SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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F O R M 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999 Commission file number 1-12635
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
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PARADISE MUSIC & ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3906452
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
53 West 23rd Street, New York, New York 10010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 590-2100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
- ------------------- registered
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Common Stock, par value $0.01 per share Boston Stock Exchange
Nasdaq Small Cap Market
Redeemable Common Stock Purchase Warrants Boston Stock Exchange
Nasdaq Small Cap Market
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
The issuers revenues for the year ended June 30, 1999 were $9,661,036.
The aggregate market value of voting stock held by non-affiliates of the
registrant on September 23, 1999 was approximately $21,293,102. On such date,
the last sale price of registrant's common stock was $4.125 per share. Solely
for the purposes of this calculation, shares beneficially owned by directors,
officers and beneficial owners of in excess of 10% of the registrant's common
stock have been excluded, except shares with respect to which such persons
disclaim beneficial ownership. Such exclusion should not be deemed a
determination or admission by registrant that such persons are, in fact,
affiliates of registrant.
As of September 23, 1999 there were 6,353,197 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one)
Yes |_| No |X|
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PART I
The statements contained in this Annual Report that are not historical
facts are forward-looking statements. Such forward-looking statements may be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. These
forward-looking statements involve predictions. Our actual results, performance
or achievements could differ materially from the results expressed in, or
implied by, these forward-looking statements. Potential risks and uncertainties
that could affect our future operating results include, but are not limited to,
our need to raise additional capital, our history of losses, the high risk
nature of the music and entertainment business and our dependence on some large
customers, as well as economic conditions.
ITEM 1. DESCRIPTION OF BUSINESS
General
Paradise Music & Entertainment, Inc. ("Paradise" or the "Company") is
engaged in several aspects of the music and entertainment industry. Our
strategic goal is to create an artist-centric company capable of producing
quality content for any entertainment medium. We intend to increase our presence
in the music and entertainment industry by concentrating our efforts on
developing our core businesses, by acquiring other viable companies which
enhance our core businesses and by acquiring companies engaged in collateral
lines of business.
On September 24, 1999, Paradise executed definitive agreements to acquire
substantially all of the assets of Consolidated Entertainment, LLC, d/b/a Straw
Dogs and, all of the outstanding stock of Spur & Buckle, Inc. (collectively know
as "Straw Dogs"). Straw Dogs is a rapidly growing company engaged in the
production of television commercials, music videos and other related media.
Straw Dogs is a leading television commercial production company, with fiscal
1999 revenues of approximately $19 million. Straw Dogs' clients include Nike,
Pepsi, Reebok, Budweiser, Hallmark, 7-Up, General Motors, Coke, AT&T, Sprint,
Chevrolet, McDonalds, Disney, American Express and Mountain Dew, among others.
Spur & Buckle, Inc. provides Jesse Dylan's personal services to Straw Dogs in
connection with the production of television commercials. The acquisition is
subject to stockholder approval and other customary closing conditions. The
description of the business which follows assumes that the Straw Dogs
acquisitions are consummated. There can be no assurance that this will be the
case.
Paradise's operating business can be categorized as:
Television & Film Production
o Production of television commercials and development of film and
television properties through Straw Dogs
o Production of television and cable specials and music videos through
Picture Vision, Inc. ("Picture Vision")
o Production of original scores and advertising themes for television,
radio and film through Rave Music and Entertainment, Inc. ("Rave
Music")
Recorded Music & Artist Management
o Production and commercial release of recorded music through Push
Records, Inc. ("Push Records")
o Artist management through All Access Entertainment Group, Inc. ("All
Access Management")
We believe that we offer a broader range of services than most independent
production and music companies. This combination of services has been structured
to foster synergies between the operating companies, lower costs and provide
greater convenience to our artists and customers.
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We have adopted a strategic plan to significantly expand through
acquisitions of related businesses and key personnel. Our acquisition program is
concentrated on complementary businesses. If more significant opportunities
become available we believe that through our relationships and management
contacts, we may be able to finance these opportunities directly, through joint
ventures or otherwise. To implement this plan, we have entered into the
transactions and the consulting agreements with the persons described under
"Recent Developments." We believe these relationships will provide us with
acquisition talent and financing opportunities.
Recent Developments
Since the beginning of 1999 we have gone through a substantive
restructuring and recapitalization including the addition of several key
managers and an affiliation with The Cassandra Group, Inc. ("Cassandra") as a
resource for obtaining acquisition candidates and additional financing.
Acquisition of Straw Dogs
On September 24, 1999 we agreed to purchase, for 900,000 shares of common
stock, substantially all of the business and assets of Consolidated
Entertainment , LLC (d/b/a Straw Dogs) and to assume substantially all the
liabilities of Straw Dogs effective as of June 1, 1999. Straw Dogs is currently
owned and operated by Jesse Dylan and Craig Rodgers. Mr. Dylan has served as our
Chairman and Chief Executive Officer since April, 1999. Upon completion of the
transaction, Mr. Rodgers will join the company and serve as President and CEO of
our wholly-owned subsidiary Straw Dogs. The shares being issued are not being
registered under the Securities Act of 1933, as amended. However, Messrs. Dylan
and Rodgers have been granted standard "piggyback" registration rights with
respect to these shares.
On September 24, 1999, we also agreed to purchase, for 541,000 shares of
common stock, all of the stock of Spur & Buckle, Inc. Spur & Buckle is a
California corporation currently owned and operated by Jesse Dylan as a personal
services company. The Paradise shares being issued are not being registered
under the Securities Act. However, Mr. Dylan has been granted standard "piggy
back" registration rights with respect to such shares.
The closing of both of these transactions is subject to approval of our
stockholders and other customary closing conditions. We intend to hold a special
meeting of stockholders this Fall to obtain the requisite stockholders approval.
There can be no assurance that the transaction will be consummated.
Financing Transactions
In July 1999, investors represented by Cassandra purchased an aggregate of
970,880 shares of Paradise common stock at a price of $4.25 per share or
$4,126,240 in the aggregate. We agreed to file a Form S-3 ("S-3") registering
for resale these 970,880 shares promptly following the receipt and acceptance by
us of the subscription agreements together with the payment for these shares by
the investors. The S-3 was declared effective by the Securities and Exchange
Commission on July 29, 1999.
In April 1999, we entered into a financial consulting agreement with Dana
Giacchetto, Cassandra's President, pursuant to which Mr. Giacchetto will assist
us for a period of time in a range of areas, including identifying acquisition
targets, employee recruitment, structuring transactions and financings to
support our growth and operations. As compensation for his consulting services
he was issued 200,000 shares of common stock and three-year warrants to purchase
800,000 shares of common stock at the following prices: 100,000 at $5 per share,
150,000 at $6 per share, 150,000 at $7 per share, 150,000 at $8 per share,
125,000 at $9 per share and 125,000 at $10 per share. These warrants are
currently exercisable.
Management Developments
In April, 1999 Jesse Dylan was named our Chairman and Chief Executive
Officer. Mr. Dylan succeeded John Loeffler, as our Chairman and Brian Doyle as
our CEO. Mr. Loeffler now devotes more of his time to his role as CEO and
President of Rave Music. Mr. Doyle acts as CEO and President of All Access
Management and Push Records.
On June 7, 1999 M. Jay Walkingshaw began providing consulting services to
us. Mr. Walkingshaw is being paid at an annual rate of $400,000 per year. It is
anticipated that we will be entering into a long term employment
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agreement with Mr. Walkingshaw, which will also provide for the granting of
options, pursuant to which he will advise us on restructuring, reorganization
and operations.
