SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Paradise Music & Entertainment, Inc.
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(Name of Registrant as Specified in its Character)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
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<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
53 West 23rd Street
New York, New York 10010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 6, 1999
NOTICE IS HEREBY GIVEN to the stockholders of PARADISE MUSIC &
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), that the Annual
Meeting of Stockholders (the "Meeting") will be held at the Company's offices at
53 West 23rd Street, 11th Floor, New York, NY 10010, at 10:00 a.m., New York
time, on April 6, 1999 for the following purposes:
1. To elect a board of nine (9) directors to serve until the next Annual
Meeting of Stockholders and until their respective successors are duly elected
and qualified;
2. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase the total number of authorized shares of Common
Stock, par value $.01 per share ("Common Stock"), from 20,000,000 shares to
75,000,000 shares;
3. To consider and vote upon a proposal to amend the Company's 1996 Stock
Option Plan (the "Option Plan"), to increase the total number of shares of the
Company's Common Stock available for options and stock appreciation rights to be
granted under the Option Plan from 185,000 to 1,500,000; and
4. To transact such other business as may properly be bought before the
Meeting or any postponement or adjournment thereof.
Only stockholders of the Company of record at the close of business
on February 16, 1999 are entitled to notice of and to vote at the Meeting or any
postponement or adjournment thereof.
A copy of the Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1998 accompanies this notice.
By Order of the Board of Directors,
RICHARD FLYNN
Chief Operating Officer, Chief Financial Officer,
Treasurer and Secretary
New York, New York
March 10, 1999
RETURN OF PROXIES
A PROXY AND SELF-ADDRESSED ENVELOPE ARE ENCLOSED FOR YOUR USE IF YOU DO
NOT PLAN TO ATTEND THE MEETING IN PERSON. WE URGE EACH STOCKHOLDER WHO IS UNABLE
TO ATTEND THE MEETING TO VOTE BY PROMPTLY SIGNING AND RETURNING HIS OR HER
PROXY, REGARDLESS OF THE NUMBER OF SHARES OF STOCK HELD BY SUCH STOCKHOLDER. ANY
PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED BY THE STOCKHOLDER AT ANY TIME PRIOR
TO THE VOTING OF THE PROXY.
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
PROXY STATEMENT
GENERAL
The enclosed proxy ("Proxy") is solicited by the Board of Directors (the
"Board") of PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held at the
Company's offices at 53 West 23rd Street 11th Floor, New York, NY 10010, on
April 6, 1999 at 10:00 a.m., New York time, or at any postponement or
adjournment thereof (the "Meeting.") The matters to be considered and acted upon
at the Meeting are described in the foregoing Notice of Annual Meeting of
Stockholders and this Proxy Statement. This Proxy Statement and the related form
of Proxy are being mailed on or about March 10, 1999 to all of the stockholders
of the Company of record on February 16, 1999. Any Proxy given by a stockholder
may be revoked by the stockholder at any time prior to the voting of the Proxy
by delivering a written notice to the Secretary of the Company, by executing and
delivering a later dated Proxy or by attending the Meeting and voting in person.
The management of the Company knows of no business other than the items
specified in the Notice of Annual Meeting of Stockholders which will be
presented for consideration at the Meeting. If any other matter is properly
presented, it is the intention of the persons named in the enclosed Proxy to
vote in accordance with their best judgment.
SOLICITATION OF PROXIES
The persons named as proxies are John Loeffler, President and Chairman of
the Board, and Richard Flynn, Chief Operating Officer, Chief Financial Officer,
Treasurer, Secretary and a director. Shares represented at the Meeting by the
enclosed Proxy will be voted in the manner specified by the stockholder. In the
absence of such specification, the shares will be voted FOR (i) the election of
each of the nine persons nominated by the Board to serve as directors; FOR (ii)
the proposal to amend the Company's Certificate of Incorporation (the
"Amendment") to increase the number of authorized shares of Common Stock from
20,000,000 to 75,000,000; FOR (iii) the approval of the amendment to the 1996
Stock Option Plan (the "Plan Amendment"); and (iv) in the discretion of the
proxies, on such other business as may properly be brought before the Meeting.
The cost of preparing, assembling and mailing the Proxy, this Proxy Statement
and the other material enclosed will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers and employees of the
Company, without extra remuneration, may solicit proxies personally or by
telephone or other means of communication. The Company may also request
brokerage houses, banking institutions, and other custodians, nominees and
fiduciaries, with respect to shares held of record in their names or in the
names of their nominees, to forward the proxy material to the beneficial owners
of such shares and may reimburse them for their reasonable expenses in
forwarding the proxy material.
VOTING RIGHTS
Only stockholders of record at the close of business on February 16, 1999
(the "Record Date") will be entitled to notice of and to vote at the Meeting or
any postponement or adjournment thereof. On the Record Date, the issued and
outstanding securities of the Company entitled to vote at the Meeting consisted
of 5,091,855 shares of Common Stock. There was no other class of voting
securities outstanding on the Record Date. Each outstanding share of Common
Stock is entitled to one vote which may be cast in person or by Proxy duly
authorized in writing. No shares have cumulative voting rights.
The presence in person or by Proxy of the holders of a majority of the
outstanding shares of Common Stock at the Meeting shall constitute a quorum for
the transaction of business. Abstentions and broker non-votes (i.e. shares held
by brokers or nominees as to which (i) instructions have not been received from
the beneficial owners and (ii) the broker or nominee does not have discretionary
authority to vote on a particular matter) are counted as present in determining
whether the quorum requirement is satisfied. If a quorum is present, the
affirmative vote of the holders of a plurality of the shares of Common Stock
cast at the Meeting and entitled to vote will be required to act on the election
of directors. Thus, abstentions and broker non-votes will not be included in the
vote total in the election of directors and will have no effect on the outcome
of the vote. The affirmative vote of the holders of majority of the shares of
Common Stock issued and outstanding will be necessary for the approval of the
Amendment. Abstentions and broker non-votes have the same effect as votes
against the Amendment. The affirmative vote of the holders of a majority of the
shares of Common Stock present at the Meeting and entitled to
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<PAGE>
vote will be required to act on all other matters properly brought before the
Meeting. If a stockholder abstains on any such matter, the stockholder's shares
are considered present at the Meeting for such matter, but since they are not
affirmative votes for the matter, they will have the same effect as votes
against the matter. With respect to broker non-votes on such matter the shares
are not considered entitled to vote at the Meeting for such matter and they are,
therefore, not counted in respect of such matter. Such broker non-votes have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for such matter by reducing the total number of shares from which the
majority is calculated.
The stockholders vote at the Meeting by casting ballots (in person or by
Proxy) which are tabulated by a person who is appointed by the Board of
Directors before the Meeting to serve as the inspector of election at the
Meeting and who has executed and verified an oath of office.
With regard to the proposals to be acted upon at the Meeting, dissenting
stockholders do not have appraisal rights.
Stockholders who do not expect to attend the Meeting, but wish to have
their shares of stock voted at the Meeting, are urged to complete, sign, date
and return the enclosed Proxy as promptly as possible.
To the best knowledge of the Company, none of the persons who were
executive officers or directors of the Company at any time since July 1, 1997,
none of the nominees for election as directors and none of the associates of any
of the foregoing, have any interest in the matters to be acted upon at the
Meeting, other than with reference to their election as directors and with
reference to awards which have been or may be granted to them under the 1996
Stock Option Plan, as proposed to be amended at the Meeting.
