradise Music & Entertainment, Inc.]
January 15, 1998
Mr. Thomas Cohen
1290 Avenue of the Americas
2nd Floor
New York, N.Y. 10104
Re: Consulting Services
Dear Tom:
The purpose of this letter is to set forth our agreement for the
calendar year 1998 with respect to having you provide consulting services to
Paradise Music & Entertainment, Inc. (the "Company").
You have agreed that you will provide the Company with consulting
services as reasonably requested by the Company in connection with matters
beyond your responsibilities as an outside director. Matters covered by your
consulting services hereunder shall principally involve assistance in the
preparation and review of press releases, assistance and advice with respect to
presentations made by the Company in its Federal Securities law filings and
other matters such as attention to certain day to day business questions as to
which you have rendered advice in the past.
For your consulting services you shall be paid quarterly in arrears
at the rate of $1,000 per month no later than the fifteenth day of the month
following the end of each quarter. Services which the Company requests you to
provide on acquisitions and other significant transactions are not covered by
this Agreement and will be subject to separate agreed upon compensation.
This agreement may be terminated by either the Company or you on
three months prior written notice. Except as terminated by either party, this
Agreement shall continue for a two year period. Will you please indicate your
acceptance of the terms of this agreement by signing and returning a copy of
this letter in the space indicated below.
Very truly yours,
Paradise Music & Entertainment, Inc.
/s/ John Loeffler, President
-------------------------------------
By: John Loeffler, President
Accepted and Agreed
/s/ Thomas Cohen
- ------------------------------
Thomas Cohen
{Letterhead of Paradise Music & Entertainment, Inc.]
January 15, 1998
Mr. Thomas J. Edelman
Patina Oil & Gas Corporation
667 Madison Avenue -22nd Floor
New York, N.Y. 10021
Re: Compensation as an Outside Director
Dear Tom:
The purpose of this letter is to confirm the arrangements that have
been in effect since July 1, 1997 with respect to fees payable to you as an
outside Director. The arrangements that we have been operating under since July
1, 1997 are that you will be paid an annual directors fee of $18,000 for each
fiscal year. One half of the compensation is payable in cash on a quarterly
basis and one half is payable in shares of common stock on a quarterly basis
valued at the closing price of the last trading day of each quarter. As we
agreed, there will be no other compensation payable to you as an outside
director, other than reimbursement of out of pocket expenses. This will also
acknowledge that you are automatically entitled to receive options covering
5,000 shares under the outside Directors Stock Option Program on each July 1, so
long as you remain an outside director.
A consulting agreement is to be entered into as of January 1, 1998
covering consulting services to be performed by you beyond your duties as an
outside director.
I tremendously appreciate and value your help. Will you please
confirm our arrangement by signing a copy of this letter in the space indicated
below and returning it to me.
Very truly yours,
/s/ John Loeffler, President
-------------------------------------
By: John Loeffler, President
Accepted and Agreed
/s/ Thomas J. Edelman
- ---------------------------------
Thomas J. Edelman
[Letterhead of Paradise Music & Entertainment, Inc.]
January 15, 1998
Mr. Thomas Cohen
1290 Avenue of the Americas
2nd Floor
New York, N.Y. 10104
Re: Compensation as an Outside Director
Dear Tom:
The purpose of this letter is to confirm the arrangements that have
been in effect since July 1, 1997 with respect to fees payable to you as an
outside Director. The arrangements that we have been operating under since July
1, 1997 are that you will be paid an annual directors fee of $18,000 for each
fiscal year. One half of the compensation is payable in cash on a quarterly
basis and one half is payable in shares of common stock on a quarterly basis
valued at the closing price of the last trading day of each quarter. As we
agreed, there will be no other compensation payable to you as an outside
director, other than reimbursement of out of pocket expenses. This will also
acknowledge that you are automatically entitled to receive options covering
5,000 shares under the outside Directors Stock Option Program on each July 1, so
long as you remain an outside director.
A consulting agreement is to be entered into as of January 1, 1998
covering consulting services to be performed by you beyond your duties as an
outside director.
I tremendously appreciate and value your help. Will you please
confirm our arrangement by signing a copy of this letter in the space indicated
below and returning it to me.
Very truly yours,
/s/ John Loeffler, President
-------------------------------------
By: John Loeffler, President
Accepted and Agreed
/s/ Thomas Cohen
- ---------------------------------
Thomas Cohen
PUSH
RECORDS
December 8, 1997
Nancy Free and Bruce M. Somers
c/o Josh Levine
Rebel Music
10573 Pico Blvd.
Los Angeles, CA 90064
Re: Push Records w/ Nancy Free and Bruce M. Somers
p/k/a KIDNEY THIEVES
Dear Mr. Somers and Ms. Free,
This letter shall supersede all letters or other communications by and
between the parties hereto (including without limitation, by and between their
respective agents, attorneys and so forth) prior to the above date regarding the
subject matter hereof, and shall confirm the material terms of the worldwide
exclusive recording agreement reached between you Nancy Free and Bruce M. Somers
p/k/a Kidney Thieves ("you" or "Artist") and Push Records, Inc.( "Company"). The
terms outlined below are binding as a complete agreement until such time, if
any, as a full and more formal agreement has been fully executed.
1. Term and Product Commitment: Initial term is two (2) records firm.
2. Options: Three (3) separate options. The first option is for one record. The
second option is for two records firm. The third option is for one record for a
potential total (including the initial period and all options) of six (6)
records.
3. Territory: The world.
4. Delivery: LP 1 shall be delivered no later than four (4) months after date of
agreement. Each LP shall be released in the U.S. within one hundred and twenty
(120) days after delivery and acceptance by Company. Foreign release shall be
within one hundred eighty (180) days after the U.S. release. Each subsequent LP
is to be delivered no earlier than ten (10) and no later than eighteen (18)
months following delivery of the prior LP.
5. Advances/Funds: (a) The fund (including mastering and all recording costs)
for LP 1 is One Hundred Thousand Dollars ($100,000) one third of which will be
paid to Artist upon the full execution of this letter agreement with the balance
of the fund to be available upon the commencement of recording. The fund will be
administered by PUSH. The balance of the fund will be paid to Artist after
deducting all recording costs.
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Josh Levine
December 8, 1997
page 2
(b) The recording fund for LP 2 and subsequent LPs including all options, is
based upon a formula of three fourths of royalties earned by Artist on net sales
at U.S.N.R.C. for the immediately prior album, with a maximum reserve of fifteen
(15%) percent, calculated as of the earlier of the date of delivery of the
subject album or twelve (12) months after release of the prior LP with the
following minimums and maximums:
Record # Minimum Maximum
-------- ------- -------
2 $100,000 $200,000
3 $150,000 $300,000
4 $175,000 $350,000
5 $200,000 $400,000
6 $250,000 $500,000
(c) KIDNEY THIEVES shall have the right to administer the Funds for any LP
subsequent to the first LP, which will be payable one half (1/2) on commencement
of recording; one quarter (1/4) on completion of tracking; and one quarter (1/4)
on delivery and acceptance.
5A. MINIMUM COMPENSATION
(a) Company will pay to you compensation aggregating not less than the
amount indicated below with respect to the applicable Fiscal Year (as defined
below):
Fiscal Year Amount
----------- ------
First $9,000
Second $12,000
Third $15,000
Fourth $15,000
Fifth $15,000
Sixth $15,000
Seventh $15,000
"Fiscal Year," in this paragraph, means the annual period beginning on the date
of commencement of the term of this Agreement, and each subsequent annual period
during the continuance of that term beginning on the anniversary of that
commencement date.
(b) If you have not been paid compensation of at least the amount
indicated above with respect to a particular Fiscal Year in connection with your
services under this Agreement, Company will pay the amount of such deficiency
directly to you before the end of that Fiscal Year. At least forty (40) days
before the end of each Fiscal Year you will notify Company if you have not been
paid compensation of at least the amount indicated above with respect to a
particular Fiscal Year in connection with your services, and of the amount of
such deficiency. Company will have the right to make any such payments at our
election if Company determines, in Company's sole discretion, that Company lacks
sufficient information to deem itself assured to have complied with subparagraph
5A(a). Each such payment made by Company will constitute an Advance
<PAGE>
Josh Levine
December 8, 1997
page 3
and will be applied in reduction of any and all monies subsequently becoming due
to you under this Agreement. Company may not withhold or require you to repay
any such payment under any other provision of this Agreement. If the term of
this Agreement ends before the last day of a Fiscal Year, the applicable sum
referred to in subparagraph 5A(a) and the first sentence of this subparagraph
(b) will be reduced proportionally for the purpose of computing the payment to
be made under this paragraph for the Fiscal Year.