In addition, we have entered into consulting agreements with several other
individuals and companies. In each of these consulting agreements we have issued
warrants to purchase our common stock as compensation for services. During the
fiscal year ended June 30, 1999 we issued warrants to purchase an aggregate of
495,000 shares at prices ranging from $4 to $10 per share vesting over various
periods of time.
We are also considering granting warrants to other consultants as full or
partial compensation for their services.
Our Current Business
The Television & Film Production Business
Through Straw Dogs, upon its acquisition, Picture Vision, and Rave Music
we produce television series and specials, television commercials, original
scores and advertising themes for television, radio and film and music videos.
We also intend to expand into the development and production of theatrical
motion pictures. As the demand for content on television continues to increase
dramatically, Paradise expects to be positioned to meet that demand by
inexpensively producing high quality programming with the company's growing base
of video and commercial directors and by utilizing management's key
relationships with writers, and producers. Paradise intends to be one of the few
television production companies capable of pitching an idea, producing the show,
supplying the director, creating and producing the soundtrack and attracting
first class talent.
Our intention to branch into the theatrical motion picture production
business does not involve financing the production of projects. Rather, Paradise
intends to seek strategic alliances with major film companies, with the major
company acting as a distributor and Paradise acting as the creator and supplier
of content.
Straw Dogs and its award-winning producers and directors have created
television commercials for national advertisers such as Coca-Cola, Pepsi,
Reebok, Budweiser, Nike, Chevrolet and McDonalds and music videos for artists
such as Tom Petty, Lenny Kravitz, Nick Cave and Tom Waits. Picture Vision, has
produced Emmy-nominated and award-winning television specials for Garth Brooks,
Janet Jackson and John Tesh and music videos for Reba McEntire, Garth Brooks,
Whitney Houston, Billy Joel, Sting, Aerosmith and numerous other artists.
Recently, Picture Vision expanded into the production of television commercials,
completing commercials for national advertisers including MCI and NAPA Auto
Parts.
Rave Music, a wholly owned subsidiary, creates original scores for
television, radio, and film as well as advertising themes for commercials. Rave
Music is currently providing original musical scores for the television show
Pokemon. Most recently, Rave Music composed and produced the 2.B.A. Master
soundtrack album for the top-rated syndicated children's animated television
program, Pokemon. Rave Music also produced all of the music for the WB network
television program Pokemon including the theme song for the series. Presently,
Rave Music is working on the score for Pokemon, the Movie, MEWTWO Strikes Back
as well as the animated short Picachus Vacation soon to be released nationwide
by Warner Brothers. Rave Music also works with advertising agencies to help
create the soundtracks for commercials. Rave is also currently providing
original compositions of advertising themes for clients such as Bounty Fabric
Softener, Pringles and Jiff Peanut Butter. Rave Music retains the intellectual
property rights to its musical compositions. Royalty and residual distributions
are paid by a performing rights society, usually BMI, ASCAP or SESAC, to Rave
Music, the composer and the performers for the various uses of the actual
compositions. Such residual fees can exceed the creative fees paid for its
composition.
The Recorded Music & Artist Management Business
Paradise engages in the business of discovering and signing musical
artists and manufacturing, packaging, distributing and marketing their recorded
music; and managing musical artists. Unlike most individuals and small companies
which tend to engage in only one of these businesses, Paradise is in the unique
position of providing all of these services. We believe that there is a
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significant opportunity for consolidation among the smaller music companies
which are increasingly recognizing the need to adopt new strategies and form
strategic alliances in order to stay competitive.
Push Records, a wholly-owned subsidiary, is a record label launched in
early 1997. Since its launch we have initially focused on alternative and adult
contemporary artists, such as Daryl Hall and John Oates and Blessid Union of
Souls. We are currently contemplating acquiring a number of independent labels
with catalogues and artists to develop and expand our record label activities.
Push Records has a manufacturing and distribution agreement with V2/BMG Music
for the distribution of records and has released 2 new records and 5 catalogue
selections with V2/BMG during the fourth quarter of fiscal year 1999. Push
Records has engaged in a strategic alliance with V2 Records whereby Push Records
finds talent and produces masters and V2 markets and promotes the talent and
remains responsible for distribution of the recordings. Prior to the V2
arrangement, Push Records needed substantial cash resources for the development
of its business and experienced substantial operating losses. The V2 arrangement
will help to limit the additional cash investments required prior to the
generation of revenues from product sales. Paradise believes Push Records can
provide its artists with the opportunity to share greater economic benefits than
its competitors because of its lower overhead structural costs.
Our music artist management services are provided by All Access Management
which currently manages Daryl Hall and John Oates and Sozzi, a new up-and-coming
Columbia recording artist. All Access promotes its clients' records, supports
them through touring and secures appropriate recording and publishing contracts,
among other things. The management at All Access Management has worked with
super-star status artists including Mariah Carey, John Cougar-Mellencamp, Daryl
Hall and John Oates, Billy Idol, Billy Joel, Kenny Loggins, Carly Simon, Taylor
Dayne and others.
We believe that our commercial music business has begun to derive creative
benefits from the availability of the resources of our other businesses.
Our Acquisition Program
Our acquisition program is designed to identify, qualify and integrate
similar businesses of appropriate scale, which compliment our existing
businesses.
Areas of contemplated acquisition activity include existing record labels
having a catalogue of niche product offerings and specialized music markets such
as jazz music, commercial and television production companies with established
talent relationships and performance, talent and artist management businesses
which require little initial capital investment and offer good cash flow and
synergistic opportunities with our existing businesses and catalogue and music
publishing opportunities.
Beginning in early 1999, we initiated a substantial restructuring
including the addition of several key managers and our affiliation with
Cassandra as a source for obtaining new equity investment. We have also entered
into numerous consulting agreements with entities or individuals who we believe
can provide us with acquisition, talent and financing opportunities. If
significant opportunities become available we believe that, though our
consultants and management contracts, we may be able to finance these
opportunities through joint ventures or otherwise.
The commercial and music video production industry is made of a number of
entities which host varying numbers of resources and commercial and/or video
directors. We believe there are a number of these entities that will benefit
from the economies of scale and efficiencies that the Straw Dogs and Picture
Vision infrastructure provides.
The artist management business is also populated with smaller entities,
which represent specific clients (principally recording artists). By providing
a proactive, efficient and flexible environment with resources to expand these
businesses, we believe we will be able to attract significant talent and expand
this business substantially.
The music industry includes five major companies in the area of recorded
music and thousands of smaller independent music companies in the area of
recorded music and the broader music business. We believe that many owners of
independent music entities do not enjoy certain of the benefits which we offer.
These benefits include the ability to provide a broader range of services to
clients and greater liquidity and potential for capital enhancement. Other
benefits that we believe we can provide acquired entities are management
expertise and a broad range of industry contacts. Recently the major companies
have cut back substantially on the number of artists that they are promoting in
order to devote greater resources to a limited number of artists who are
believed to offer major breakthrough opportunities. We believe that our
acquisition program can build on these and other opportunities to generate
growth and profitability.
While we believe that we will find and adequately fund our acquisition
program there can be no assurance of success either with respect to funding and
financing such opportunities or the ultimate profitability of these
acquisitions.
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Competition
The television commercial business is highly competitive. Production
companies compete to secure deals to produce television commercials as part of
major national advertising campaigns for products and services with household
name recognition. Those competitors include, among others, MJZ, Propaganda, and
Radke Films. Also, Straw Dogs competes with the other commercial productions
companies for the services of the top commercial directors needed to deliver
commercials of the highest quality. Many directors retain their status as
independent contractors even though they are signed to exclusive term contracts,
adding to the competitive nature of the business.