SECURITY OWNERSHIP
The following table sets forth certain information as of the Record Date
regarding the share ownership of the Company by (i) each person who is known to
the Company to be the record or beneficial owner of more than five percent (5%)
of the Common Stock; (ii) each director, each person nominated to serve as a
director, and each executive officer who is named in the executive compensation
table described in this Proxy Statement; and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name and Address of Beneficial Owner (1) Ownership (2) Owned (3)
- ---------------------------------------- ------------- ---------
Named Executive Officers and Directors
<S> <C> <C>
Brian Doyle 189,250(4) 3.7%
Richard Flynn 189,250(5) 3.7%
John Loeffler 369,601(6)(7) 7.1%
Jon Small 299,000(6) 5.9%
Soledad Bastiancich 15,000(8) *
Paul Thomas Cohen 55,705(9) 1.1%
Jesse Dylan 100,000 2.0%
Thomas J. Edelman 123,638(10) 2.4%
Jeffrey Rosen 0 *
All executive officers and directors
as a group (9 persons) 1,189,361(4)(5)(11) 23.1%
Beneficial Owners of in Excess of 5%
(other than directors and named
executive officers)
The Cassandra Group, Inc.
561 Broadway
New York, New York 10012 2,000,000(12) 39%
</TABLE>
- ----------
* Denotes less than 1%
3
<PAGE>
(1) The address of each beneficial owner identified is c/o Paradise Music &
Entertainment, Inc., 53 West 23 Street, New York, NY 10010, except for (i)
Thomas J. Edelman, which is c/o Patina Oil & Gas Corporation, 667 Madison
Avenue, New York, NY 10021, (ii) Paul Thomas Cohen, which is 1290 Avenue
of the Americas, New York, NY 10019; (iii) Soledad Bastiancich which is
c/o The Cassandra Group, Inc., 561 Broadway, New York, NY 10012, (iv)
Jesse Dylan, which is c/o Straw Dogs, 1520 Second Street, Suite #2, Santa
Monica, CA 90401, and (v) Jeffrey Rosen, which is c/o Davasee Enterprises,
67 Irving Place, 11th Floor, New York, New York, 10003.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of options, warrants or
convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming (i)
that options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date hereof have been exercised and converted, and
(ii) 5,091,855 shares of Common Stock were outstanding, before any
consideration is given to such options, warrants or convertible
securities.
(4) Subject to stockholder approval of the Plan Amendment, on February 19,
1999 Mr. Doyle was granted by the Board non-qualified options covering
300,000 shares at $5 per share.
(5) Subject to stockholder approval of the Plan Amendment, on February 19,
1999 Mr. Flynn was granted by the Board non-qualified options covering
300,000 shares at $5 per share.
(6) Includes options to purchase 5,000 shares of Common Stock.
(7) Includes 18,600 shares of Common Stock owned by Mr. Loeffler's pension
plan and 3,800 shares owned by Mr. Loeffer's wife.
(8) Does not include the shares of Common Stock deemed to be beneficially
owned by The Cassandra Group, Inc. ("Cassandra"). Ms. Bastiancich is a
director of the Company as a designee of Cassandra.
(9) Includes options to purchase 15,000 shares of Common Stock.
(10) Includes options to purchase 30,000 shares of Common Stock.
(11) Includes options to purchase 40,000 shares of Common Stock.
(12) Cassandra does not directly own any shares of Common Stock, the shares
being owned by Cassandra's various clients. Cassandra is a registered
investment adviser which has discretionary power to dispose of the
securities held in its clients accounts. Accordingly, by virtue of such
discretionary power, pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, Cassandra may be deemed to be
the indirect beneficial owner of the shares held by the various account
holders.
Information contained in this Proxy Statement with regard to stock
ownership was obtained from the Company's stockholders' list, filings with
governmental authorities, or from the named individual nominees, directors and
officers. The persons identified in the foregoing table disclaim beneficial
ownership of shares owned or held in trust for the benefit of members of their
families or entities with which they may be associated.
4
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Board has nominated and proposes as nominees Soledad Bastiancich, Paul
Thomas Cohen, Brian Doyle, Jesse Dylan, Thomas J. Edelman, Richard Flynn, John
Loeffler, Jeffrey Rosen and Jon Small (all of whom are members of the present
Board of the Company and all of whom have been elected for a term ending at the
Meeting) to serve as directors of the Company until the Company's next Annual
Meeting of Stockholders and until their respective successors have been elected
and qualified or until their earlier resignation or removal. No family
relationship exists among any of the executive officers and directors of the
Company. Ms. Bastiancich is a designee of The Cassandra Group, Inc.
("Cassandra") and is serving as a director pursuant to its designation. Messrs.
Cohen, Dylan, Edelman and Rosen are independent directors of the Company.
Messrs. Dylan and Rosen initially were recommended for election by Cassandra but
there is no ongoing obligation with respect thereto between the Company and
Cassandra.
Unless otherwise specified, shares represented by proxies will be voted in
favor of the election of all of the nominees, except that, in the event any
nominee should not continue to be available for election, such proxies will be
voted for the election of such persons as the Board may recommend unless the
Board reduces the number of directors. Management does not presently contemplate
that any of the nominees will become unavailable for any reason.
The Board of Directors Recommends a Vote "For" the Election of Each of the
Nominees.
Information Covering Nominees
The following table sets forth the names of the nominees and certain information
with regard to each nominee as of the Record Date.
<TABLE>
<CAPTION>
Principal Occupation or
Name Age Director Since Position with Company Employment, if Different
- ---- --- -------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Brian Doyle 42 July 1996 Chief Executive Officer and
director
Richard Flynn(2) 41 October 1996 Chief Operating Officer, Chief
Financial Officer, Treasurer,
Secretary and director
John Loeffler 47 July 1996 Chairman of the Board and
President
Jon Small 52 July 1996 Executive Vice President and
director
Soledad Bastiancich(1) 33 January 1999 Director Senior Vice President, The
Cassandra Group, Inc.
Paul Thomas Cohen 47 October 1996 Director Investment Banker
Jesse Dylan(1) 33 January 1999 Director President, Consolidated
Entertainment LLC d/b/a
Straw Dogs
Thomas J. Edelman(1)(2) 48 October 1996 Director Chairman, Patina Oil & Gas
Corporation
Jeffrey Rosen(2) 44 January 1999 Director General Manager, Davassee
Enterprises
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
5
<PAGE>
BRIAN DOYLE, has served as a director since its inception in July 1996 and
as Chief Executive Officer since December 1998. Mr. Doyle had served as
Executive Vice President from July 1996 through December 1998. In 1994 Mr. Doyle
founded All Access Entertainment Management Group, Inc. ("All Access"), and from
1994 to the present he has served as the President of All Access. Since 1996,
Mr. Doyle has also been the Chief Executive Officer of All Access and since
February 1997, Mr. Doyle has also been the Chief Executive Officer of Push
Records, Inc. ("Push Records"). From 1991 to 1994, Mr. Doyle served as Chief
Executive Officer and President of Horizon Entertainment and Management Group,
Inc. ("Horizon"). All Access has been a wholly-owned subsidiary of the Company
since 1996. Push Records has been a wholly-owned subsidiary of the Company since
1997.