(c) You acknowledge that this paragraph is included to avoid compromise of
Company's rights (including Company's entitlement to injunctive relief) by
reason of a finding of applicability of California law, but does not constitute
a concession by Company that California law is actually applicable.
6. Royalties: Paid on one hundred percent (100%) of sales of top line product at
USNRC. "All in" rate is based upon suggested retail list price (SRLP) for top
line product less container charge of twenty five percent (25%) for CDs and
twenty percent (20) for cassettes running sixty (60) minutes or less.
(a) U.S. Royalty Rates
Record # Basic Royalty Rate
-------- ------------------
1 & 2 16%
3 & 4 16.5%
5 & 6 17%
(b) The foreign royalty rate (the "Foreign Rate") on Net Sales of Top-Line
Records (other than Audiovisual Records) sold for distribution through normal
retail channels in territories outside the United States by Company or its
Principal Licensee shall equal one half (1/2) of Company's net receipts paid to
Company by its licensee(s).
(c) Audiovisual royalties: In U.S. on Net Sales of Top Line - 18%; foreign
rate -14%; 50% of Video Net Receipts where sold by a third party licensee.
Commercial exploitation(s) of videos shall require the prior written consent of
Artist.
Royalty rates for USNRC net sales for each record will escalate,
prospectively, one half (1/2 %) percent upon USNRC net sales of the applicable
record reaching five hundred thousand (500,000) units and an additional one-half
(1/2%) percent upon USNRC net sales reaching one million (1,000,000) units.
Subsequent record rates will be no lower than the highest rate of the previous
record. Compact disc rate is eighty seven and one-half percent (87.5%) of basic
royalty. Customary free goods not to exceed twenty percent (20%) for LPs and
twenty-three (23%) for singles. Company shall have the right to offer special
free goods up to an additional ten (10%) percent.
<PAGE>
Josh Levine
December 8, 1997
page 4
Reduced rates apply for, mid price (18 month holdback), budget (24 month
holdback), cut outs, clubs, PX, etc.
6A. ACCOUNTING.
(a) Statements as to royalties payable hereunder shall be sent by Company
to you within ninety (90) days after the expiration of each semi annual period
for the preceding semi annual period ending the last fiscal day of June or
December. Notwithstanding the foregoing, Company may, if Company elects, change
the aforesaid time and dates, provided, however, in the event of such change,
statements shall be rendered to you no less frequently than semi-annually.
Notice of such change shall be provided with the first accounting sent pursuant
to the changed time and dates. Concurrently with the rendition of each
statement, Company shall pay you all royalties shown to be due by such
statement, after deducting all Recording Costs paid by Company, all payments
made therefor to or on behalf of you and Artist, and all Advances made to you
and Artist prior to the rendition of the statement.. Company may maintain
reasonable reserves; each such royalty reserve shall be liquidated evenly over
the next four semi-annual accounting periods following the accounting period in
which it is established. Company shall not establish any royalty reserve during
any particular accounting period: (i) with respect to Albums in excess of thirty
percent (30%), or (ii) with respect to Singles, Maxi-Singles, and EPs in excess
of forty percent (40%), of the aggregate number of Albums or Singles, or
Maxi-Singles, or EPs, as the case may be, shipped to Company's customers, unless
Company's distributor requires a reserve larger than the aforesaid limits in
which case Company may increase the reserve hereunder only by the amount that
Company's distributor actually increases the reserve rate. You shall be deemed
to have consented to all accountings rendered by Company hereunder and said
accountings shall be binding upon you and not subject to any objection by you
for any reason unless specific objection, in writing, stating the basis thereof
is given to Company within two (2) years after the date Company is deemed to
have rendered the applicable statement, and after such written objection, unless
suit is instituted within three (3) years after the date Company is deemed to
have rendered the applicable statement. Company shall be deemed to have rendered
you each statement on the date prescribed in this paragraph 6(a) unless you
notify Company otherwise with respect to any particular statement within ninety
(90) days after the date that Company has failed to render that statement.
(b) You shall have the right at your sole cost and expense to appoint a
Certified Public Accountant or other qualified individual with experience in
record industry audits, who is not then currently engaged in an outstanding
audit of Company to examine Books and Records as same pertain to sales of
Records subject hereto as to which royalties are payable hereunder, provided
that any such examination shall be for a
<PAGE>
Josh Levine
December 8, 1997
page 5
reasonable duration, shall take place at Company's offices during normal
business hours on reasonable prior written notice and shall not occur more than
once in any calendar year. You may examine Books and Records with respect to a
particular statement only once.
7. Mechanical Royalties: For compositions written or controlled by KIDNEY
THIEVES, PUSH will pay seventy-five (75%) of the U.S. minimum statutory rate in
the U.S. at the time of release on record royalty bearing net sales not to
exceed eleven (11) times the U.S. minimum statutory rate for LP's, five (5)
times for Eps, three (3) times for 12" singles and two (2) times for 7" singles.
For USNRC Net Sales in excess of Five Hundred Thousand (500,000) units RECORD
COMPANY will pay eighty-seven and one half percent (87-1/2%) of the U.S. minimum
statutory rate. For USNRC Net Sales in excess of One Million (1,000,000) units
RECORD COMPANY will pay ninety-two and one half percent (92-1/2%) of the U.S.
minimum statutory rate. For USNRC Net Sales in excess of One Million Five
Hundred Thousand (1,500,000) units RECORD COMPANY will pay one hundred percent
(100%) of the U.S. minimum statutory rate.
In the event that any single, maxi-single, EP or LP contains other
Compositions in addition to Controlled Compositions and the aggregate mechanical
royalty rate for said single, maxi-single, EP or LP exceeds the applicable
maximum aggregate mechanical royalty rate provided above for Controlled
Compositions, the aggregate mechanical royalty rate for the Controlled
Compositions contained thereon shall be reduced by the aforesaid excess over
said applicable rate. Additionally, Company shall have the right with respect to
any single, maxi-single, EP or LP, the aggregate mechanical royalty rate for
which exceeds the applicable maximum aggregate mechanical royalty rate provided
above for Controlled Compositions, to deduct the excess payable thereon from all
royalties payable to you solely pursuant to this agreement. Mechanical royalty
payments on Records subsequently returned are considered overpayments.
8. Independent Promotion: Fifty (50%) percent of independent radio promotion
costs (not publicity or marketing) shall be deemed an advance.
9. Creative Control: Company and KIDNEY THIEVES shall mutually agree on all
material and producers and recording schedule. Company has budget approval
(deemed approved if within the fund). Delivery standard is commercially
satisfactory.
10. Album Artwork: KIDNEY THIEVES and Company will have the mutual right to
approve the design and execution of the artwork for all releases. KIDNEY THIEVES
will have the right to prepare LP artwork pursuant to non-recoupable budget of
twelve thousand five hundred dollars ($12,500) per LP.
11. Video: PUSH will produce one video in connection with each LP. Company and
Artist shall mutually select the director for each video produced hereunder.
Company will select, in consultation with KIDNEY THIEVES, creative elements,
budget and track selection of all videos. Fifty (50%) percent of video
production costs
<PAGE>
Josh Levine
December 8, 1997
page 6
are recoupable from record royalties and one hundred (100%) percent of video
production costs are recoupable from video royalties. For purposes of clarity
recoupment of video production costs pursuant to this paragraph shall not exceed
100% of video production costs (no double recoupment).
12. Tour Support: PUSH agrees to provide tour deficit financing in connection
with at least one (1) U.S. tour for LPs 1 and 2, in the amount of TWENTY FIVE
THOUSAND DOLLARS ($25,000) for LP 1 AND TWENTY FIVE THOUSAND DOLLARS ($25,000)
for LP 2, subject to Company's reasonable approval of tour budgets, itinerary
and dates. The parties will negotiate in good faith regarding tour support for
tours for future LPs.
13. Marketing: Company shall consult with you in good faith in a meaningful
manner regarding marketing plans company intends to implement for the Album
concerned.