We currently compete with numerous other businesses and individuals who
produce original music scores and advertising themes for television, radio and
film, produce music videos and specials for television and provide management
for music artists. Currently, the production of original scores and advertising
themes for television, radio and film, the production of music videos and video
specials for television, and music artist management are carried out by
individuals or small privately held niche companies. Generally, each such
individual or small company engages in only one of these businesses. Many of
these businesses and individuals including Crushing Enterprises, Elias
Associates, Not Just Jingles, JSM Music, Inc. and Tomandandy, with respect to
commercial music; The End, DNA, Automatic Films, The Collective and High Five,
with respect to video production and Gold Mountain Entertainment, Deluxe
Management, Left Bank Management and H.K. Management, with respect to artist
management.
Push Records faces intense competition for discretionary consumer spending
from numerous other record companies and other forms of entertainment offered by
film companies, video companies and others. Push Records competes directly with
other recorded music companies, including the five major recorded music
companies, which distribute contemporary music, as well as with other record
companies for signing artists and acquiring music catalogs. Many of these
competitors have significantly longer operating histories, greater financial
resources and larger music catalogs than we do. Our ability to compete
successfully in the recorded music business will be largely dependent upon
obtaining additional capital, signing and retaining successful artists and
introducing music products which are accepted by consumers.
Organization
We were incorporated in the State of Delaware on July 18, 1996 and our
principal executive offices are located at 53 West 23rd Street, New York, New
York, 10010 and our telephone number is (212) 590-2100.
Employees/Independent Contractors
As of June 30, 1999, we had 22 employees, 14 of whom were located at our
New York office, and 8 of whom were located in Nashville, Tennessee. As of June
30, 1999 Straw Dogs had 12 employees. None of our employees, or those of Straw
Dogs, is represented by a labor union. We have not experienced any work stoppage
and consider relations with our employees to be good.
As is customary in the music business, we also utilize the services of
artists, performers, composers, producers, engineers, roadies, booking agents
and others who are independent contractors. These independent contractors hire
out their services on an as needed basis and receive a set fee for the services.
The services performed by these independent contractors are not needed on a full
time basis. As a result, services of independent contractors are less expensive
than having full time employees perform these services.
ITEM 2. DESCRIPTION OF PROPERTY
We lease office space at three locations. Our headquarters and commercial
music recording studios are located at 53 West 23rd Street in New York City
where we lease approximately 20,000 square feet, pursuant to a lease that
expires in July 2007. Our music video production business leases 2,050 square
feet of office space at 209 10th Avenue South in Nashville, Tennessee which
lease expires in August 2000. Our commercial production company leases
approximately 2,500 square feet at 1520 2nd Street, Santa Monica, CA on a month
to month basis. Our rent expense for fiscal 1999 was approximately $247,000.
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ITEM 3. LEGAL PROCEEDINGS
Except for proceedings in the normal course of business, neither Paradise
nor any of our subsidiaries is a party to or involved in any material pending
legal proceedings.
ITEM 4. MATTERS SUBMITTED TO STOCKHOLDER VOTE
Our annual meeting of stockholders was held on April 6, 1999. At the
meeting, the following persons were elected as directors to hold office until
the next annual meeting of stockholders and until their respective successors
are duly elected and qualified and such persons received the number of votes
indicated below opposite their respective names:
Name Votes For Votes Withheld
Soledad Bastiancich 3,437,070 6,000
Paul Thomas Cohen 3,437,070 6,000
Brian Doyle 3,437,070 6,000
Jesse Dylan 3,437,070 6,000
Thomas J. Edelman 3,437,070 6,000
Richard Flynn 3,437,070 6,000
John Loeffler 3,437,070 6,000
Jeffrey Rosen 3,437,070 6,000
Jon Small 3,436,770 6,300
Soledad Bastiancich and Paul Thomas Cohen have since resigned.
At the meeting, the stockholders also approved a proposal to amend our
1996 stock option plan to increase the total number of shares available for
options granted under the plan from 185,000 to 1,500,000. The voting was as
follows:
Votes For Votes Against Abstentions Non-Votes
843,662 42,775 17,100 2,539,533
Also at the meeting our stockholders voted to approve the amendment to our
certificate of incorporation to increase the total number of authorized shares
of common stock from 20,000,000 shares to 75,000,000. The voting was as follows:
Votes For Votes Against Abstentions
3,401,370 40,000 1,700
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock began trading on the Nasdaq SmallCap Market and the
Boston Stock Exchange on January 22, 1997 under the symbol "PDSE" and "PMU,"
respectively. The high and low bid prices of our common stock (as reported by
Nasdaq and the Boston Stock Exchange) for each quarter since our initial public
offering were as follows:
Nasdaq SmallCap Market
Period High Low
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1999 01/01/99 - 03/31/99 $5-3/8 $1-1/4
03/31/99 - 06/30/99 $7-3/4 $3-7/8
1998 01/01/98 - 03/31/98 $4 $2-13/16
04/01/98 - 06/30/98 $3-3/4 $2
07/01/98 - 09/31/98 $3 $1-1/8
10/01/98 - 12/31/98 $2 $1/2
1997 01/22/97 - 03/31/97 $7 $5-3/8
04/01/97 - 06/30/97 $5-7/8 $3-1/2
07/01/97 - 09/30/97 $5-1/32 $3-5/8
10/01/97 - 12/31/97 $6-3/8 $3
Boston Stock Exchange
Period High Low
------ ---- ---
1999 01/01/99 - 3/31/99 $5-3/8 $1-1/8
03/31/99 - 06/30/99 $7-1/8 $3-5/8
1998 01/01/98 - 03/31/98 $4 $2-13/16
04/01/98 - 06/30/98 $3-5/8 $2
07/01/98 - 09/31/98 $1-7/8 $1
10/01/98 - 12/31/98 $1-1/2 $7/16
1997 01/22/97 - 03/31/97 $7 $5
04/01/97 - 06/30/97 $6 $3
07/01/97 - 09/30/97 $5-3/64 $3-5/8
10/01/97 - 12/31/97 $6-3/8 $3
The prices set forth above reflect interdealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The public market for our common stock is limited and the
foregoing quotations should not be taken as necessarily reflective of prices
which might be obtained in actual market transactions or in transactions
involving substantial numbers of shares.
The approximate number of holders of record of our common stock was 56 as
of September 23, 1999. We believe that there are in excess of 300 round lot
beneficial owners of common stock whose shares are held in street name.
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We have never paid a dividend on our common stock. We anticipate that
future earnings, if any, will be retained for use in our business or for other
corporate purposes and we do not anticipate paying cash dividends.
Recent Sales of Unregistered Securities
In July 1999, investors represented by Cassandra purchase an aggregate of
970,880 shares of common stock. These shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended and Regulation D promulgated thereunder. We filed a
registration statement on Form S-3 registering an aggregate of 1,237,380 shares
for resale which was declared effective on July 29, 1999.
Except for the foregoing and for those sales previously described on our
Quarterly Reports on Form 10-QSB for the period ended December 31, 1998 and
March 31, 1999, we did not issue any equity securities during the fiscal year
ended June 30, 1999 which were not registered under the Securities Act of 1933,
as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Recorded music and artist management revenues decreased to $1,158,701 for
the fiscal year ended June 30, 1999 from $3,099,084 for the fiscal year ended
June 30, 1998 a decrease of $1,940,383 or 62.6%. The decrease in revenues is
primarily due to the restructuring of Push Records and the reduction in sales
volume of Daryl Hall and John Oates album "Marigold Sky." The recorded music
operation has been restructured to decrease operating overhead and by forming
joint ventures with other companies willing to absorb the costs associated with
the production, marketing and promotion of records.