RICHARD FLYNN, has served as a director since October 1996, Secretary
since July 1996 and as Chief Operating Officer since December 1998. Since
December 1996 he has also served as Treasurer of the Company. From September
1994 to September 1996, Mr. Flynn was the managing co-owner of All Access. Since
September 1996, Mr. Flynn has also been Vice President and General Manager of
All Access, and since February 1997 he has been Vice President and General
Manager of Push Records. From March 1990 until September 1994, Mr. Flynn served
as General Counsel to Horizon and its clients. Since 1983 Mr. Flynn has been a
practicing attorney in New York State specializing in entertainment, corporate
and public sector law.
JOHN LOEFFLER, has served as Chairman of the Board and President since its
inception in July 1996 and served as Chief Executive Officer from July 1996
through December 1998. From 1986 to present, Mr. Loeffler has served as the
Chief Executive Officer of John Loeffler Music, Inc. d/b/a Rave Music and
Entertainment ("Rave"). From 1986 to 1995, Mr. Loeffler was President of Rave.
Since 1996 Rave has been a wholly owned subsidiary of the Company.
JON SMALL, has served as a director and Executive Vice President since its
inception in July 1996. Since September 1996, Mr. Small has been the Chief
Executive Officer of Picture Vision. From 1984 to September 1996, Mr. Small had
been the President of Picture Vision, Inc. ("Picture Vision"). Since 1996
Picture Vision has been a wholly-owned subsidiary of the Company.
SOLEDAD BASTIANCICH, has served as a director of the Company since January
1999. Ms. Bastiancich is an attorney and since November 1997 has served as a
Senior Vice President at The Cassandra Group, Inc., a New York-based registered
investment advisory firm with a particular focus on serving the investment needs
of individuals and organizations in the arts and the entertainment industry. Ms.
Bastiancich served as a Vice President at the investment bank of Allen &
Company, Inc. from January 1994 to July 1996. Ms. Bastiancich was an associate
attorney at the law firm of Davis, Polk & Wardwell in New York from September
1992 to December 1993. Ms. Bastiancich received a J.D. from Yale Law School and
was named "Coker Fellow," and a BA degree in Psychology (Summa cum Laude, Phi
Beta Kappa) from the University of Oregon.
PAUL THOMAS COHEN, has served as a director of the Company since October
1996. Since 1987 Mr. Cohen has been an investment banker and a consultant to the
media and entertainment industries.
JESSE DYLAN, has served as a director of the Company since January 1999.
Since __________, Mr. Dylan has served as president of Consolidated
Entertainment LLC, d/b/a Straw Dogs, a film and television production company
since its founding in February 1998. From _____ to _____ Mr. Dylan served as
_______.
THOMAS J. EDELMAN, has served as a director of the Company since October
1996. Mr. Edelman co-founded Snyder Oil Corporation and was its President and
director from 1981 through February 1997. Since 1996, Mr. Edelman has served as
Chairman and Chief Executive Officer of Patina Oil & Gas Corporation. He is also
Chairman of the Board of Directors and Chairman of Range Resources Corporation,
and is a director of Petroleum Heat & Power Co., Inc. and Star Gas Corporation.
Mr. Edelman is a Trustee of The Hotchkiss School. From 1980 to 1981, Mr. Edelman
was a Vice President of The First Boston Corporation.
JEFFREY ROSEN, has served as a director of the Company since January 1999.
Since 1986, he has served as the General Manager of Bob Dylan's various music
publishing companies, managing the New York office and administering the
publishing of Mr. Dylan's musical compositions. During this time he has also
acted
6
<PAGE>
as a consultant to several entertainment companies, including Columbia Records,
Sony Music, Time Life Records and Time Life Home Video. Mr. Rosen is also on the
board of directors of The Association of Independent Music Publishers, and is a
graduate of the State University of New York at Oneonta, with a B.A. in
Literature.
Information Concerning the Board of Directors and Committees
The business and affairs of the Company are managed by the Board of
Directors, which met or acted by unanimous written consent three times during
the fiscal year ended June 30, 1998. During the fiscal year ended June 30, 1998,
all current directors attended 75% or more of the total number of meetings of
the Board and the Compensation Committees on which they served.
The Board maintains two standing committees ("Committees"): the
Compensation Committee and the Audit Committee.
The Compensation Committee consisting of Soledad Bastiancich, Jesse Dylan
Cohen and Thomas J. Edelman, makes recommendations to the Board (i) concerning
compensation, including incentive arrangements, of the Company's officers and
other key employees, including those executive officers who also serve on the
Board, and (ii) under the Company's stock option plans, determination of the
persons to whom options should be granted and the number of options to be
granted to such persons. The Compensation Committee did not meet during the
fiscal year ended June 30, 1998.
The Audit Committee, consisting of Thomas J. Edelman, Rick Flynn
and Jeffrey Rosen, reviews the engagement of the Company's independent public
accountants and the independence of the accounting firm, the audit and non-audit
fees of the independent public accountants and the adequacy of the Company's
internal control procedures. The Audit Committee did not meet during the fiscal
year ended June 30, 1998.
EXECUTIVE OFFICERS
Set forth below is certain information as of the Record Date regarding the
executive officers of the Company:
Executive
Name Age Position with Company Officer Since
- ---- --- --------------------- -------------
Brian Doyle 42 Chief Executive Officer July 1996
Richard Flynn 41 Chief Operating Officer, Chief Financial July 1996
Officer, Treasurer and Secretary
John Loeffler 47 Chairman of the Board and President July 1996
Jon Small 52 Executive Vice President July 1996
Additional information with respect to Brian Doyle, Richard Flynn, John
Loeffler and Jon Small is set forth under "Information Covering Nominees."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate compensation paid to or
accrued by the Company or its subsidiaries during each of the last three fiscal
years reflecting all compensation awarded to, earned by or paid by the Company
to John Loeffler, its Chief Executive Officer during the fiscal year ended June
30, 1998, and each of the most highly compensated executive officers (three
individuals), other than the Chief Executive Officer, whose annual base salary
and bonus compensation exceeded $100,000 (the "Named Executive Officers").
7
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation Awards
--------------------------------- ---------------------------
Securities
Year Ended All Other Underlying
Name and Principal Position June 30 Salary($) Bonus($) Compensation(2) Options
- --------------------------- ------- --------- -------- --------------- -------
<S> <C> <C> <C> <C> <C>
John Loeffler 1998 $310,00 -- $ 33,805 --
Chief Executive Officer 1997 150,000 191,000 34,000 5,000
(until December 1998) 1996 218,000 -- 71,000 --
Brian Doyle 1998 $300,00 -- $ 27,613 --
Chief Executive Officer (since 1997 150,000 162,500 7,000 --
December 1998) 1996 101,000 -- 48,000 --
Richard Flynn 1998 $300,00 -- $ 15,306 --
Chief Operating Officer (since 1997 150,000 162,500 -- --
December 1998) 1996 101,000 -- 48,000 --
Jon Small 1998 $310,00 $150,000 $ 60,365 --
Executive Vice President 1997 150,000 189,000 36,000 5,000
1996 88,000 -- 89,000 --
</TABLE>
(1) The Company was incorporated in July 1996. Compensation for the fiscal
year ended June 30, 1996 represents amounts paid by Rave, Picture Vision
and All Access. Compensation for the fiscal years ended June 30, 1998 and
1997 represent amounts paid by Rave, Picture Vision, All Access and Push.