14. Marketing Restrictions: Company shall not, without KIDNEY THIEVES' approval
which shall not be unreasonably withheld:
(a) sell records hereunder as Premium Records
(b) remix, re-edit or resequence any masters which are delivered and
accepted by Company for commercial release
(c) release any demonstration recordings
(d) release any so-called "outtakes
(e) license any master for use or synchronization with television
commercials (other than to advertise the LPs made hereunder), motion
pictures, TV shows or home videos
(f) couple more than two masters with masters of other artists for
U.S. commercial release except with respect to promotional samplers.
15. Attorneys Fees: Upon full execution of a long form recording agreement
between Artist and Company, Company shall pay to King, Purtich, Holmes, Paterno
& Berliner, on behalf of Artist, up to Five Thousand ($5,000) Dollars for
attorneys fees actually billed to Artist by for the negotiation of the long form
agreement.
16. Ownership of Masters:
(a) All Recordings made or furnished to Company by you or "Artist" under
this agreement or during the Term from the inception of the recording thereof,
and all reproductions derived therefrom, together with the performances embodied
thereon, shall be the property of Company in perpetuity for the Territory free
from any claims whatsoever by you or "Artist" or any other person. Company shall
have the exclusive right throughout the Territory to copyright those Recordings
in Company's name as the author and owner of them and to secure any and all
renewals and extensions of copyright throughout the Territory. Each such
Recording shall be considered a "work made for hire" for Company; if any such
Recording is determined not to be a "work made for hire," it will be deemed
transferred to Company by this agreement, together with all
<PAGE>
Josh Levine
December 8, 1997
page 7
rights in it. "Artist" hereby irrevocably and unconditionally waive any and all
moral and like rights that "Artist" has in the Recordings and in the
performances embodied therein and hereby agree not to make any claim against
Company or any person authorized by Company to exploit the Recordings based on
such moral or like rights. Without limiting the generality of the foregoing and
subject to the limitations in paragraph 14, Company and any Person authorized by
Company shall have the exclusive and unlimited right to all the results and
proceeds of "Artist's recording services rendered during the Term, including,
but not limited to, the exclusive, unlimited and perpetual rights throughout the
Territory:
(i) to manufacture, advertise, sell, lease, license, distribute or
otherwise use, exploit or dispose of, in any or all fields of use by any method
now or hereafter known, Records embodying Masters;
(ii) to release Records derived from Masters under any name,
trademark or label which Company or its subsidiaries, affiliates or licensees
may from time to time elect;
(iii) to perform such Masters publicly and to permit public
performances thereof by means of radio broadcast, television or any other method
now or hereafter known; and
(iv) to reproduce, adapt, transmit, communicate or otherwise use
Masters, all upon such terms and conditions as Company may elect, or at its
discretion, to refrain therefrom.
17. WARRANTIES AND REPRESENTATIONS; INDEMNITIES
You warrant and represent that:
You have the right and legal capacity to enter into this agreement, and
you are not subject to any prior obligations or agreements, whether as a party
or otherwise, which would restrict or interfere in any way with the full and
prompt performance of your obligations hereunder, and you shall fully and
promptly perform your obligations hereunder.
Company shall not be required to make any payments of any nature for or in
connection with the acquisition, exercise or exploitation of any of Company's
rights hereunder, except as specifically provided in this agreement. You shall
be solely responsible for all royalties (except mechanical royalties as provided
herein) payable to producers, mixers, remixers and others contributing to the
recording of Masters engaged by you or with your consent and all mechanical
royalties in excess of the applicable rates and/or the applicable maximum
aggregate mechanical royalty rates.
<PAGE>
Josh Levine
December 8, 1997
page 8
The Materials or any use thereof, as authorized hereunder, shall not
violate any law and shall not infringe upon or violate the rights of any Person
(including, without limitation, contractual rights, copyrights, rights of
publicity and rights or privacy) and that each track-by-track list identifying
the performers on each Master and describing their performances which you
furnish to Company is and shall be true, accurate and complete. "Materials," as
used in this subparagraph means: Masters hereunder (including any Sampled
Material embodied therein); all Controlled Compositions; each name used by
"Artist", individually or as a group, in connection with Masters hereunder; all
photographs and likenesses of "Artist"; and all other musical, dramatic,
artistic and literary materials, ideas, and other intellectual properties
furnished by you or "Artist", contained in or used in connection with any
Masters hereunder or their packaging, sale, distribution, advertising,
publicizing or other exploitation supplied by or approved by your or "Artist".
Company's acceptance and/or utilization of Masters, Materials, or track-by-track
lists hereunder shall not constitute a waiver of your representations,
warranties or agreements in respect thereof, or a waiver of any of Company's
rights or remedies.
You will insure that there will be delivered to Company all licenses
required under copyright for the recording of the musical compositions and any
other copyrighted material reproduced in the Recordings, and you will make all
payments (except mechanical royalties) required under those licenses;
The parties hereto agree to and do hereby indemnify, save and hold each
other harmless from any and all loss and damage (including court costs and
reasonable attorneys' fees) arising out of, connected with or as a result of any
third party claim resulting or derived from any inconsistency with, failure of,
or breach or threatened breach by you of any warranty, representation contained
in this agreement including, without limitation, any claim by any third party in
connection with the foregoing, which has resulted in a judgment against Company
or which has been settled with your consent, which consent shall not be
unreasonably withheld, it being agreed that such consent shall only be required
for settlements in excess of Five Thousand Dollars ($5,000.00). In addition to
any other rights or remedies Company may have by reason of any such
inconsistency, failure, breach, threatened breach or claim, Company may obtain
reimbursement from you, on demand, for any payment made by Company at any time
after the date hereof with respect to any loss, damage or liability (including
anticipated and actual court costs and reasonable attorneys' fees) resulting
therefrom. Such amounts may also be deducted from all monies becoming payable to
you by Company solely under this agreement to the extent to which they have not
been reimbursed to Company by you. If the amount of any such claim or loss has
not been determined, Company may withhold sums due you, except mechanical
royalties, in an amount consistent with such claim or loss pending such
determination unless you post a bond in a form and from a bonding company
acceptable to Company in an amount equal to Company's estimate of the amount of
the claim. Such withheld sums shall be released if suit is not filed within
<PAGE>
Josh Levine
December 8, 1997
page 9
twelve (12) months after Company is notified of or receives a communication with
respect to such claim; provided, however, that if such claim is thereafter
asserted, Company shall maintain the right to begin once again to withhold
monies. Company shall give you notice of any third party claim to which the
foregoing indemnity applies and you shall have the right to participate in the
defense of any such claim through counsel of your own choice and at your
expense; provided that Company shall have the right at all times, in Company's
sole discretion, to retain or resume control of the conduct thereof. Company
shall have the right without your consent to assign this agreement in whole or
in part to any subsidiary, parent company, affiliate, or to any third party
acquiring a substantial portion of Company's assets or stock; provided, however,
that Company shall remain liable for all payments required to be made to you and
all other material obligations hereunder. You shall not have the right to assign
this agreement or any of your rights or obligations hereunder, except that you
may assign your right to receive royalties hereunder to an entity owned or
controlled by all members of "Artist".
THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND
ITS VALIDITY, CONSTRUCTION, PERFORMANCE AND BREACH SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY
PERFORMED THEREIN. THE PARTIES HERETO AGREE TO SUBMIT YOURSELF TO THE
JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN NEW YORK CITY IN ANY
ACTION WHICH MAY ARISE OUT OF THIS AGREEMENT AND SAID COURTS SHALL HAVE
EXCLUSIVE JURISDICTION OVER ALL DISPUTES BETWEEN COMPANY AND YOU OR "ARTIST"
PERTAINING TO THIS AGREEMENT AND ALL MATTERS RELATED THERETO. IN THIS REGARD,
ANY PROCESS IN ANY ACTION OR PROCEEDING COMMENCED IN THE COURTS OF THE STATE OF
NEW YORK ARISING OUT OF ANY CLAIM, DISPUTE OR DISAGREEMENT UNDER THIS AGREEMENT
MAY, AMONG OTHER METHODS, BE SERVED UPON THE PARTIES HERETO BY DELIVERING OR
MAILING THE SAME, VIA REGISTERED OR CERTIFIED MAIL, ADDRESSED TO THE RESPECTIVE
PARTIES AT THE ADDRESSES PROVIDED HEREIN FOR NOTICES; ANY SUCH DELIVERY OR MAIL
SERVICE SHALL BE DEEMED TO HAVE THE SAME FORCE AND EFFECT AS PERSONAL SERVICE
WITHIN THE STATE OF NEW YORK. NOTHING CONTAINED IN THIS SUBPARAGRAPH SHALL
PRECLUDE THE PARTIES HERETO FROM JOINING THE OTHER PARTY IN AN ACTION BROUGHT BY
A THIRD PARTY AGAINST EITHER PARTY IN ANY JURISDICTION, ALTHOUGH THE FAILURE TO
JOIN THE OTHER PARTY IN ANY SUCH ACTION IN ONE INSTANCE SHALL NOT CONSTITUTE A
WAIVER OF ANY RIGHTS WITH RESPECT THERETO, OR WITH RESPECT TO ANY SUBSEQUENT
ACTION BROUGHT BY A THIRD PARTY AGAINST EITHER PARTY HERETO. NOTHING CONTAINED
HEREIN SHALL CONSTITUTE A WAIVER OF ANY OTHER REMEDIES AVAILABLE TO EITHER PARTY
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR HEREIN.