Recorded music and artist management cost of sales decreased to $665,875
for fiscal year ended June 30, 1999 from $1,608,090 for fiscal year ended June
30, 1998, a decrease of $942,215 or 58.6 %. The decrease is due to fewer record
releases and lower overall album sales when compared to the prior year. Gross
profit as a percentage of recorded music and artist management revenues
decreased to 42.5% for the fiscal year ended June 30, 1999 from 48.1 % for the
fiscal year ended June 30, 1998. The decrease was attributable to lower overall
artist management revenues which have no costs of sales associated with them and
a new distribution agreement Push Records executed with V2 Records which reduced
Push Records' costs to produce and market the recordings and provides for a
portion of the profits from such recordings to be shared with V2.
Television and film production revenues decreased to $8,502,335 for the
fiscal year ended June 30, 1999 from $10,494,342 for the fiscal year ended June
30, 1998 a decrease of $1,992,007 or 19.0% (revenue from the pending acquisition
of Straw Dogs is not included). The decrease in revenues is primarily due to a
reduction in the number of television music specials produced during the fiscal
year ended June 30, 1999, partially offset by an increase in royalty and
residual revenues from original music scores made for television programs such
as Pokemon and Mr. Men.
Television and film production cost of sales decreased to $5,639,636 for
fiscal year ended June 30, 1999 from $8,153,418 for fiscal year ended June 30,
1998, a decrease of $2,513,782 or 30.8%. Gross profit as a percentage of
television and film production revenues increased to 33.7% for the fiscal year
ended June 30, 1999 from 22.3% for the fiscal year ended June 30, 1998. The
increase was primarily attributable to the higher gross profit percentage on the
television music specials, and royalty and residual income from television
programs.
Paradise's marketing, selling, general and administrative expenses
increased to $7,101,023 for fiscal year ended June 30, 1999 from $6,828,087 for
the fiscal year ended June 30, 1998, an increase of $272,936 or 4%. The increase
is primarily attributable to fees associated with services provided to Paradise
pursuant to outside consulting arrangements with regard to liquidity and
acquisitions. These fees were paid predominately through the use of common stock
purchase warrants. The increase in marketing, sales, general and administrative
expenses were partially offset by decreases in other administration costs as a
result of staff reductions and other cost containment measures implemented.
Interest income decreased to $37,569 for the fiscal year ended June 30,
1999 from $139,040 for the fiscal year ended June 30, 1999, a decrease of
$101,471 or 72.9%. The decrease resulted from the use of proceeds from
Paradise's initial public offering during fiscal 1998, which were invested, in
interest bearing accounts
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The Company's loss before income taxes increased to $3,707,929 for the
fiscal year ended June 30, 1999 from $2,857,129 for the fiscal year ended June
30, 1998, an increase of $850,800 or 29.8%. The increase was primarily due to
the decrease in gross profits realized by the two operating segments as
mentioned above, as well as one-time items that impacted fiscal operating
results which include, fees associated with the hiring of key management
personnel to drive Paradise forward in its new growth phase; certain charges
relating to the restructuring of the Push Records subsidiary; and a charge
associated with the termination of Push's record distribution agreement with
BMG, precipitated by its new joint venture with V2; all of which reflected
efforts to recapitalize and restructure Paradise's core businesses.
Liquidity and Capital Resources
Net cash used in operating activities for the fiscal year ended June 30,
1999 was $2,370,079. This was principally due to the operating loss for the year
net of the non-cash charges associated with the issuance of the Company's common
stock and common stock purchase warrants as payment for certain services.
Net cash provided by investing activities for the fiscal year ended June
30, 1999 was $161,498. This was principally due to the release of restricted
cash previously held for rental security deposits, partially offset by amounts
used to acquire property and equipment.
Net cash provided by financing activities for the fiscal year ended June
30, 1999 was $2,275,363, which represented the net proceeds from the sales of
Paradise's common stock, net of expenses.
Paradise has working capital of $2,515,953 and stockholders' equity of
$4,044,056 at June 30, 1999. Paradise raised an additional $4.1 million in July
1999 and believes that its cash, operating cash flows and its access to capital
markets, taken together, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses, future acquisitions and development of new projects for the
next twelve month period.
Year 2000 Compliance
Paradise has conducted a review of its computer systems and believes that
the majority of its systems are properly adapted to avoid a Year 2000 problem.
Paradise believes that all its computer systems will be Year 2000 compliant by
the end of the third quarter of 1999. The expense incurred by Paradise to
achieve compliance has not been material. Paradise is currently working with
outside vendors to obtain assurances that they are Year 2000 compliant. However,
there can be no assurance that all of Paradise's vendors will achieve compliance
on a timely basis. In the event of any such noncompliance by vendors, a material
adverse effect to Paradise's operations and financial results could occur.
Paradise has not developed any contingency plan to address the possibility of
vendor-related Year 2000 problems
ITEM 7. FINANCIAL STATEMENTS
See the index to our financial statements attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Principal
Occupation or
Director Employment, if
Name Age Since Position with Company Different
- ---- --- -------- --------------------- --------------
<S> <C> <C> <C> <C>
Jesse Dylan 33 January 1999 Chairman, Chief
Executive Officer
and a director
Richard Flynn(2) 41 October 1996 Chief Operating
Officer, Chief
Financial Officer,
Treasurer, Secretary
and a director
Jon Small 52 July 1996 Director; Chief
Executive Officer of
Picture Vision
John Loeffler 47 July 1996 Chairman Emeritus and a
director; Chief
Executive Officer of
Rave Music
Brian Doyle 42 July 1996 Director; President of
All Access Management
Thomas J. Edelman(1)(2) 48 October 1996 Director Chairman, Patina Oil
& Gas Corporation
Jeffrey Rosen(1)(2) 44 January 1999 Director General Manager,
Davasee Enterprises
</TABLE>
- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
JESSE DYLAN, has served as our Chairman and Chief Executive Officer since
April 1999 and as a director since January 1999. 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. Mr. Dylan
has been engaged in the entertainment business for over five years, as, among
other things, a director of music videos, television commercials and motion
pictures. He has directed music videos for Tom Waits, Tom Petty and others, and
has directed television commercials for Coca-Cola, Nike, Budweiser and others.
Mr. Dylan, along with Craig Rodgers, began Straw Dogs in February 1998 which has
grown rapidly since its inception, completed its first full fiscal year of
operations with revenues reaching approximately $19 million and net profits
before taxes of approximately $1 million.
RICHARD FLYNN, has served as our Chief Financial Officer and Chief
Operating Officer since February 1999, our Treasurer since December 1996, our
Secretary since July 1996 and as a director since October 1996. From September
1994 to September 1996, Mr. Flynn was the managing co-owner of All Access
Management. From September 1996, Mr. Flynn has also been Vice President and
General Manager of All Access Management, and from 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 Entertainment and
Management Group Inc. ("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.
JON SMALL, has served as a director and Executive Vice President since our
inception in July 1996. Since September 1996, Mr. Small has been the Chief
Executive Officer of Picture Vision, an Emmy-award-winning video and television
program production company, which he also founded in 1984. From 1984 to
September 1996, Mr. Small had been the President of Picture Vision. Mr. Small
has produced and directed music videos and specials for many acclaimed artists,
including Garth Brooks, Janet Jackson, Billy Joel, Reba McEntire, Whitney
Houston, Sting and Aerosmith. Picture Vision has produced a number of music
videos for acclaimed artists, several
11
<PAGE>
television specials and television commercials. Picture Vision has grown, under
Mr. Small's leadership, to become one of the leading independent production
companies currently in operation.