(2) Includes amounts paid by the Company which the Company deemed to be for
the benefit of such executive, including amounts paid for lodging,
transportation, insurance, entertainment and other perquisites.
Option Grants in Last Fiscal Year
There were no options or stock appreciation rights granted to any of the
Named Executive Officers during the fiscal year ended June 30, 1998.
Aggregated Option/SAR Exercises during Fiscal 1998 and Year End Option/SAR
Values
The following table provides information related to options exercised by
the Named Executive Officers during fiscal 1998 and the number and value of
options and stock appreciation rights held at June 30, 1998 which are currently
exercisable. No options or stock appreciation rights were exercised during the
fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options/
Options/SARs at FY-End SARs at FY-End
---------------------- --------------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Loeffler 0 0 5,000 0 $0 $0
J. Small 0 0 5,000 0 0 0
R. Flynn 0 0 0 0 0 0
B. Doyle 0 0 0 0 0 0
</TABLE>
8
<PAGE>
Directors' Compensation
Pursuant to the Company's Outside Directors Plan, directors who are not
employees of the Company ("Outside Directors") received options to receive 5,000
shares on January 22, 1997 at $6.00 per share and are entitled to receive
non-qualified options to purchase 5,000 shares of Common Stock for each year of
service, payable in advance on July 1 of each year. The option exercise price is
the closing bid price of the Common Stock on the first trading day of each
fiscal year. Accordingly, 5,000 options were granted at $4.00 on July 1, 1997
and at $2.0625 on July 1, 1998 to each Outside Director.
In addition, Outside Directors are entitled to receive compensation in the
amount of $18,000 per annum, 50% of which is payable in cash and 50% in stock.
Such amounts are payable quarterly in arrears. For the year ended June 30, 1998,
persons who were Outside Directors during such fiscal year each received
compensation in the amount of $18,000, $6,750 was paid in cash and the remainder
with 4,030 shares of Common Stock. For the fourth quarter of fiscal 1998 all
compensation was paid in stock.
All directors are reimbursed for certain expenses in connection with
attendance at Board of Directors and Committee meetings. Other than with respect
to reimbursement of expenses, directors who are employees or officers of the
Company or who are associated with the Company do not receive compensation for
service as directors.
Employment Agreements, Termination of Employment and Change in Control
Arrangements
In October 1997, the Company entered into employment agreements (the
"Executive Agreements"), with each of Messrs. Loeffler, Doyle, Flynn and Small
(the "Executives"). Each of the Executive Agreements was for a period of three
years, and provided for annual base salaries of $150,000 plus bonuses. Effective
July 1, 1998, these Executive Agreements were replaced by new agreements (the
"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, the salary of the Executive who manages such
subsidiary will be reduced, but not below $150,000 per annum, to reflect a
pretax break-even and the excess amount paid will be recorded as an advance with
interest payable at prime plus 1% and with principal 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 New
Agreements, two bonus plans were established for the benefit of the Executives
based upon attainment of certain financial results pursuant to which Mr. Small
received a bonus of $150,000 for fiscal 1998 in recognition of his performance
during such fiscal year.
For the years ended June 30, 1998 and 1997, approximately $1,480,000 and
$973,000 have been expensed under the bonus plans and Executive Agreements and
New Agreements and are included in marketing, selling, general and
administrative expenses.
In September 1998, each of the Executives (other than Mr. Small) entered
into a letter agreement (the "Employment Modification Agreements") with the
Company which amended certain provisions of the New Agreements. There was also
an Employment Modification Agreement with Mr. Small which did not go into effect
because certain pre-conditions with respect to financing were not met. Each of
the Employment Modification Agreements with Messrs. Doyle and Flynn is subject
to approval by the Compensation Committee of a definitive budget for fiscal year
1999 for Push, which approval has not yet been obtained. The Employment
Modification Agreements provide for, among other things, a reduction in the base
salaries of each of Messrs. Loeffler, Flynn and Doyle, starting October 1, 1998
by $100,000 per annum, and a new bonus program for such executives pursuant to
which such executives receive 50% of the Net Profits (as defined therein) of the
subsidiaries they manage until they have recouped the $100,000 in salary
reductions described above. Thereafter, Net Profits are allocated 85% to the
Company and 15% to the executives.
The Employment Modification Agreements also impose stronger restrictions
on executives who leave the employment of the Company either voluntarily or for
cause and provide that an executive who leaves the employment of the Company
voluntarily or for cause, will have to forfeit the shares initially received by
him under the Exchange Agreements (described in "Certain Transactions"). In
addition, the Employment Modification
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Agreements requires the executive to pay the Company an override of 25% of the
gross margin earned by any firm or entity that employs the executive following
his departure from the Company (either voluntarily or for cause) on work
performed for any client or artist that the executive first worked with while
employed by the Company.
In consideration of the reduced base salaries, other compensation
concessions and more stringent non-compete terms reflected in the Employment
Modification Agreements (and, in the case of Mr. Doyle, conditioned upon
approval of the Push budget for fiscal year 1999), the Compensation Committee
treated all monies paid to the executives in fiscal year 1998 as compensation
rather than as "advances" subject to recoupment. The Employment Modification
Agreements expired on October 30, 1998 according to their respective terms.
However, Messrs. Loeffler, Doyle and Flynn agreed to abide by the reduced salary
level under their respective Employment Modification Agreements through June 30,
2001 or until new employment agreements can be completed. Effective as of
December 8, 1998, each of Messrs. Loeffler, Doyle and Flynn's base compensation
under the Employment Modification Agreements was increased by $25,000 per
executive per annum.
PROPOSAL NO. 2
PROPOSAL TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
The Company is presently authorized to issue 20,000,000 shares of Common
Stock. On February 23, 1999, 5,091,855 shares of Common Stock were issued and
outstanding and an additional 44,000 shares of Common Stock are reserved for
issuance under the Company's 1996 Stock Option Plan. If the Plan Amendment is
approved as set forth in Proposal No. 3, an additional 1,456,000 shares will be
reserved for issuance under such plan.
On February 19, 1999, the Board of Directors authorized, subject to
stockholder approval, an amendment to ARTICLE FOURTH of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 20,000,000 shares to 75,000,000 shares. Delaware law requires
stockholder approval for the increase of authorized shares of stock.
The additional shares of Common Stock would be available for issuance from
time to time, as determined by the Board of Directors, for acquisitions,
employee benefit plans, equity financings, stock dividends or splits, and other
general corporate purposes. The Company has no agreements, commitments, or plans
at this time for the sale or use of additional shares. No further action or
authorization by the stockholders would be necessary prior to the issuance of
additional shares unless required for a particular transaction by applicable law
or regulatory agencies or by the rules of any stock exchange on which the
Company's securities may then be listed. The listing requirements of NASDAQ upon
which the Common Stock is currently traded, currently require the Company to
obtain stockholder approval for, among other things, the issuance of additional
shares of Common Stock in connection with certain acquisitions of a business.
Stockholders have no preemptive rights to purchase additional shares when
issued.