<PAGE>
Josh Levine
December 8, 1997
page 10
Neither party shall be entitled to recover damages or to terminate the
Term by reason of any breach by the other party of its material obligations,
unless the latter party has failed to remedy or commenced in good faith to
remedy the breach within a reasonable time following receipt of notice thereof.
Neither party shall be deemed in breach of any of its obligations unless and
until specific notice is sent by registered or certified mail, return receipt
requested, of the nature of such default and the party claimed to be in breach
shall have failed to either cure or commence to cure such breach within thirty
(30) days of its respective receipt of such written notice.
Push Records Inc.
By: /s/ Brian Doyle
----------------------------------
Brian Doyle, President, dated
AGREED AND ACCEPTED BY:
/s/ Nancy Free 12/11/97
- --------------------------------------
Nancy Free dated
/s/ Bruce M. Somers 12/10/97
- --------------------------------------
Bruce M. Somers dated
PHONOGRAPH RECORD LICENSE AGREEMENT
AGREEMENT made as of the 4th day of November, 1997 by and between PUSH
RECORDS, INC., 425 Madison Avenue, Suite 802, New York, New York 10017, U.S.A.
("Owner") -and- EAGLE ROCK ENTERTAINMENT, PLC. whose registered office is
located at Plumtree Court, London EC4A 4HT, England and whose trading address is
22 Armoury Way, Wandsworth, London SW18 1EZ, England ("Licensee").
W I T N E S S E T H:
In consideration of the mutual promises and covenants herein contained,
the parties hereby agree as follows:
l. Grant and Scope of Rights.
(a) Owner hereby grants the following rights to Licensee during the
Term of this Agreement, subject to the other terms and conditions contained
herein:
(i) The exclusive right to press, duplicate and sell in the
"Territory" (as defined below), phonograph albums and "Approved Singles" (as
defined below) only, manufactured from certain master recordings owned and
controlled by Owner (sometimes called the "Licensed Masters") embodying the
performances of the recording and performing artists p/k/a Daryl Hall and John
Oates (collectively, the "Artist"). The Licensed Masters shall consist of: (A)
those masters embodied on the album entitled "Marigold Sky" ("Album 1"), and (B)
subject to the timely exercise of Licensee's option provided in subparagraph
1(b) below, the studio album first recorded by the Artist following the
recording of Album 1 ("Album 2") (the aforesaid albums are sometimes
individually referred to herein as an "Album" and such albums are sometimes
collectively referred to herein as the "Albums"). As used herein, the term (x)
"Territory" shall mean the following countries: Albania, Andorra, Armenia,
Austria, Belarus, Belgium, Bosnia, Herzegovina, Bulgaria, Channel Islands,
Crete, Croatia, Cyprus, Czech Republic, Denmark, Eire, Estonia, Finland, France,
Georgia, Germany, Greece, the Greek Islands, Greenland, Hungary, Iceland, Isle
of Man, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta,
Monaco, Netherlands, Norway, Poland, Portugal, Romania, Russia, San Marino,
Serbia Montenegro, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey,
Ukraine, United Kingdom, Vatican City and Yugoslavia, and (y) "Approved Singles"
shall mean singles embodying Licensed Masters that were released by Owner in the
U.S. as singles. Owner shall, promptly following Licensee's request from time to
time, advise Licensee as to the particular Licensed Masters that have been
previously released in the U.S. by Owner as singles; the Licensed Masters
entitled "Promise Ain't Enough", "Romeo is Bleeding" and "Sky Is Falling" have
been released in the U.S. by Owner as singles. The Licensed Masters embodied on
Album 1 are listed on Schedule A attached hereto.
(ii) The exclusive right, subject to subparagraph 3(a)(iv)
below, to use or license the use of any of the Licensed Masters or the
performances embodied thereon, subject to Owner's prior written consent (which
consent may be withheld by Owner in Owner's sole
1
<PAGE>
discretion), for use in connection with (x) the synchronization of said
performances with television productions and/or motion pictures that are
exploited solely in the Territory (except with respect to the synchronization of
Licensed Masters in audiovisual commercials in respect of the promotion and
marketing of the Licensed Masters), or (y) any "sight and sound" or
"audio-visual" device, including, without limitation, video discs and video
cassettes, that are exploited solely in the Territory.
(iii) The right to use and publish the name and approved
photographs (or photographs supplied by Owner) of the Artist solely in
connection with the advertising and sale by Licensee of "Records" (as defined
below) sold hereunder embodying the performances of the Artist.
(iv) The right, to the extent permitted by the applicable laws
of the Territory, to authorize the public performance of the Records embodying
the Licensed Masters in all media in the Territory, including but not limited
to, performances on radio and television.
(b) (i) Licensee acknowledges that, notwithstanding anything to the
contrary contained herein, Artist is not required to record and deliver Album 2
to Owner and Owner is not obligated to cause Artist to record and deliver Album
2 to Owner. However, Licensee shall have the option (the "Option"), subject to
the preceding sentence [and provided (x) Licensee has received the "Confirmation
Notice" (as defined below), and (y) the "Sales Minimum" (as defined below) has
occurred], to cause Album 2 to become subject to this Agreement. The Option may
be exercised, if at all, by Licensee by notice in writing to Owner not later
than thirty (30) days following the later of Licensee's receipt of the
Confirmation Notice and the occurrence of the Sales Minimum.
(ii) As used herein, the term (x) "Confirmation Notice" shall
mean Owner's notice to Licensee indicating that (A) Artist has confirmed (in
accordance with Artist's recording agreement with Owner) to Owner that Artist
will be delivering Album 2 to Owner, or (B) Artist previously delivered Album 2
to Owner [Owner shall provide the Confirmation Notice to Licensee, if at all, no
earlier than the date that Sales Minimum occurs but promptly following the
occurrence of either of the events indicated in subsections (A) or (B) of this
subparagraph], and (y) "Sales Minimum" shall be deemed to have occurred if the
aggregate royalties (other than mechanical royalties) credited to Owner's
account from the exploitation of Album 1 in the Territory during the twelve (12)
month period following the initial release of Album 1 equals or exceeds One
Hundred Fifty Thousand ($150,000) U.S. Dollars.
2. Limitations On Rights.
(a) Licensee shall not manufacture, distribute, or sell Records on
so-called mid-priced or low-priced lines (i.e., Records sold at less than the
highest published price to dealers category), provided, however, Licensee shall
have the right to release a particular
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Licensed Master on an Record sold as a (i) "mid-priced Record" (as defined
below) not earlier than one (1) year following the initial release of such
Licensed Master in the Territory, and (ii) "budget Record" (as defined below)
not earlier than eighteen (18) months following the initial release of such
Licensed Master in the Territory. A mid-priced Record is a Record sold which has
a published price to dealers at least seventeen and one-half (17.5%) percent
lower, but not more than thirty-two (32%) percent lower, than the published
price to dealers applicable to top-line Records in the same format. A "budget
Record" is a Record sold which has a published price to dealers at least
thirty-two (32%) percent lower than the published price to dealers applicable to
top-line Records in the same format.