JOHN LOEFFLER, has served as our Chairman Emeritus since April 1999 and as
a director since our inception in July 1996. Mr. Loeffler served as our Chairman
of the Board and President from July 1996 through April 1999 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 Rave Music, a company
Mr. Loeffler founded approximately twenty years ago, Mr. Loeffler, a talented
musician in his own rights, has built Rave Music into a premier creator of
original scores and advertising themes for television, radio and film. Because
of Mr. Loeffler's vast experience in his field, Rave Music's extensive client
list has grown to include the most well-known and largest advertisers in the
world.
BRIAN DOYLE, has served as a director since our inception in July 1996.
Mr. Doyle had served as our Chief Executive Officer from December 1998 through
April 1999 and as our Executive Vice President from July 1996 through December
1998. In 1994 Mr. Doyle founded All Access Management, and from 1994 to the
present he has served as the President of All Access Management. Since 1996, Mr.
Doyle has also been the Chief Executive Officer of All Access Management. Since
February 1997, Mr. Doyle has also been the Chief Executive Officer of PUSH
Records. From 1991 to 1994, Mr. Doyle served as Chief Executive Officer and
President of Horizon. With over twenty years of experience in the artist
management field, Mr. Doyle has built All Access Management into a thriving
artist-friendly company guiding both well-established and up-and-coming artists
through their careers.
THOMAS J. EDELMAN, has served as a director 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 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 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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our officers and directors and holders of more than
10% of our 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 us with copies of all such reports. Based solely on our review of copies
of such reports furnished to us by such Reporting Persons or on the written
representations of such Reporting Persons that no reports on Form 5 were
required, we believe that except as described below, during the fiscal year
ended June 30, 1999, all of the Reporting Persons complied with their Section
16(a) filing requirements. On September 28, 1999 Dana Giacchetto filed an
initial statement on Form 3 reflecting the 200,000 shares and 800,000 warrants
issued to him in April 1999. Jesse Dylan has not yet filed an amendment to his
Form 3 which he previously filed to reflect beneficial ownership of an
additional 25,000 shares of common stock held by an affiliate.
12
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by or
paid by Paradise or its subsidiaries during each of the last three fiscal years
to Jesse Dylan, our current Chief Executive Officer, and Brian Doyle, who served
as Chief Executive Officer from December 1998 through April 1999 and Executive
Vice President prior to December 1998, and John Loeffler who served as Chief
Executive Officer from July 1996 through December 1998 and Chairman and
President from December 1998 through April 1999, and each of the most highly
compensated executive officers, other than the persons who had served as Chief
Executive Officer during the fiscal year, whose annual base salary and bonus
compensation exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation Awards
--------------------------------- ----------------------------
Securities
Year Ended All Other Underlying
Name and Principal Position June 30 Salary($) Bonus($) Compensation(2) Options
- --------------------------- ------- --------- -------- --------------- -------
<S> <C> <C> <C> <C> <C>
Jesse Dylan 1999 -- -- -- --
Chief Executive Officer (since 1998 -- -- -- --
April 1999) 1997 -- -- -- --
Brian Doyle 1999 $225,000 $ 75,000 $25,000 350,000
Former Chief Executive Officer 1998 300,000 -- 28,000 --
(until April 1999) 1997 150,000 162,500 7,000 --
John Loeffler 1999 $225,000 $100,000 $25,000 50,000
Former Chief Executive Officer 1998 310,000 -- 34,000 --
(until December 1998) 1997 150,000 191,000 34,000 5,000
Richard Flynn 1999 $225,000 $100,000 $18,000 350,000
Chief Financial Officer and 1998 300,000 -- 15,000 --
Chief Operating Officer (since 1997 150,000 162,500 -- --
February 1998)
Jon Small 1999 $345,000 $125,000 $50,000 50,000
Executive Vice President 1998 310,000 150,000 60,000 --
1997 150,000 189,000 36,000 5,000
</TABLE>
(1) We were incorporated in July 1996. Compensation for the fiscal years ended
June 30, 1999, 1998 and 1997 represents amounts paid by Rave Music,
Picture Vision, All Access Management and PUSH Records.
(2) Includes amounts paid by us which we deemed to be for the benefit of such
executive, including amounts paid for lodging, transportation, insurance,
entertainment and other perquisites.
13
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth, for each of the Named Executive Officers,
information regarding individual grants of options made during the fiscal year
ended June 30, 1999.
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options
Granted to
Employees in Exercise or Base
Name Granted Fiscal Year Price ($/Sh) Expiration Date
---- ------- ----------- ------ ---------------
Jesse Dylan -- - -- --
Brian Doyle 50,000 3% $5.25 4/22/02
300,000 19% $5.00 2/19/02
John Loeffler 50,000 3% $5.25 4/22/02
Richard Flynn 50,000 3% $5.25 4/22/02
300,000 19% $5.00 2/19/02
Jon Small 50,000 3% $5.25 4/22/02
Aggregate Option/SAR Exercises; Fiscal 1999 Year End Option/SAR Values
The following table provides information related to options exercised by
the Named Executive Officers during the fiscal year ended June 30, 1999 and the
number and value of options held by them at June 30, 1999 which were then
exercisable. No options were exercised during the fiscal year ended June 30,
1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options/
Options/SARs at FY-End SARs at FY-End(1)
---------------------- -----------------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jesse Dylan -- -- -- -- -- --
John Loeffler 0 0 5,000 50,000 $0 $18,750
Jon Small 0 0 5,000 50,000 $0 $18,750
Richard Flynn 0 0 300,000 50,000 $187,500 $18,750
Brian Doyle 0 0 300,000 50,000 $187,500 $18,750
</TABLE>
- ----------
(1) The last sale price on June 30, 1999 was $5.625
Directors' Compensation
Pursuant to our Outside Directors Program, directors who are not employees
("Outside Directors") received non-qualified options to purchase 5,000 shares on
January 22, 1997 at $6 per share and are entitled to receive non-qualified
options to purchase 5,000 shares 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 on July 1, 1997, at $2.0625 on July 1, 1998 and at
$5.125 on July 1, 1999 to each Outside Director.
In addition, Outside Directors are entitled to receive compensation in the
amount of $18,000 per annum, 100% payable in stock. Such amounts are payable
quarterly in arrears. For the year ended June 30, 1999, persons who were Outside
Directors during such fiscal year received compensation of $45,000 and 18,838
shares of common stock.
14
<PAGE>
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 or who are
associated with us do not receive compensation for service as directors.
Employment Agreements, Termination of Employment and Change in Control
Arrangements
Upon the completion of the acquisition of Straw Dogs and Spur & Buckle,
Mr. Dylan will be employed as our Chairman and Chief Executive Officer, a
position he currently holds, for a five year term, commencing July 1, 1999 at an
annual salary of $750,000. In addition to his duties as the Chairman and Chief
Executive Office, Mr. Dylan will also continue to direct commercial and other
television projects. The benefits of these activities will accrue directly to
Paradise. Mr. Dylan's compensation is to be reviewed annually by our
Compensation Committee with bonus awards or increases in salary to be considered
based on Mr. Dylan's and our overall performance. In addition, Mr. Dylan will be
entitled to receive ten year options to purchase 750,000 shares of common stock.
The options vest ratably over three years from the effective date (provided Mr.
Dylan is employed by us at that time), and have an exercise price of $5 per
share.
In October 1996, we 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, 1997, 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 of 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 $125,000 for fiscal 1999 in recognition of his
performance during such fiscal year.