Although not a factor in the Board of Directors' decision to propose the
Amendment, one of the effects of the Amendment may be to enable the Board to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest, or otherwise, and
thereby protect the continuity of present management.
The Amendment would amend the first paragraph of Article FOURTH of the
Company's Certificate of Incorporation to read as follows:
"FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 80,000,000 divided into two classes of which
5,000,000 shares, par value $. 01 per share, shall be designated Preferred Stock
and 75,000,000 shares, par value $. 01 per share, shall be designated Common
Stock."
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Vote Required for Approval
Approval of the Amendment requires the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock.
The Board of Directors recommends a vote FOR Proposal No. 2.
PROPOSAL NO. 3
AMENDMENT OF 1996 STOCK OPTION PLAN
Description of 1996 Stock Option Plan
In October 1996, the Board of Directors and the stockholders approved the
1996 Stock Option Plan (the "Option Plan"). The Option Plan is intended to
advance the interests of the Company by providing an opportunity for ownership
of Common Stock (or in the case of stock appreciation rights, the appreciation
of the value of the Common Stock) by employees, agents and directors of, and
consultants to the Company and its subsidiaries. Accordingly, by providing such
opportunity, the Option Plan is intended to attract and retain such qualified
personnel, and otherwise to provide additional incentives for grantees to
promote the success of the Company's business.
The Option Plan provides for the grant of incentive stock options ("ISOs")
(within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQSOs") and/or stock
appreciation rights ("SARs") to certain directors, officers, employees of and
consultants to the Company.
The total number of shares of Common Stock for which options and SARs may
be granted pursuant to the Option Plan is currently 185,000 (which as of the
close of business on February 16, 1999 had an aggregate fair market value equal
to $578,125) which shares may be authorized but unissued or authorized and
issued shares held in the Company's treasury or acquired by the Company for
purposes of the Option Plan. The number of shares subject to the Option Plan is
subject to adjustment in certain events as described below.
Types of Options. Options may be designated, at the sole discretion of the
Compensation Committee, as either ISOs or NQSOs.
Eligibility. ISOs may be granted to key employees (including directors) of
the Company or its subsidiaries. NQSOs may be granted to officers and key
employees of the Company or any of its subsidiaries, or agents, directors of and
consultants to the Company or its subsidiaries, whether or not otherwise
employees of the Company or its subsidiaries.
Administration: The Option Plan is administered by the Compensation
Committee, which is required to consist of two or more persons who are
"non-employee directors" as defined under Rule 16b-3 under the Exchange Act. No
member of the Compensation Committee can act upon any matter exclusively
affecting any option or SAR granted or to be granted to himself or herself under
the Option Plan. A majority of the members of the Compensation Committee, but at
least two, is required to constitute a quorum, and any action may be taken by a
majority, but at least two, of those present and voting at any meeting. The
decision of the Compensation Committee as to all questions of interpretation and
application of the Option Plan is final and binding on all persons. The
Compensation Committee has authority, subject to the provisions of the Plan, to
construe the respective option and SAR agreements and the Option Plan, to
prescribe and amend rules and regulations relating to the Option Plan.
Option and SAR Agreements. Each option and SAR is evidenced by an
agreement ("Award Agreement"). The Compensation Committee is authorized to
determine the terms and provisions of the respective Award Agreements, which may
but need not be identified, and to make all other determinations in the judgment
of the Compensation Committee are necessary or desirable for the administration
of the Plan. The Award Agreements
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may contain such terms, provisions and conditions which are not inconsistent
with the Option Plan as may be determined by the Compensation Committee;
provided that options designated as ISOs shall meet all of the conditions for
ISOs as defined in Section 422 of the Code. No option or SAR may be granted
within the meaning of the Option Plan and no purported grant of any option or
SAR shall be effective until the Award Agreement shall have been duly executed
on behalf of the Company and the grantee. More than one option and SAR may be
granted to an individual.
Option Price. The option price of shares of Common Stock for options
designated as NQSO's shall be as determined by the Compensation Committee;
provided that such option price may not be less than the "fair market value" of
the shares determined as of the date of grant of such option. The option price
or prices of shares of the Common Stock for ISOs shall be at least the fair
market value of such Common Stock at the time the option is granted as
determined by the Compensation Committee in accordance with the regulations
promulgated under Section 422 of the Code.
Manner of Payment, Manner of Exercise. Options granted under the Option
Plan may provide for the payment of the option price by delivery of (i) cash or
a check in an amount equal to the option price of such options, (ii) shares of
Common Stock owned by the grantee having a fair market value equal in amount to
the option price of the Options being exercised, or (iii) any combination of (i)
and (ii); provided, however, that payment of the option price by delivery of
shares of Common Stock owned by such grantee may be made only upon the condition
that such payment does not result in a charge to earnings for financial
accounting purposes as determined by the Compensation Committee, unless such
condition is waived by the Compensation Committee.
To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full or in part from time
to time, by giving written notice, to the Company, stating the number of shares
with respect to which the option is being exercised, accompanied by payment in
full for such shares. No partial exercise may be made for less than one hundred
(100) full shares of Common Stock. The exercise of an option shall result in the
cancellation of any related SAR with respect to the same number of shares of
Common Stock as to which the option was exercised.
Term of Options and SARs, Exercisablility. Each option and SAR shall
expire on a date determined by the Compensation Committee which is not more than
ten (10) years from the date of grant, except as otherwise provided in the
Option Plan. Except as otherwise provided in the Option Plan, an option or SAR
granted to any grantee whose employment, by the Company or any of its
subsidiaries is terminated, shall terminate on the earlier of (a) ninety (90)
days after the date such grantee's employment for the Company or any such
subsidiary is terminated, or (b) the date on which the option or SAR expires by
its terms. If the employment of a grantee is terminated by the Company or any of
its subsidiaries for cause or because the grantee is in breach of any employment
agreement or because the grantee voluntarily terminates such employment, such
option or SAR will terminate on the date the grantee's employment is terminated,
unless the Compensation Committee determines to extend such option for a
specified period (but not beyond the period otherwise permitted by the Option
Plan). If the employment of a grantee is terminated by the Company or any of its
subsidiaries because the grantee has become permanently disabled, such option or
SAR shall terminate on the earlier of (a) one (1) year after the date such
grantee's employment by the Company or any such subsidiary is terminated, or (b)
the date on which the option or SAR expires by its terms. In the event of the
death of any grantee, any option or SAR granted to such grantee shall terminate
one (1) year after the date of death, or on the date on which the option or SAR
expires by its terms, whichever occurs first. An option or SAR granted to a
grantee whose employment, by the Company or any of its subsidiaries is
terminated for whatever reason, including, without limitation, death or
disability, shall be exercisable only to the extent that such option or SAR has
accrued and is in effect on the date such grantee's employment is terminated.
Transferability. The right of any grantee to exercise any option or SAR
granted to him or her shall not be assignable or transferable by such grantee
other than by will or the laws of descent and distribution and any such option
or SAR shall be exercisable during the lifetime of such grantee only by the
grantee. Any option or SAR granted under the Option Plan shall be null and void
and without effect upon the bankruptcy of the grantee, or upon any attempted
assignment or transfer, except as otherwise provided in the Option Plan,
including without
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limitation, any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition, attachment, or similar process,
whether legal or equitable, upon such option or SAR.