(b) Licensee shall not edit, re-mix, alter or otherwise change the
Licensed Masters and Licensee shall release each particular Album (and Approved
Single(s)) using the same packaging artwork and liner notes and in the same
formats, sequence and embodying all the Licensed Masters as used by Owner (or
its distributor) for the initial release of the particular Album (and Approved
Single(s)) concerned through normal retail channels in the United States (unless
otherwise agreed in writing by Owner), provided, however, Album 1 shall include
an additional Licensed Master that is a club remix of the musical composition
entitled "Hold On To Yourself" that is not embodied on the album entitled
"Marigold Sky" as initially released by Owner in the U.S. The release of Records
embodying Licensed Masters in the Territory other than the Albums (and Approved
Single(s)) shall be made only with Owner's prior written consent.
(c) Licensee shall not couple or recouple the Licensed Masters with
any other Licensed Masters (other than as delivered to Licensee). Licensee shall
not couple or recouple the Licensed Masters with any other master recordings
without Owner's prior written consent, which consent may be withheld by Owner in
Owner's sole discretion.
(d) Licensee will not distribute or authorize the distribution of
Records hereunder as "premiums", i.e., Records sold or otherwise distributed in
association with a product or service other than phonograph records, which right
is specifically reserved to Owner.
(e) Licensee shall not sublicense to any third party [other than to
Licensee's primary licensees in the Territory, which Owner acknowledges are, as
of the date hereof, (i) BMG Music in the U.K., (ii) Play It Again Sam Records
for Belgium, Netherlands and Luxembourg, and (iii) Edel Records for the
remaining countries of the Territory] any rights granted by Owner hereunder.
Licensee's primary licensees are sometimes individually referred to herein as a
"Sublicensee" and collectively as the "Sublicensees". Licensee shall cause each
Sublicensee to be bound by all of the restrictions that Licensee is required to
be bound by hereunder.
(f) It is expressly understood and agreed that Records shall be
manufactured by Licensee only in quantities consistent with the anticipated
local demand therefor in the
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Territory during the Term of this Agreement and in accordance with Licensee's
normal and ordinary business policies so as not to result in an excess inventory
build-up immediately prior to the expiration of the Term of this Agreement.
3. Reservation of Rights.
(a) The following shall be and remain the property of Owner:
(i) Each Licensed Master supplied by Owner under this
Agreement, as well as all mothers and stampers produced therefrom by or for
Licensee (and the Sublicensees);
(ii) Owner's copyrights and other property rights under
statutory and/or common law in the Licensed Masters, tapes, cover artwork,
photographs, separations, matrices, and mothers and stampers, as well as all
other rights not specifically granted herein to Licensee by Owner;
(iii) Any and all copyrights, trademarks or other similar
rights or other property rights which may accrue to Licensee or to any of its
distributors (including the Sublicensees), agents or representatives by reason
of the exercise of the rights granted by this Agreement; and
(iv) The exclusive right to use or license any of the Licensed
Masters or the performances embodied thereon for use in connection with the
synchronization of said performances with television productions and/or motion
pictures, including any soundtrack albums derived therefrom (or in connection
with any "sight and sound" or "audio-visual" device, including without
limitation, video discs and video cassettes distributed for home use), which may
be exploited (A) throughout all or a portion of the world (including the
Territory), provided that such productions are produced outside of the
Territory, and (B) outside the Territory, provided that such productions are
produced in the Territory.
(b) Neither Licensee nor anyone claiming rights through Licensee
(including the Sublicensees) shall sell, assign, transfer, mortgage, hypothecate
or subject to any lien or encumbrance, any of the above rights, and any attempt
thereto shall be null and void and of no force and effect whatsoever.
(c) Licensee will, upon request, execute or cause to be executed by
Licensee and/or the Sublicensees, and will deliver to Owner, all documents
necessary to establish and effectuate Owner's unencumbered ownership of all such
rights.
4. Term.
The term of this Agreement (the "Term") shall commence as of the
date hereof and shall terminate six (6) years following the date of initial
release in the Territory of the last Album delivered hereunder (unless the Term
hereof has been terminated earlier in accordance
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with any applicable provisions hereof); however, notwithstanding the foregoing,
in no event shall the Term of this Agreement continue with respect to Album 1
for a period longer than six (6) years from the date hereof (the "License
Term"); following the end of the License Term, all rights granted hereunder to
Licensee with respect to Album 1 shall end, subject to subparagraph 15(e) below,
and all such rights shall revert to Owner. For purposes of clarification, it is
agreed that upon the termination of the Term of this Agreement for any reason,
the License Term shall likewise terminate.
5. Payments and License Fees.
In consideration of the license and rights granted by Owner
hereunder, Licensee agrees to pay all of the following to Owner:
(a) Owner's cost (in accordance with Owner's price list, as same may
be changed from time to time) plus packaging and shipping expenses, for the
duplication of Licensed Masters, and for all negatives, advertising,
promotional, display and any other supplies and materials supplied, or caused to
be supplied, by Owner at Licensee's request (or otherwise approved by Licensee),
which items shall be shipped to Licensee C.O.D.
(b) (i) (A) A royalty in the amount described in Section (B) below.
Those royalties will be payable on all "net" distributions of such Records (i.e.
100% of all Records sold by Licensee less only any Records actually returned and
reserves against anticipated returns and credits (subject to subparagraph 10(c)
below)) and without deductions for container charges or any other offsets.
(B) (I) The royalty hereunder will be (x) One Pound
Sterling and Fifty Pence (Li.1.50) per Album with respect to Albums in cassette
and vinyl configurations (the "Cassette/Vinyl Penny Rate") sold at the
applicable published price to dealers indicated on Exhibit B attached hereto (a
"Cassette/Vinyl Base PPD"); the Cassette/Vinyl Penny Rate will be
proportionately increased with any increases in the actual applicable published
price to dealers that exceed the applicable Cassette/Vinyl Base PPD (the
Cassette/Vinyl Penny Rate, whether or not increased, is sometimes referred to
herein as the "Cassette/Vinyl Basic Rate"), and (y) Two Pounds Sterling
(Li.2.00) per Album with respect to Albums in compact disc, DAT or any other
configurations (the "CD Penny Rate") sold at the applicable published price to
dealers indicated on Exhibit B attached hereto (a "CD Base PPD"); the CD Penny
Rate will be proportionately increased with any increases in the actual
applicable published price to dealers that exceed the applicable CD Base PPD
(the CD Penny Rate, whether or not increased, is sometimes referred to herein as
the "CD Basic Rate"). The Cassette/Vinyl Basic Rate and the CD Basic Rate are
sometimes referred to herein as the "Basic Rate(s)".
(II) The royalty payable to Owner hereunder with
respect to Albums sold as a midprice Record shall be One Pound Sterling
((pound)1). The royalty payable to Owner hereunder with respect to Albums sold
as a budget Record shall be sixty-five pence (.65); and
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(III) In respect of Licensed Masters licensed or
made available by Licensee to third parties for the manufacture, distribution or
sale of Records utilizing key-outlet distributors or any similar method of
operation, or through any record club, mail order or similar operation, Licensee
shall credit Owner's royalty account with one-half (1/2) of the net royalties
and advances actually received by Licensee from such third parties after
deducting therefrom all taxes included within such receipts, only. However,
Owner's royalty account shall be credited with a royalty on at least fifty (50%)
percent of all records distributed through any record club.
(IV) The royalty rate on any Licensed Master(s)
embodied on a phonograph record ("Compilation Record") containing other master
recording shall, subject to the second sentence of subparagraph 2(c) above, be
(i) the otherwise applicable royalty rate provided herein if such Compilation
Record is released by Licensee, and (ii) equal to fifty-five (55%) percent of
all monies received by Licensee in respect of each such use if such Compilation
Record is released by a company other than Licensee. The royalty rate on a
record embodying a Licensed Master together with other master recordings will be
computed by multiplying the royalty rate otherwise applicable by a fraction, the
numerator of which is the number of Licensed Masters contained on the particular
record concerned and the denominator of which is the total number of
royalty-bearing master recordings contained on such record.
(V) The royalty rate on any Record sold in
conjunction with a substantial television campaign conducted with Owner's prior
written consent (which consent shall not be unreasonably withheld) shall be
one-half (1/2) of the otherwise applicable rate during the calendar semi-annual
period in which the campaign begins, but only in the country(ies) concerned, and
in no event later than the date when Licensee has recouped fifty (50%) percent
of the cost of that television advertising campaign from such royalty reduction.