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. 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. It is anticipated that
revised employment agreements will be finalized during the next fiscal year.
The Employment Modification Agreements also impose tighter 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 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 the non-compete terms reflected in the Employment Modification
Agreements, the Compensation Committee treated all monies paid to the executives
in fiscal year 1998 as compensation earned 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. Accordingly, each of Messrs.
Loeffler, Doyle and Flynn currently receive annual salaries of $225,000 per
annum.
15
<PAGE>
For the years ended June 30, 1999 and 1998, approximately $1,391,000 and
$1,480,000 have been expensed under the bonus plans and Executive Agreements,
New Agreements and Employment Modification Agreements and are included in
marketing, selling, general and administrative expenses.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 23,
1999 regarding the share ownership of the company by (i) each person who is
known to us to be the record or beneficial owner of more than five percent (5%)
of our common stock; (ii) each director and each Named Executive Officer; and
(iii) all directors and executive officers as a group.
Percentage
of
Amount and Nature Outstanding
of Beneficial Shares
Name and Address of Beneficial Owner (1) Ownership(2) Owned(3)
---------------------------------------- ------------ --------
Named Executive Officers and Directors
Jesse Dylan 125,000(4) 2.0%
Brian Doyle 464,250(5)(6) 7.0%
Richard Flynn 464,250(5)(6) 7.0%
John Loeffler 369,601(6)(7)(8) 5.8%
Jon Small 299,000(6)(7) 4.7%
Thomas J. Edelman 112,385(9)(10) 1.8%
Jeffrey Rosen 6,747(11) 1.0%
All executive officers and directors as a 1,841,233(4) through (11) 26.3%
group (7 persons)
Beneficial Owners of in Excess of 5% (other
than directors and named executive
officers)
The Cassandra Group, Inc.
561 Broadway 2,970,880(12) 46.8%
New York, New York 10012
Dana Giacchetto
561 Broadway 1,000,000(13) 15.7%
New York, New York 10012
- ----------
(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) Jesse Dylan, which is c/o Straw Dogs,
8330 3rd Street, Los Angeles, CA 90048, and (iii) Jeffrey Rosen, which is
c/o Davasee Enterprises, 67 Irving Place, 11th Floor, New York, New York
10003.
(2) Unless otherwise indicated, we believe 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 September 23, 1999 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 August 15, 1999 have been exercised and converted, and
(ii) 6,353,197 shares of common stock were outstanding, before any
consideration is given to such options, warrants or convertible
securities.
(4) Includes 25,000 shares held by Straw Dogs but does not include (i)
1,000,000 shares of common stock to be issued to Mr. Dylan in the proposed
acquisition of Straw Dogs and Spur & Buckle, which transactions are
subject to stockholder approval, (ii) non-qualified options to purchase
750,000 shares at an exercise price of $5 to be granted pursuant to his
employment agreement, subject to stockholder approval.
(5) Includes non-qualified options granted on February 19, 1999 covering
300,000 shares at $5 per share.
16
<PAGE>
(6) Does not include non-qualified options to purchase 50,000 shares of common
stock at $5.25 per share granted on April 21, 1999 which are not
exercisable within 60 days from September 23, 1999.
(7) Includes non-qualified options to purchase 5,000 shares granted in
December 1996 at $6 per share.
(8) Includes 18,600 shares owned by Mr. Loeffler's pension plan and 3,800
shares owned by Mr. Loeffler's wife.
(9) Includes (i) non-qualified options granted in December 1996 to purchase
15,000 shares at $6 per share and (ii) non-qualified options granted under
the Directors Option Program of 5,000 shares on January 2, 1997, July 1,
1997, July 1, 1998 and July 1, 1999 at exercise prices of $6, $4, $2.0625
and $5.125, respectively.
(10) Does not include warrants to purchase 100,000 shares granted on April 8,
1999 at $5 per share, subject to stockholder approval.
(11) Includes non-qualified options to purchase 5,000 shares at $5.125 per
share granted under the Directors Option Program. Does not include
warrants to purchase 200,000 shares granted on April 23, 1999 at $5.25 per
share subject to stockholder approval.
(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.
(13) Does not include 100,000 shares which are held of record by Mr. Giacchetto
but are not beneficially owned by him. Does not include the shares deemed
to be beneficially owned by Cassandra, a company which Mr. Giacchetto
owns.
Information contained here with regard to stock ownership was obtained
from our 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an Asset Purchase Agreement dated as of September 24, 1999, we
have agreed to purchase, effective as of June 1, 1999, for 900,000 shares of
common stock, substantially all of the business and assets of Straw Dogs and to
assume substantially all the liabilities of Straw Dogs. Straw Dogs is currently
owned and operated by Jesse Dylan and Craig Rodgers. Mr. Dylan is our Chairman
and Chief Executive Officer and a director. Pursuant to a Stock Purchase
Agreement dated as of September 24, 1999, we have also agreed to purchase,
effective as of June 1, 1999, all of the stock of Spur & Buckle for 541,000
shares of common stock. Spur & Buckle is wholly owned by Mr. Dylan. Both of
these transactions are subject to stockholder approval and other customary
closing conditions. If the Straw Dogs and Spur & Buckle transactions are
approved Mr. Dylan will receive (i) 1,000,000 shares of common stock, (ii) a
five year employment agreement with (a) an annual salary of $750,000; (b) ten
year non-qualified options to purchase 750,000 shares at $5 per share, and (c)
an annual compensation review with bonus awards or salary increases to be based
on Mr. Dylan's performance and our overall performance.
In April 1999 we entered into a financial consulting agreement with Dana
Giacchetto, Cassandra's President. Mr. Giacchetto is a beneficial owner of in
excess of 10% of our shares. Pursuant to these agreements Mr. Giacchetto will
assist us for a period of time in a range of areas including identifying
acquisition targets, structuring transactions, employee recruitment and
financings to support our growth and operation. As compensation for his
consulting services. Mr. Giacchetto received 200,000 shares of restricted common
stock and three-year warrants to purchase 800,000 shares, at the following
prices: 100,000 at $5 per share, 150,000 at $6 per share, 150,000 at $7 per
share, 150,000 at $8 per share, 125,000 at $9 per share and 125,000 at $10 per
share.
On June 7, 1999 we entered into a six-month consulting agreement with Jay
Walkingshaw at a monthly salary of $33,333. Mr. Walkingshaw will advise us on
our restructuring, recapitalization and operations.
In April 1999 we entered into consulting agreements with our outside
directors Jeffery Rosen and Thomas Edelman. Mr. Edelman and Mr. Rosen have each
agreed to provide business advice to us, in addition to their services as
directors. Mr. Rosen will provide services for the period April 20, 1999 through
June 30, 2001, and will receive 200,000 three-year warrants which vest after one
year and which are exercisable at $5.25 per share. Mr. Edelman will
17
<PAGE>
provide services for the period April 8, 1999 through June 30, 2001 and will
receive 100,000 three-year warrants which vest after one year and which are
exercisable at $5 per share.
On October 9, 1997, we 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. Pursuant to the
Exchange Agreement, John Loeffler and Jon Small were each issued 291,000 shares
and Brian Doyle and Richard Flynn were each issued 145,500 shares in exchange
for all of the outstanding stock of each of Rave Music, Picture Vision and All
Access Management. We believe 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 our Board of
Directors and by all of its then existing stockholders.
John Loeffler, our Chairman Emeritus and a director is also a consultant
to Grey Advertising, which is a major client of our commercial music production
division. For such consulting services, Mr. Loeffler is paid approximately
$45,000 per year by Grey Advertising.