SARs. An SAR may be granted separately or in connection with an option
(either at the time of grant or at any time during the term of the option). The
exercise of an SAR results, in the cancellation of the option to which it
relates with respect to the same number of shares of Common Stock as to which
the SAR was exercised. An SAR granted in connection with an option is
exercisable or transferable only to the extent that such related option is
exercisable or transferable. Upon the exercise of an SAR related to an option,
the holder is entitled to receive payment of an amount determined by
multiplying: (i) the difference obtained by subtracting the option price of a
share of Common Stock specified in the related option from the fair market value
of a share of Common Stock on the date of exercise of such SAR, by (ii) the
number of shares as to which such SAR is exercised. An SAR granted without
relationship to an option shall be exercisable as determined by the Compensation
Committee, but in no event after ten (10) years from the date of grant. An SAR
granted without relationship to an option will entitle the holder, upon exercise
of the SAR, to receive payment of an amount determined by multiplying: (i) the
difference obtained by subtracting the fair market value of the a share of
Common Stock on the date the SAR was granted from the fair market value of a
share of Common Stock on the date of exercise of such SAR, by (ii) the number of
shares as to which such SAR is exercised. However, the Compensation Committee
may limit the amount payable upon exercise of an SAR. Any such limitation shall
be determined as of the date of grant and noted on the instrument evidencing the
SAR granted. At the discretion of the Compensation Committee, payment of the
amount determined under the Option Plan may be made solely in shares of Common
Stock valued at their fair market value on the date of exercise of the SAR, or
solely in cash, or in a combination of cash and shares.
Recapitalization, Reorganizations Etc. In the event that the outstanding
shares of the Common Stock are changed into or exchanged for a different number
or kind of shares or other securities of the Company or of another corporation
by reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which options and SARs may be granted under the Option Plan and as
to which outstanding options, SARs, or portions thereof then unexercised, shall
be exercisable, to the end that the proportionate interest of the grantee shall
be maintained as before the occurrence of such event; such adjustment in
outstanding options and SARs shall be made without change in the total price
applicable to the unexercised portion of such options and SARs and with a
corresponding adjustment in the option price per share. In addition, unless
otherwise determined by the Compensation Committee in its sole discretion, in
the case of any (i) sale or conveyance of all or substantially all of the
property and assets of the Company or (ii) "change in control" (as defined) of
the Company, the purchaser(s) of the Company's assets or stock, in its sole
discretion, may deliver to the grantee the same kind of consideration that is
delivered to the stockholders of the Company as a result of such sale,
conveyance or change in control, or the Compensation Committee may cancel all
outstanding options in exchange for consideration in cash or in kind, which
consideration in both cases shall be equal in value to the value of those shares
of stock or other securities the grantee would have received had the option been
exercised (but only to the extent then exercisable) and had no disposition of
the shares acquired upon such exercise been made prior to such sale, conveyance
or change in control, less the option price therefor. Upon receipt of such
consideration, all options (whether or not then exercisable) shall immediately
terminate and be of no further force or effect.
No Special Employment Rights. Nothing contained in the Option Plan or in
any option or SAR granted under the Option Plan shall confer upon any grantee
any right with respect to the continuation of his or her employment by the
Company or any subsidiary or interfere in any way with the right of the Company
or any subsidiary, subject to the terms of any separate employment agreement to
the contrary, at any time to terminate such employment.
Withholding. The Company's obligation to deliver shares upon the exercise
by an employee of any NQSO granted under the Plan, or cash upon the exercise of
an SAR granted under the Plan, shall be subject to the grantee's satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements. The Company and grantee may agree to withhold shares of Common
Stock purchased upon exercise of an option to satisfy the above-mentioned
withholding requirements.
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Modification of Outstanding Options and SARs. Subject to any limitations
contained in the Option Plan, the Compensation Committee may authorize the
amendment of any outstanding option or SAR with the consent of the grantee when
and subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of the Option Plan.
Termination and Amendment of Plan. Unless sooner terminated as provided in
the Option Plan, the Option Plan shall terminate ten (10) years from the date
upon which the Option Plan was duly adopted by the Compensation Committee. The
Compensation Committee may at any time terminate the Option Plan or make such
modification or amendment thereof as it deems advisable; provided, however, that
(i) the Compensation Committee may not, without the approval of the stockholders
of the Company, increase the maximum number of shares for which options and SARs
may be granted or change the designation of the class of persons eligible to
receive options and SARs under the Option Plan, and (ii) any such modification
or amendment of the Option Plan shall be approved by a majority of the
stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act (if applicable), applicable state
law, or applicable NASD or exchange listing requirements. Termination or any
modification or amendment of the Option Plan shall not, without the consent of a
grantee, affect his or her rights under an option or SAR theretofore granted to
him or her.
Restrictions on ISOs. No ISO's may be granted to an employee who owns more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries unless (i) the option price is at least 110%
of the fair market value on the date of grant and (ii) the option by its terms
is not exercisable more than 5 years from the date of grant. ISOs granted under
the Option Plan may not be granted at a price less than the greater of par value
or 100% of the fair market value of the Common Stock on the date of grant (or
110% of fair market value in the case of persons holding 10% or more of the
voting stock of the Company). The aggregate fair market value of shares of
Common Stock for which ISOs granted to any employee are exercisable under any
Option Plan for the first time by such employee during any calendar year may not
exceed $100,000. Options granted under the Option Plan will expire not more than
ten years from the date of grant (five years in the case of ISOs granted to
persons holding 10% or more of the voting stock of the Company).
Grants
As of February 22, 1998, the Company has granted options under the Option
Plan to purchase141,000 shares. As of the date hereof none of these options have
been exercised. On February 19, 1999 Messrs. Doyle and Flynn were each granted
non-qualified options covering 300,000 shares at $5 per share, subject to the
approval by the stockholders of the Plan Amendment (described below).
Federal Income Tax Consequences of Option Plan
The statements in the following paragraphs of the principal federal income
tax consequences of awards granted under the 1999 Plan are based on statutory
authority and judicial and administrative interpretations, as of the date of
this Proxy Statement, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex and the discussion below
represents only a general summary.
Incentive Stock Options.
An employee who receives an ISO pursuant to the 1999 Plan does not
recognize any taxable income upon the grant of such option. Similarly, the
exercise of an ISO generally does not give rise to federal income tax to the
employee, provided that (i) the federal "alternative minimum tax," which depends
on the employee's particular tax situation, does not apply and (ii) the employee
is employed by the Company from the date of grant of the option until three
months prior to the exercise thereof, except where such employment terminates by
reason of disability (where the three month period is extended to one year) or
death (where this requirement does not apply). If an employee exercises an ISO
after these requisite periods, the ISO will be treated as a NQSO and will be
subject to the rules described below under "Non-Qualified Stock Options, and
Stock Appreciation Rights."
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If, after exercising an ISO, an employee disposes of the shares so
acquired more than two years from the date of grant and more than one year from
the date of transfer of the shares pursuant to the exercise of such ISO (the
"applicable holding period"), the employee generally will recognize a capital
gain or loss equal to the difference, if any, between the amount received for
the shares and the exercise price. If, however, an employee does not hold the
shares so acquired for the applicable holding period, thereby making a
"disqualifying disposition," the employee would recognize ordinary income equal
to the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price; the balance of any income received at the
time of such disqualifying disposition would be capital gain (provided the
employee held such shares as a capital asset at such time). If the disqualifying
disposition is a sale or exchange that would permit a loss to be recognized
under the Code (were a loss in fact to be realized), and the sales proceeds are
less than the fair market value of the shares on the date of exercise, the
employee's ordinary income therefrom would be limited to the gain (if any)
realized on the sale.