(C) A royalty rate, with respect to singles embodying
the Licensed Masters, equal to twenty (20%) percent (the "basic Single rate") of
the published price to dealers.
(ii) Licensee shall not sell or distribute "bonus", "free" or
"promotional" records except that in the case of Records pressed by Licensee in
the Territory pursuant hereto, Licensee may distribute bona fide samples in
reasonable quantities to the trade in accordance with customs generally
prevailing in the Territory. Licensee shall not offer any of Owner's Records as
an incentive for the sale of records other than Owner's Records hereunder.
(c) A sum of money equal to fifty (50%) percent of all fees, if any,
received by Licensee for the public performance (including, but not limited to,
broadcast over radio and television) of phonograph records manufactured and sold
hereunder. Whenever such fees are not computed and paid in direct relation to
the public performance of such records, such fees
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shall be computed, for the purpose of this Agreement, by multiplying the total
amount received by Licensee by a fraction, the numerator of which is the number
of Records manufactured and sold hereunder during the applicable accounting
period and the denominator of which is the total number of records sold in the
Territory by or on behalf of Licensee during the applicable accounting period.
(d) With respect to royalties payable to copyright proprietors by
reason of Licensee's exercise of its rights hereunder, Licensee agrees to secure
licenses from such copyright proprietors or their agents in the Territory and to
make payments directly to such proprietors or agents. Licensee and the
Sublicensees shall indemnify and hold Owner harmless of and from any claims or
liabilities resulting from Licensee's (or the Sublicensees) failure to make such
payments. Owner warrants and represents that Licensee and the Sublicensees shall
be able to obtain mechanical licenses to reproduce musical compositions embodied
on Records distributed in the Territory on terms no less favorable to Licensee
and the Sublicensees than those generally applicable to record manufacturers in
each country of the Territory.
(e) Intentionally Deleted.
(f) (i) Licensee shall pay to Owner the non-returnable sum of One
Hundred Thousand ($100,000) U.S. Dollars, the receipt of which is hereby
acknowledged, which shall be an advance recoupable against the royalties payable
to Owner under paragraph 5(b) and (c) above.
(ii) In the event that Licensee exercises the Option, Licensee
shall pay to Owner the non-returnable sum of Two Hundred Thousand ($200,000)
U.S. Dollars which shall be an advance recoupable against the royalties payable
to Owner pursuant to subparagraphs 5(b) and (c) above; such advance shall be
paid to Owner as follows: one (1/2) of such amount shall be paid to Owner
promptly following the exercise of the Option and the balance of such amount
shall be paid promptly following the delivery of Album 2 to Licensee hereunder.
5A. Tour Support.
Licensee agrees to pay to Owner a non-returnable amount as tour
support equal to Ninety One Thousand ($91,000) U.S. Dollars (the "Tour Support
Monies"). The Tour Support Monies shall be payable promptly following the
execution hereof. No more than Sixty One Thousand ($61,000) U.S. Dollars of the
Tour Support Monies shall be recoupable from any and all royalties payable to
Owner pursuant to this Agreement (other than mechanical royalties), and the
balance of the Tour Support Monies shall be non-recoupable hereunder.
6. Dealer Price.
At all times during the Term of this Agreement, and during the
sell-off period, Licensee hereby agrees that all phonograph records sold under
the terms of this Agreement shall be marketed at the full and normal dealer
price that is usual for said phonograph records
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in the configurations involved, except as otherwise specifically provided
herein.
7. Release Obligations.
(a) (i) Licensee agrees to release each particular Album in the
United Kingdom, France, Germany, Norway, Sweden and Denmark (the "Major Market
Countries") within the period of sixty (60) days following the date of delivery
of the Album concerned to Licensee (except fifteen (15) days following the date
hereof with respect to Album 1) (a "Required Release Date"), but not earlier
than the release of the particular Album in the United States, unless notified
to the contrary by Owner in writing. If Licensee fails to release a particular
Album in each of the Major Market Countries within the period provided above,
Owner shall notify Licensee of such failure and Licensee shall have the right to
release such Album in the particular Major Market Countries concerned within
thirty (30) days following the date of Owner's notice to Licensee (the "Major
Market Countries Cure Period"). If Licensee fails to release the particular
Album concerned in the Major Market Countries concerned within the Major Market
Countries Cure Period, then, notwithstanding anything to the contrary contained
in paragraph 15 and without limitation of Owner's rights or remedies, the Term
of this Agreement shall automatically terminate.
(ii) Owner hereby agrees that Owner will not release or
authorize the release of any Album hereunder outside of the Territory prior to
the applicable Required Release Date.
(b) Licensee shall release each particular Album in each country of
the Territory (other than the Major Market Countries)(the "Subject Countries")
within ninety (90) days following the date of delivery to Licensee of the Album
concerned. If Licensee fails to release each particular Album in each of the
Subject Countries within such ninety (90) day period, Owner shall notify
Licensee of such failure and Licensee shall have the right to release the Album
concerned in each of the Subject Countries concerned within thirty (30) days
following the date of Owner's notice to Licensee (the "Subject Countries Cure
Period"). If Licensee fails to release the particular Album concerned in each of
the Subject Counties concerned during the Subject Countries Cure Period, then,
notwithstanding anything to the contrary contained in paragraph 15, the Term of
the Agreement shall terminate with respect to the Subject Countries concerned
(and all of Licensee's rights hereunder in such Subject Countries shall be
deemed terminated immediately). As used herein, the term "release" shall mean to
manufacture, and make reasonable efforts to market, enough records to supply all
key retail outlets in the Territory hereunder with sufficient recordings to
expose the subject recordings to the public.
8. Trademark.
(a) Licensee agrees that all Records distributed hereunder shall be
distributed under the "Push Records" label. Licensee agrees that the labels, the
spines, the liner notes and the sleeves or covers of all Records released
hereunder (including promotional copies of the Records and promotional copies of
any Videos) shall bear Owner's trademark, service mark and logo identification
(the "Mark") (and Owner agrees to supply such Mark with the artwork hereunder),
and material used in advertising such Records shall also bear the
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Mark. Licensee acknowledges that the foregoing requirement is of the essence of
this Agreement. Owner hereby grants Licensee the right to use the Mark on
Records made from the Licensed Masters supplied by Owner hereunder in the
Territory and nowhere else and for no other purpose. Owner warrants and
represents that the Mark will not infringe the rights of any third party and
that Licensee and the Sublicensees shall have the right to utilize the Mark in
accordance with the terms and conditions contained herein.
(b) Licensee acknowledges the Owner's exclusive right, title and
interest in and to the Mark and will not at any time do or cause to be done any
act or thing contesting or in any way impairing or tending to impair any part of
such right, title and interest. In connection with the use of the Mark, Licensee
shall not in any manner represent that it has any ownership in the Mark or
registration thereof and Licensee acknowledges that use of the Mark shall not
create in Licensee's favor any right, title or interest in or to the Mark, but
all uses of the Mark shall inure to the benefit of Owner. Upon termination of
Licensee's rights hereunder in any manner provided herein, Licensee will cease
and desist from all use of the Mark in any way and, furthermore, Licensee will
at no time adopt or use without Owner's prior written consent, any word, symbol
or design which is likely to be similar or confusing with the Mark.
(c) Licensee shall deliver to Owner ten (10) copies of each Record
released hereunder, in each configuration released. Owner shall have the right
to evaluate the quality of Licensee's releases and if they are below Owner's
standards, Owner shall notify Licensee in writing. Upon receipt of such a notice
of quality deficiency, Licensee shall take immediate steps to improve the
quality of the Records concerned so that they will meet Owner's standards.