We have a promissory note receivable with Mr. Loeffler which provided for
borrowings up to approximately $129,000, with interest at 8.5% per annum. The
promissory note is collateralized by 200,000 shares of the executive's common
stock of the company and provides for mandatory prepayments as defined in the
agreement. As of June 30, 1999, $70,878 is outstanding under this promissory
note.
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<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of the Registrant (1)
3.2 Amended and Restated By-Laws of the Registrant (1)
4.1 Specimen of Registrant's Common Stock Certificate (1)
4.2 Specimen of Registrant's Warrant Certificate (1)
4.3 Form of Representative's Warrant Agreement including
form of Warrant (1)
4.4 Form of Warrant Agreement between Registrant and
Continental Stock Transfer and Trust Company (1)
10.1 Exchange Agreement dated as of October 9, 1996 among the
Registrant, Brian Doyle, Richard Flynn, John Loeffler
and Jon Small (1)
10.2 Employment Agreement dated as of October 9, 1996 between
the Registrant and Brian Doyle (1)
10.3 Employment Agreement dated as of October 9, 1996 between
the Registrant and Richard Flynn (1)
10.4 Employment Agreement dated as of October 9, 1996 between
the Registrant and John Loeffler (1)
10.5 Employment Agreement dated as of October 9, 1996 between
the Registrant and Jon Small (1)
10.6 Expense Allocation Agreement dated as of October 9, 1996
among the Registrant, Rave Music, Picture Vision, All
Access Management and Robert Klein (1)
10.7 Form of The Registrant's 1996 Stock Option Plan
(corrected version) (1)
10.8 Lease Agreement dated June 24, 1992 between Not Just
Jingles, Inc. and Newmark & Company Real Estate, Inc.
(1)
10.9 Lease Agreement dated October 28, 1994 between the
Registrant and Silk & Halpern Realty Associates, Inc.
(1)
10.10 Lease Agreement dated April 4, 1995 between the
Registrant and Cummins Station L.L.C. (1)
10.11 Sublease Agreement dated September 29, 1996 between the
Registrant and Not Just Jingles, Inc. (1)
10.12 Financial Consulting Agreement (1)
10.13 Form of Consulting Agreement dated as of January 1, 1997
between the Company and Thomas J. Edelman (1)
10.14 Lease Agreement dated as of October 21, 1996 between the
Registrant and Twenty Third Street joint Venture,
together with Escrow Letter dated December 11, 1996 (1)
10.15 Form of Amended and Restated Employment Agreement dated
as of January 17, 1997 between the Registrant and Brian
Doyle (1)
10.16 Form of Amended and Restated Employment Agreement dated
as of January 17, 1997 between the Registrant and
Richard Flynn (1)
10.17 Form of Amended and Restated Employment Agreement dated
as of January 17, 1997 between the Registrant and John
Loeffler (1)
10.18 Form of Amended and Restated Employment Agreement dated
as of January 17, 1997 between the Registrant and Jon
Small (1)
10.19 Distribution Agreement with BMG Music d/b/a BMG
Entertainment and PUSH Records, Inc. (3)
10.20 Lease Agreement dated July 10, 1997 between the
Registrant and Twenty-third Street Joint Venture (3)
10.21 Consulting Agreement dated August 15, 1997 between the
Registrant and Consulting for Strategic Growth, Ltd. (3)
10.22 Personal Services Agreement dated August 13, 1997
between PUSH Records and Luxx (3)
10.23 Form of Service Agreement dated September 22, 1997
between Daryl Hall & John Oates and PUSH Records (3)
10.24 Employment Agreement dated as of October 1, 1997 between
Rave Music and Paul Hoffman (4)
10.25 Employment Agreement dated as of July 1, 1997 among the
Registrant, Rave Music and John Loeffler (4)
10.26 Employment Agreement dated as of July 1, 1997 among the
Registrant, All Access Management and Richard Flynn (4)
10.27 Employment Agreement dated as of July 1, 1997 among the
Registrant, PUSH Records and Brian Doyle (4)
10.28 Employment Agreement dated as of July 1, 1997 among the
Registrant, Picture Vision and Jon Small (4)
19
<PAGE>
10.29 Employment Agreement Amended dated as of July 1, 1997
among the Registrant, Rave Music and John Loeffler (5)
10.30 Employment Agreement Amended dated as of July 1, 1997
among the Registrant, All Access Management and Richard
Flynn (5)
10.31 Employment Agreement Amended dated as of July 1, 1997
among the Registrant, PUSH Records and Brian Doyle (5)
10.32 Employment Agreement Amended dated as of July 1, 1997
among the Registrant, Picture Vision and Jon Small (5)
10.33 Employment Agreement dated as of December 1, 1997
between Registrant and Joseph Gallo (5)
10.34 Consulting Agreement dated as of January 15, 1998
between Registrant and Thomas J. Edelman (5)
10.35 Consulting Agreement dated as of January 15, 1998
between Registrant and Thomas Cohen (5)
10.36 Outside Director Compensation Agreement dated January
15, 1998 between Registrant and Thomas J. Edelman (5)
10.37 Outside Director Compensation Agreement dated January
15, 1998 between Registrant and Thomas Cohen (5)
10.38 Personal Services Agreement between PUSH Records and
Bruce M. Somers and Nancy Free p/k/a/ Kidney Thieves (5)
10.39 Form of Licensing Agreement dated November 4, 1997
between PUSH Records and Eagle Rock Entertainment, PLC.
(5)
10.40 Promissory Note and Stock Pledge Agreement dated
December 31, 1997 between Registrant and John Loeffler
(6)
10.41 Interim Chief Operating Officer Consulting Agreement
dated May 5, 1999 between the Registrant and Philip G.
Nappo III. (7)
10.42 Personal Services Agreement dated June 18, 1998 between
PUSH Records and Legend Entertainment Corporation. (7)
10.43 Promissory Note in the amount of $23,960 dated as of
August 7, 1998 between Registrant and Thomas Edelman.
(7)
10.44 Promissory Note in the amount of $90,000 dated as of
July 1, 1998 between Registrant and Thomas Edelman. (7)
10.45 Promissory Note in the amount of $23,960 dated as of
August 7, 1998 between Registrant and Paul Thomas Cohen.
(7)
10.46 Employment Modification Letter Agreement dated as of
September 24, 1998 among Registrant and Messrs, Doyle,
Flynn, Loeffler and Small. (7)
10.47 Consulting Agreement dated April 21, 1999 between the
Company and Dana Giacchetto, as amended. (8)
10.48 Warrant dated April 21, 1999 issued to Dana Giachetto
10.49 Consulting Agreement dated April 23, 1999 between the
Company and Jeffrey Rosen
10.50 Warrant dated April 23, 1999 issued to Jeffrey Rosen
10.51 Consulting Agreement dated April 8, 1999 between Thomas
Edelman and the Company
10.52 Warrant dated April 8, 1999 issued to Thomas Edelman
21.1 Subsidiaries of Registrant (1)
23.1 Consent of Rothstein Kass and Company
27.1 Financial Data Schedule.
(1) Incorporated by Reference to the Company's
Registration Statement on Form SB-2 (Reg. No.
333-13941)which was declared effective by the
Securities and Exchange Commission on January
22, 1997.
(2) Filed with the Securities and Exchange
Commission on March 17, 1997.
(3) Filed with the Securities and Exchange
Commission on September 26, 1997.
(4) Filed with the Securities and Exchange
Commission on November 14, 1997.
(5) Filed with the Securities and Exchange
Commission on February 12, 1998
(6) Filed with the Securities and Exchange
Commission on May 15, 1998
(7) Filed with the Securities and Exchange
Commission on October 8, 1998
(8) To be filed by Amendment
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in the city of New York, state of
New York on September 27, 1999.