An employee who exercises an ISO by delivering shares previously acquired
pursuant to the exercise of another Incentive Stock Option before the expiration
of their applicable holding period is treated as making a "disqualifying
disposition" of such shares. Upon the exercise of an ISO with previously
acquired shares after the applicable holding period, it appears, despite some
uncertainty, that the employee would not recognize gain or loss with respect to
such previously acquired shares.
Nonqualified Stock Options and Stock Appreciation Rights.
An individual who receives a grant of a NQSO or an SAR, will not recognize
any taxable income upon such grant. However, the individual generally will
recognize ordinary income upon exercise of a NQSO in an amount equal to the
excess of the fair market value of the shares at the time of exercise over the
exercise price. Similarly, upon the receipt of cash or shares pursuant to the
exercise of an SAR, the individual generally will recognize ordinary income in
an amount equal to the sum of the cash and the fair market value of the shares
received.
An individual who exercises a NQSO by delivering Common Stock, other than
Common Stock previously acquired pursuant to the exercise of an ISO which is
treated as a "disqualifying disposition" as described above, will not recognize
gain or loss with respect to the exchange of such Common Stock, even if the fair
market value of the shares so delivered is different from the individual's tax
basis. The individual, however, will be taxed as described above with respect to
the exercise of the NQSO as if he or she had paid the exercise price in cash.
Consequences to the Company
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an ISO or the disposition, after the applicable holding
period, of the shares acquired upon exercise of an ISO. In the event of a
disqualifying disposition of shares acquired upon exercise of an ISO, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income included by the employee, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Sections 280G and 162(m) of the Code do not apply.
A federal income tax deduction generally will be allowed to the Company in
an amount equal to the ordinary income included by the employee with respect to
his or her NQSO or SAR, provided that such amount constitutes an ordinary and
necessary business expense to the Company and is reasonable, and the limitations
of Sections 280G and 162(m) of the Code do not apply.
Amendment to the Option Plan
The Board of Directors of the Company has adopted, and recommends that the
stockholders of the Company approve the adoption of, an amendment to the Option
Plan to increase from 185,000 to 1,500,000 the number of shares of Common Stock
available for options and SARs to be granted under the Option Plan (the "Plan
Amendment").
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Reasons for and Principal Effects of the Plan Amendment
As of February 22, 1999, there were outstanding under the Option Plan
options covering 141,000 shares of Common Stock. Accordingly, only 44,000 shares
of Common Stock were available for future grants under the Option Plan. As the
Compensation Committee believes that stock-based performance compensation
arrangements are beneficial in attracting and maintaining key employees and
directors by aligning such persons' interests with those of the Company's
stockholders over the long term, the Board has adopted, and recommends that the
stockholders approve the adoption of, the Plan Amendment. In recognition of the
key roles that Brian Doyle and Rick Flynn will play in the ongoing development
of the Company and to provide them with equity incentives in line with those of
other key executives the Board has approved, subject to stockholder approval of
the Plan Amendment, the granting to each of them of 300,000 non-qualified
options at $5 per share.
Plan Amendment Benefits Table
As of February 22, 1999 options to purchase an aggregate of 141,000 shares
of Common Stock have been issued under the Option Plan. In addition, on February
19, 1999, Messrs. Doyle and Flynn were granted non-qualified options covering
300,000 shares at $5 per share, subject to stockholder approval of the Plan
Amendment. The following table sets forth, to the extent determinable, the
benefits or amounts that will be received by the following persons in the year
following approval of the Plan Amendment; (i) the Named Executive Officers; (ii)
the current executive officers as a group (four persons); (iii) the current
directors who are not executive officers as a group (five persons); (iv) each
nominee for election as a director (nine persons); (v) each associate of any
director, executive officer or nominee; and (vi) all employees, including all
current officers who are not executive officers, as a group. Except for Messrs.
Doyle and Flynn, no other person received or is expected to receive 5% of the
options issued under the Option Plan.
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PLAN AMENDMENT BENEFITS
1996 Stock Option Plan
Name and Position of Group Dollar Value ($)(1) Number of Units
-------------------------- ------------------- ---------------
John Loeffler Undeterminable
Chairman of the Board and President
Richard Flynn 300,000 (2)
Chief Operating Officer, Treasurer
and Secretary
Brian Doyle 300,000 (2)
Chief Executive Officer
Jon Small Undeterminable
Executive Vice President
Current Executive Officers Undeterminable
as a Group (4 persons) (3)
Current Non-Executive Directors Undeterminable
as a Group (5 persons) (4)
Director Nominees
Brian Doyle 300,000 (2)
Richard Flynn 300,000 (2)
John Loeffler Undeterminable
Jon Small Undeterminable
Paul Thomas Cohen Undeterminable
Thomas J. Edelman Undeterminable
Soledad Bastiancich Undeterminable
Jesse Dylan Undeterminable
Jeffrey Rosen Undeterminable
Associates Undeterminable
Employees (including Non-Executive Undeterminable
Officers) (as a group 26 persons)
(1) The dollar value of options and SARs granted under the Option Plan will
depend upon (i) in the case of options the spread between the exercise price of
the options and the value of the Common Stock on the date of exercise of the
options, and (ii) in the case of SAR's, the spread between the fair market value
of the shares on the date of grant and the fair market value on the date of
exercise.
(2) On February 19, 1999, Messrs. Doyle and Flynn were each granted
non-qualified options covering 300,000 shares at $5 per share, subject to
stockholder approval of the Plan Amendment.
(3) The Company's current executive officers are comprised of John Loeffler, the
Chairman of the Board and President, Brian Doyle, Chief Executive Officer,
Richard Flynn, Chief Operating Officer and Chief Financial Officer, Jon Small,
Executive Vice President. The total number of options which may be issued to the
group is not now determinable.
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(4) The current non-executive directors are Soledad Bastiancich, Paul Thomas
Cohen, Jesse Dylan, Thomas J. Edelman and Jeffrey Rosen. The total number of
options which may be issued to the group is not now determinable.
Proposed Plan Amendment
On February 23, 1999 the Board of the Company resolved to amend Section
2(a) of the Option Plan to read in its entirety as follows:
"2. Stock Subject to Plan
(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, par value of $.01 per share of
the Company (the "Common Stock") for which options (the "Options")
and stock appreciation rights ("SARs") may be granted under the Plan
shall be 1,500,000, subject to adjustment as provided in Section 14
hereof."
Vote Required for Approval
Approval of the Plan Amendment requires the affirmative vote of a majority
of the shares of Common Stock present in person or represented by proxy at the
Meeting and entitled to vote.