9. Accounting Statements.
(a) In respect of all periods in which phonograph records are
distributed hereunder, Licensee agrees to keep all usual and proper records and
books of account and make all usual and proper entries therein relating to the
manufacture and sale of phonograph records hereunder and other permitted
exploitations of the Licensed Masters hereunder and to deliver to Owner within
sixty (60) days following the expiration of each calendar quarter, detailed
written statements which shall be certified by an officer of Licensee, showing
sales of phonograph records hereunder during such period. Such statements shall
include the following information: (i) the number of Records sold in each
country of the Territory during the accounting period (and details regarding
other exploitations of the Licensed Masters); (ii) the date of first release and
the retail list price of each Record sold in each country of the Territory
during the accounting period; (iii) the amount of royalties and other payments
due to Owner pursuant to this Agreement; and
(b) Simultaneously with the delivery of the accounting statements
referred to in the preceding subdivision of this paragraph, Licensee shall pay
to Owner all sums due to Owner, if any. All payments shall be made in United
States Dollars to Owner at the address above first noted, computed at the rate
of exchange existing on the date the payments are required to be made pursuant
to the terms of this Agreement. The exchange rate applicable to
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any such late payments shall be that rate which prevails on the date payment was
due hereunder. In the event that Licensee is unable because of governmental
restrictions to make payment in the manner described in the preceding sentence
and if Owner agrees to accept payment in Licensee's national currency, Licensee
shall deposit (at Owner's expense) to Owner's credit or account or to such other
account as Owner may from time to time designate, in a depository selected by
Owner, all sums payable to Owner hereunder.
10. Income Tax Provisions.
(a) In the event Licensee shall be obliged by the laws of any
country the Territory to deduct and withhold income or other similar tax from
royalties payable to Owner hereunder, then without limiting the generality of
paragraph 9, Licensee shall include in each applicable accounting statement or
credit memorandum, the amount of tax which shall have been withheld and the rate
of tax (such taxes shall be deducted only once with respect to any royalty
payments, and only in the country in which the applicable Licensed Master(s) was
exploited). Upon Owner's request, Licensee shall supply Owner with a certificate
setting forth the aforesaid information and any other necessary information
which may assist Owner, upon presentation of such certificate, to obtain income
tax credit from the applicable tax authorities for the tax so withheld.
(b) Notwithstanding anything to the contrary contained herein, nor
in the laws of any country of the Territory, there shall be no taxes or other
sums withheld from the payments payable to Owner pursuant to this Agreement
provided that Owner executes and delivers an Internal Revenue Service Form 1001
(or such other documents required by the Internal Revenue Service) to you.
11. Audits.
Licensee shall permit Owner or its duly authorized representative to
inspect, audit, abstract and copy such of Licensee's books and records as they
reasonably relate to the subject matter of this Agreement at reasonable times
and intervals at Licensee's regular place of business but in no event more than
once per year. Such inspection shall be at Owner's expense; provided, however,
that if an error of more than the greater of (x) ten (10%) percent and (y) Five
Thousand Pounds Sterling (Li.5,000) is found either in such records or in such
accounting statements, then Licensee shall reimburse Owner for the expense of
such inspection (excluding travel and hotel accommodation expenses incurred in
connection with such inspections) in addition to remitting the amount shown
properly to be due. These provisions shall continue in full force and effect for
a period of three (3) years after the termination of the Term of this Agreement.
All royalty statements and all other accounts rendered by Licensee to Owner
shall be binding upon Owner and not subject to any objection by Owner for any
reason unless specific objection in writing, stating the basis thereof, is given
to Licensee within three (3) years from the date rendered. Owner shall be
foreclosed from maintaining any action, claim or proceeding against Licensee in
any forum or tribunal with respect to any statement or accounting rendered
hereunder unless such action, claim or proceeding is commenced against Licensee
in a court of competent jurisdiction within four (4) years after the date such
statement is rendered.
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12. Licensee's Warranties.
Licensee warrants and represents that:
(a) Licensee is now and will continue to be engaged during the Term
of this Agreement in the manufacture, sale, distribution and exploitation of
phonograph records in the Territory.
(b) Licensee will use all reasonable efforts to promote the
manufacture, sale, distribution and exploitation in the Territory of phonograph
records containing the Licensed Masters.
(c) Licensee possesses the full right, power and authority to enter
into and to perform this Agreement.
(d) With respect to royalties payable to copyright proprietors by
reason of Licensee's (and the Sublicensees) exercise of its rights hereunder,
Licensee agrees, subject to the terms and conditions herein, to secure licenses
from such copyright proprietors or their agents in the Territory and to make
nonrecoupable payments directly to such proprietors or agents.
13. Owner's Warranties.
(a) Owner warrants and represents:
(i) At the time of delivery of each Licensed Master and during
the Term hereof, Owner (or Owner's assignee) will be the exclusive owner, or
otherwise control, the rights herein granted to Licensee in the respective
Licensed Masters.
(ii) Owner possesses the full right, power and authority to
enter into and to perform under this Agreement. Owner will not grant to any
person, company or firm any right for the Territory which Licensee is entitled
to exercise hereunder in respect of the Licensed Masters.
(iii) Owner shall pay all royalties and other payments which
may become due to Artist, producers and musicians whose performances are
embodied in the Licensed Masters, but excluding royalties payable for the use of
musical compositions which shall be Licensee's sole responsibility.
(iv) To the best of Owner's knowledge, the Licensed Masters
hereunder will not violate or infringe upon any common law or statutory right of
any person, including, without limitation, any contractual rights, copyrights,
rights of privacy, rights of publicity, trademark rights and rights to trade
names.
(v) During the Term, Owner shall not permit Artist to perform
for any
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person, firm or corporation (other than Licensee) for the purpose of making
records embodying the compositions embodied in the Licensed Masters for
exploitation in the Territory.
(b) Owner agree to indemnify and hold Licensee harmless against any
claim, liability, cost and expense (including reasonable attorneys' fees and
legal costs) in connection with any claim brought by a third party which is
inconsistent with any agreement, covenant, representation, or warranty made by
Owner herein which has resulted in a final adverse judgment or has been settled
with Owner's consent, which consent shall not be unreasonably withheld. Owner
will reimburse Licensee promptly following demand for any payment made by
Licensee at any time after the date hereof in respect of any claim, liability,
damage or expense to which the foregoing indemnity relates. Licensee shall
promptly notify Owner upon the making or filing of any such claim, action or
demand, and, Licensee shall be entitled to withhold from any amounts payable
under this Agreement such amounts as are reasonably related to the potential
liability in issue; however, if litigation based on any such claim is not
commenced within twelve (12) months following the presentment of such claim,
Licensee shall release all such monies being withheld as a result of such claim.
Licensee shall not withhold sums in connection with a claim if Owner posts a
bond in a form and with a bonding company reasonably approved by Licensee and in
an amount equal to the reasonable potential liability. Owner shall be notified
of any such claim, action or demand and Owner shall have the right, at Owner's
own expense, to participate in the defense thereof with counsel of Owner's own
choosing; provided, however, Licensee's decision in connection with the defense
of any such claim, action or demand brought against Licensee shall be final.
14. Assignability.
Neither this Agreement nor the rights granted to Licensee hereunder
may be assigned by Licensee and any such attempted assignment shall be void.
Owner shall be entitled to assign this Agreement, including its rights
hereunder, to any parent, affiliated or subsidiary company or corporation, or to
anyone owning or acquiring substantially all of the capital stock or assets of
Owner, or to any third party, provided such assignee agrees to be bound by the
terms and conditions hereof.
15. Termination.
(a) Bankruptcy and Insolvency. In the event Licensee shall be
adjudged a bankrupt or in the event that any insolvency proceedings are
instituted by or against Licensee and are not dismissed within thirty (30) days
after the institution thereof or in the event of any reorganization proceedings,
either voluntary or involuntary in bankruptcy, or in the event a trustee or
receiver is appointed to take over all or a substantial part of Licensee's
assets, Licensee's rights under this Agreement shall automatically terminate,
and such termination shall be deemed effective as of the commencement of the
event which gave rise to such termination. In the event of such termination,
then all monies due and unpaid by Licensee pursuant to this Agreement shall
thereupon become due and payable, and no part of any unrecouped advance shall be
refundable to Licensee in any event. Further, all master recordings, videos, and
all copies thereof, all color separations and other artwork and all other
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property of Owner shall be returned to Owner at Licensee's expense, and in no
event shall the title thereto or any rights therein be acquired by or vest in
any trustee, receiver or in any other party by reason of any such insolvency,
bankruptcy or other such occurrence affecting Licensee.
(b) Governmental Acquisition. In the event Licensee's business is
taken over by any governmental authority, Owner shall have the right to
terminate this Agreement forthwith without affecting its own rights under this
Agreement.
(c) Breaches.