The Board of Directors recommends a vote FOR Proposal No. 3
OTHER BUSINESS
Management of the Company knows of no other business which will be
presented for consideration at the Meeting, but should any other matters be
brought before the Meeting, it is intended that the persons named in the
accompanying proxy will vote such proxy in their discretion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 9, 1996, the Company entered into an Exchange Agreement (the
"Exchange Agreement") with each of John Loeffler, Jon Small, Brian Doyle and
Richard Flynn, each of whom was an executive officer and a director of the
Company. Pursuant to the Exchange Agreement, John Loeffler and Jon Small were
each issued 291,000 shares of common stock and Brian Doyle and Richard Flynn
were each issued 145,500 shares of common stock in exchange for all of the
outstanding stock of each of Rave, Picture Vision and All Access. The Company
believes that this transaction was fair from a financial point of view. This
belief is based on the fact that the Exchange Agreement, and the transactions
consummated thereby, were analyzed and approved by the Company's Board of
Directors and by all of its then existing stockholders.
In January 1997, the Company entered into an eighteen month consulting
agreement with Thomas J. Edelman, an outside board member for $90,000 which
agreement has now expired. On July 1, 1998 the full amount of such consulting
fee was converted into a one year convertible promissory note bearing interest
at the rate of one percent (1%) per month. This note was repaid by the issuance
of 36,040 shares of Common Stock and $54,555 in cash.
In January 1998, the Company entered into a consulting agreement with
Thomas Cohen, an outside board member for $12,000 for the calendar year 1998
which agreement has now expired.
The Company had a promissory note receivable from Mr. Loeffler providing
for loans of up to $150,000 in the aggregate, with interest at 8.5% per annum.
The promissory note is collateralized by 200,000 shares of
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Common Stock and provides for mandatory prepayments as defined in the agreement.
As of February 17, 1999 there was $71,000 outstanding. The Company does not
intend to make any further loans to Mr. Loeffler.
On December 11, 1998, investors represented by The Cassandra Group, Inc.,
a registered investment advisor ("Cassandra"), purchased 500,000 shares of
Common Stock at a price of $1 per share or $500,000 in the aggregate and on
December 15, 1998 additional investors represented by Cassandra purchase an
aaggregate of 1,500,000 shares of Common Stock at a purchase price of $1 per
share or $1,500,000 in the aggregate. The Company received the first payment of
$500,000 on December 11, 1998 and an additional $100,000 on or about December
23, 1998. The payment for the remaining 1,400,000 shares was made in January
1999. The purchase price was higher than both the market price on NASDAQ and the
book value on the date of payment or date of irrevocable commitment. On January
21, 1999, the Board of Directors was expanded from six to nine members. The
increase in the Board was in connection with the above described investment.
Under the terms of the investment Cassandra had the right to request the
nomination of three individuals for election to the Board. Cassandra requested
the election of Soledad Bastiancich, Jesse Dylan and Jeffrey Rosen to serve as
Board members. Their election was effected by the Board as then constituted. It
has been agreed between Cassandra and the Company that Cassandra shall have the
ongoing right to designate one representative to serve on the Board of
Directors. The current representative of Cassandra is Soledad Bastiancich. The
two other directors designated by Cassandra act as independent directors.
Cassandra has no further rights with respect either to their continuing service
or to the election of replacements after their service as directors terminates.
In July of 1998, at the Company's request, all six members of the Board of
Directors sold in the aggregate approximately 105,000 shares of Common Stock in
one or more open market transactions at a price per share of $2.875 to provide
financing for the Company. The Company's two then Outside Directors lent the
proceeds of such open market sales (an aggregate of approximately $48,000) to
the Company pursuant to convertible promissory notes that would allow the
holders of such notes to convert the outstanding principal and interest accrued
thereunder into shares of Common Stock at a price per share equal to $2.875.
These notes have been converted by the Outside Directors. Three of the Board
members took the proceeds of their open market sales (approximately $188,000)
and reinvested them into the Company in exchange for restricted shares of Common
Stock at a purchase price per share of $2.875. One of the Board members, Mr.
Loeffler, used the proceeds of his open market sales to repay approximately
$58,000 of a loan that had been advanced to him by the Company. In all, the
Company received approximately $302,000 in gross proceeds from such
transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires officers and directors of the Company and holders of
more than 10% of the Common Stock (collectively "Reporting Persons") to file
reports of initial ownership, ownership and changes in ownership of the Common
Stock with the Securities and Exchange Commission within certain time periods
and to furnish the Company with copies of all such reports. Based solely on its
review of copies of such reports furnished to the Company by such Reporting
Persons or on the written representations of such Reporting Persons that no
reports on Form 5 were required, the Company believes that during the fiscal
year ended June 30, 1998, all of the Reporting Persons complied with their
Section 16(a) filing requirements.
INDEPENDENT ACCOUNTANTS
The Company has engaged Rothstein, Kass & Company, P.C. as independent
public accountants for the Company's first fiscal year ended June 30, 1999.
Representatives of Rothstein, Kass & Company, P.C. are expected to be present at
the Meeting, will have the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
ANNUAL REPORT
The Annual Report of the Company on Form 10-KSB for the fiscal year ended
June 30, 1998, including financial statements but excluding exhibits, is being
furnished herewith to stockholders of record of the Company on the Record Date.
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SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any stockholder desiring to present proposals to stockholders at the next
Annual Meeting of the Company must transmit such proposal to the Company in
writing and such proposal must be received by the Secretary of the Company at
its offices no later than November 15, 1999. All such proposals should be in
compliance with applicable SEC regulations.
By Order of the Board of Directors
Richard Flynn
Chief Operating Officer, Chief Financial Officer,
Secretary and Treasurer
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Appendix A
Proposed Amendment to 1996 Stock Option Plan
Subject to stockholder approval, on February 19, 1999, the Board of
Directors adopted the following amendment to the Paradise Music & Entertainment,
Inc. 1996 Stock Option Plan:
"2. Stock Subject to Plan
(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, par value of $.01 per share of
the Company (the "Common Stock") for which options (the "Options")
and stock appreciation rights ("SARs") may be granted under the Plan
shall be 1,500,000, subject to adjustment as provided in Section 14
hereof."
<PAGE>
Appendix B
PARADISE MUSIC & ENTERTAINMENT, INC.
53 West 23rd Street, 11th Floor, New York, NY 10010
FORM OF PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
April 6, 1999
The undersigned hereby appoints JOHN LOEFFLER and RICHARD FLYNN as
Proxies, with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote, as designated below, all of the shares of Common
Stock, $.01 par value, of PARADISE MUSIC & ENTERTAINMENT, INC., held of record
by the undersigned at the close of business on February 16, 1999 at the Annual
Meeting of Stockholders (the "Meeting") of PARADISE MUSIC & ENTERTAINMENT, INC.
on April 6, 1999, at 10:00 am, or at any adjournments thereof.
1. Election of Directors
[ ]For all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated otherwise below)
INSTRUCTION: to withhold authority to vote for an individual nominee,
write such nominee's name in the space below.
NOMINEES: Soledad Bastiancich, Paul Thomas Cohen, Brian Doyle, Jesse
Dylan, Thomas J. Edelman, Richard Flynn, John Loeffler, Jeffrey Rosen and
Jon Small.
2. To approve the amendment to the Company's Certificate of Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amendment to the 1996 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(To be signed below)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ABOVE
Please sign exactly as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please indicate the capacity in which
signing. When a ballot is given by a corporation, please give your full
corporation name and have the ballot signed by the president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: ________________, 1999
-----------------------------------------
Shareholder Name
-----------------------------------------
Shareholder Signature
-----------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