(i) In the event that Licensee shall fail or refuse to deliver
any of the statements or payments provided hereunder, or fail or refuse to
perform any other obligation on Licensee's part required to be performed
hereunder or is in breach of this Agreement (and Licensee's breach continues for
a period of thirty (30) days following Owner's notice thereof [twenty (20) days
in respect of a failure to deliver statements or payments], except any breach by
Licensee of this Agreement by distributing, or authorizing or permitting the
distribution of, Records embodying Licensed Masters outside the Territory shall
not be subject to any such cure period), then, without limitation of Owner's
rights, Owner shall have the absolute right to terminate the Term of this
Agreement and all of Licensee's rights hereunder with immediate effect at any
time. Notwithstanding the foregoing, in the event that Owner notifies Licensee
that such Records are being exported to one or more countries outside of the
Territory, Licensee shall consult with Owner in connection therewith, and
Licensee shall take all steps reasonably necessary to protect Owner against such
exports. For purposes of clarification and notwithstanding anything to the
contrary contained herein, in the event that Licensee or the Sublicensees sell
any Records hereunder in the Territory to an entity which in turn sells such
Records outside of the Territory, such sales shall not constitute a breach
hereof unless Licensee or its licensees had knowledge (or should have had
knowledge) of such exportation (or intent to export).
(ii) Owner shall not be deemed to be in breach of any of its
material obligations hereunder, unless Licensee notifies Owner thereof, and
Owner fails to cure such breach, if any, within thirty (30) days following its
receipt of such notice.
(d) Termination Procedure. Upon the expiration of the Term, Licensee
will continue to be responsible for accountings and payments as set forth in
this Agreement. Upon the expiration of the License Term with respect to each
Album, Licensee will return to Owner or to Owner's designee at Licensee's
expense, any master recordings, Videos, artwork, color separations, mothers,
stampers or any other material furnished to Licensee hereunder.
(e) Post-Term Procedure.
(i) Within twenty (20) business days after the expiration of
the Term
13
<PAGE>
in connection with each such Album(s), Licensee shall notify Owner of the amount
of inventory of finished recordings existing at the expiration of such License
Term as to each such Album. At any time after Owner receives such notice but
prior to the expiration of the sell-off period, Owner may notify Licensee that
it wishes to purchase Licensee's inventory at Licensee's actual cost of
manufacture to be paid for in cash within thirty (30) days of delivery of such
inventory (or part or parts thereof as the case may be) in marketable conditions
to Owner or its designee or, by way of a total or partial offset against any
indebtedness or other claim in Owner's favor against Licensee.
(ii) If Owner does not elect to purchase Licensee's inventory
of the Albums, then, except as hereinabove provided, Licensee shall have a
period of six (6) months, commencing upon the date of expiration of the Term, in
which to sell in the normal course of business, Licensee's then existing
inventory (such period is sometimes referred to herein as the "sell-off period")
of the Records hereunder, during which period it is expressly understood that
other licensees may be authorized to sell Records derived from the Licensed
Masters in competition with Licensee.
(iii) The sale price charged by Licensee for the Records sold
by Licensee during the sell-off period shall, except as otherwise expressly
permitted herein, be the highest published price to dealers prevailing during
the Term of this Agreement on a record by record basis, and no special allowance
or discounts shall be given in order to effect a price reduction.
(iv) Licensee shall continue to render payments and
accountings with respect to Records sold by Licensee during the sell-off period
in the same manner as during the Term relating to such Album.
(v) At the conclusion of the sell-off period, Licensee shall
make no further sale of Records hereunder and shall forthwith destroy its then
remaining inventory of such Records and furnish Owner with an affidavit sworn to
before a person authorized to take oaths that such destruction has been effected
(if requested).
(vi) This paragraph 15(e) shall not be applicable in the event
the Term of this Agreement is terminated pursuant to paragraph 15(c) above.
16. Notices.
Any notice, accounting or payment which either party hereto is
required or desires to give to the other party shall be in writing addressed to
the respective addresses first above written (at Licensee's trading address in
the case of notices to Licensee), or to such other address as either party shall
designate in writing to the other party from time to time and shall be delivered
personally or sent by an established overnight courier which provides written
proof of delivery, such as Fedex or DHL. Unless otherwise set forth in this
Agreement, all notices and accountings shall be deemed duly given when actually
received. A copy of all notices sent to Owner by Licensee shall be sent to
Grubman Indursky & Schindler,
14
<PAGE>
P.C., 152 West 57th Street, 31st Floor, New York, New York 10019, Attention:
Paul D. Schindler, Esq. A copy of all notices sent to Licensee by Owner shall be
sent to Sheridans, 14 Red Lion Square, London WC1R RQL, England, Attn: Steven
Luckman, Esq., provided, however, the failure to send such copies shall not be
deemed a breach hereof or affect the validity of the notice sent.
17. Video.
Owner shall, from time to time during the Term at Licensee's
request, deliver certain short-form promotional audiovisual recordings videos
embodying Licensed Masters derived from each Album ("Video[s]"), but only to the
extent that any such Videos have actually been produced and only to the extent
Owner controls such rights in any such Videos; Owner shall have no obligation to
produce any such Videos. Licensee shall have the right to use such Videos during
the Term for promotional purposes only. In the event that Licensee desires to
exploit such Video(s) as provided herein, Licensee agrees to pay Owner, an
amount to be negotiated in good faith between the parties hereto. All
restrictions and post-Term provisions applicable to Licensee's use of Licensed
Masters shall likewise apply to any Videos delivered hereunder. Without
limitation of the foregoing, Licensee shall not have the right to distribute or
exploit any Video in connection with any audio-visual devices, including,
without limitation, any video discs or video cassettes.
18. Miscellaneous.
(a) This Agreement constitutes the entire understanding between the
parties, and no modifications hereof shall be binding unless in a writing signed
by the party to be charged. This Agreement is made in and shall be construed in
accordance with the laws of the State of New York applicable to contracts
executed in and wholly to be performed therein. This Agreement shall not be
effective until signed by all parties thereto.
(b) All rights, remedies, undertakings and obligations contained in
this Agreement shall be cumulative and none of them shall be in limitation of
any other right, remedy, obligations or undertaking of either party. A waiver by
either party of any provision of this Agreement shall not be deemed to be a
waiver of any past or future breach of the same, or any other provision of this
Agreement, nor shall any act or failure to act be construed as a waiver, unless
a memorandum thereof, expressing the intention to waive, signed by the party to
be charged, is made and delivered to the other party.
(c) No warranties or representations shall be deemed to have been
made by either party, except as expressly hereinabove set forth.
(d) Intentionally deleted.
(e) Licensee agrees that all disputes between the parties, if
litigated are to be litigated exclusively in the (i) Federal or State Courts
situated in New York, New York, or (ii) the courts located in London, U.K. The
parties waive any and all objection to venue in those courts. All process in any
action or suit arising under or in connection with this Agreement
15
<PAGE>
may be served on Licensee by mail with the same force and effect as if served
personally in that place, and as if Licensee there maintained its principal
office.
(f) If any part of this Agreement shall be determined to be invalid
or unenforceable by a court of competent jurisdiction or by any other legally
constituted body
16
<PAGE>
having jurisdiction to make such determination, the remainder of this Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
EAGLE ROCK ENTERTAINMENT, PLC. PUSH RECORDS, INC.
By:_______________________________ By:_____________________________________
An Authorized Signatory An Authorized Signatory
17
<PAGE>
SCHEDULE A
Romeo Is Bleeding
Marigold Sky
Sky Is Falling
Out Of The Blue
Want To
Love Out Loud
Throw The Roses Away
I Don't Think So
Promise Ain't Enough
Time Won't Pass Me By
Hold On To Yourself
War Of Words
Hold On To Yourself (Club Mix)
18
<PAGE>
EXHIBIT "B"
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,107,758
<SECURITIES> 0
<RECEIVABLES> 2,231,542
<ALLOWANCES> 497,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,698,253
<PP&E> 445,409
<DEPRECIATION> 237,849
<TOTAL-ASSETS> 6,025,841
<CURRENT-LIABILITIES> 2,068,454
<BONDS> 0
0
0
<COMMON> 22,305
<OTHER-SE> 3,935,082
<TOTAL-LIABILITY-AND-EQUITY> 6,025,841
<SALES> 6,491,032
<TOTAL-REVENUES> 6,491,032
<CGS> 4,426,581
<TOTAL-COSTS> 4,426,581
<OTHER-EXPENSES> 2,940,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (782,825)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (876,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (791,825)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