PARADISE MUSIC & ENTERTAINMENT, INC.
By /s/ Jesse Dylan
-------------------------------------
Jesse Dylan
Chairman of the Board and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates below.
Signature Title Date
- --------- ----- ----
/s/ JESSE DYLAN Chairman of the Board and September 27, 1999
- --------------------- Chief Executive Officer
Jesse Dylan (Principal Executive Officer)
and Director
/S/ RICHARD FLYNN Chief Financial Officer, Treasurer, September 27, 1999
- --------------------- Secretary (Principal Financial and
Richard Flynn Accounting Officer) and Director
/S/ JOHN LOEFFLER Chairman Emeritus September 27, 1999
- --------------------- and Director
John Loeffler
/S/ JON SMALL Executive Vice President September 27, 1999
- --------------------- and Director
Jon Small
/S/ BRIAN DOYLE Director September 27, 1999
- ---------------------
Brian Doyle
/S/ THOMAS J. EDELMAN Director September 27, 1999
- ---------------------
Thomas J. Edelman
/s/ JEFFREY ROSEN Director September 27, 1999
- ---------------------
Jeffrey Rosen
21
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6-F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8-F17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Paradise Music & Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1999 and 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1999, and the results of
their operations and their cash flows for the years ended June 30, 1999 and
1998, in conformity with generally accepted accounting principles.
Roseland, New Jersey
August 10, 1999, except for Note 14 as to
which the date is September 24, 1999 Rothstein, Kass & Company, P.C.
F-2
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash $ 930,642
Accounts receivable 810,922
Prepaid expenses and other current assets 2,496,106
------------
Total current assets $ 4,237,670
PROPERTY AND EQUIPMENT, net 1,125,316
OTHER ASSETS:
Security deposits and other 307,787
Deferred acquisition costs 95,000
------------
402,787
------------
$ 5,765,773
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued payroll and related expenses $ 491,001
Accounts payable and accrued expenses 1,230,716
------------
Total current liabilities $ 1,721,717
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 5,000,000 shares, none issued
Common stock, $.01 par value,
authorized 75,000,000 shares,
issued and outstanding 5,345,717 shares 53,457
Capital in excess of par value 11,811,489
Note receivable, stockholder (70,878)
Subscription receivable (100,000)
Accumulated deficit (7,650,012)
------------
Total stockholders' equity 4,044,056
------------
$ 5,765,773
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
June 30,
----------------------------
1999 1998
------------ ------------
REVENUES $ 9,661,036 $ 13,593,426
------------ ------------
OPERATING EXPENSES
Cost of sales 6,305,511 9,761,508
Marketing, selling, general and administrative 7,101,023 6,828,087
------------ ------------
Total operating expenses 13,406,534 16,589,595
------------ ------------
LOSS FROM OPERATIONS (3,745,498) (2,996,169)
INTEREST INCOME 37,569 139,040
------------ ------------
LOSS BEFORE INCOME TAXES (3,707,929) (2,857,129)
INCOME TAXES 6,000 12,000
------------ ------------
NET LOSS $ (3,713,929) $ (2,869,129)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.98) $ (1.29)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN COMPUTING BASIC AND DILUTED
LOSS PER COMMON SHARE 3,802,805 2,230,042
============ ============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Note
--------------------------- Excess of Accumulated Subscription receivable,
Shares Amount Par Value Deficit receivable stockholder
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, July 1, 1997 2,228,333 $ 22,283 $ 5,752,317 $ (1,066,954) $ -- $ (129,600)
COMMON STOCK, issued to
outside directors and
executive officer 16,810 168 39,832
WARRANTS GRANTED FOR 71,017
SERVICES
INITIAL PUBLIC OFFERING (1,667)
EXPENSES
NET LOSS (2,869,129)
------------ ------------ ------------ ------------ ------------ ------------
BALANCES, June 30, 1998 2,245,143 22,451 5,861,499 (3,936,083) (129,600)
SALES OF COMMON STOCK 2,276,249 22,763 2,352,600 (100,000)
COMMON STOCK, issued to
outside directors, consultants,
vendors and employees 824,325 8,243 1,527,892
WARRANTS GRANTED FOR
SERVICES 2,069,498
PAYMENTS OF NOTE
RECEIVABLE 58,722
NET LOSS (3,713,929)
------------ ------------ ------------ ------------ ------------ ------------
BALANCES, June 30, 1999 5,345,717 $ 53,457 $ 11,811,489 $ (7,650,012) $ (100,000) $ (70,878)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,713,929) $(2,869,129)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 199,727 753,015
Loss on disposal of branch operation 89,646
Provision for returns 588,500
Common stock issued and warrants granted to outside
directors, consultants, vendors and employees 867,119 111,017
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Restricted cash 464,603 (464,603)
Accounts receivable (4,335) (1,342,846)
Prepaid expenses and other current assets (141,528) (200,860)
Security deposits and other (187,707)
Other assets 26,826
Deferred revenues (266,636) (234,437)
Accrued payroll and related expenses 338,402 (221,991)
Accounts payable and accrued expenses (42,267) 1,383,675
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,370,079) (2,497,659)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (152,224) (1,243,932)
Restricted cash 350,000 (350,000)
Deferred acquisition costs (95,000)
Note receivable, officer 58,722 (129,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 161,498 (1,722,932)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES, proceeds from sales
of common stock, net of expenses 2,275,363 (1,667)
----------- -----------
NET INCREASE (DECREASE) IN CASH 66,782 (4,222,258)
CASH, beginning of year 863,860 5,086,118
----------- -----------
CASH, end of year $ 930,642 $ 863,860
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30,
---------------------------
1999 1998
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION,
cash paid during the year for income taxes $ -- $ 7,092
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of liabilities into common stock $ 481,750 $ --
============ ============
Warrants granted for services $ 2,256,764 $ --
============ ============
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS:
Paradise Music & Entertainment, Inc. ("Paradise") was formed in July
1996. In October 1996, Paradise entered into an exchange agreement (the
"Agreement") whereby Paradise exchanged 873,000 shares of common stock
in exchange for the outstanding stock of its three original
subsidiaries in a transaction accounted for as a pooling of interests.
Paradise consists of the following operating 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, John Loeffler 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, incorporated in New York,
Push Records, Inc. ("Push") a record label which was incorporated in
Delaware and Straw Dogs Acquisition Corporation (Straw Dogs) (see Note
14) incorporated in April 1999 in Delaware.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of Paradise and its wholly-owned subsidiaries, All
Access, Picture Vision, Rave, Push and Straw Dogs (collectively the
"Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition - Commercial music production revenues and the
related production costs are recognized upon acceptance of the music
production by the client. Royalty and residual income which relates to
musical compositions used in television series are recognized when
earned and the amount can be reasonably estimated. All other royalty
and residual income is recognized when received as it cannot be
reasonably estimated. 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. In
accordance with industry custom, the Company currently operates its
music artist management business based on oral agreements with certain
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 in accordance with the
provisions of the various distribution agreements. Certain record costs
are capitalized as recoverable from future revenues and amortized over
the expected life of the records, 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."
Cash - The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
incurred any losses in such accounts and believes it is not exposed to
any significant credit risk on cash.
F-8
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization is computed as follows:
Estimated
Asset Useful Lives Principal Method
----- ------------ ----------------
Furniture, fixtures and equipment 5-7 Years Straight-line
Leasehold improvements Term of Lease Straight-line
Deferred acquisition costs - Costs incurred with the potential
acquisition of a business are capitalized and included with the cost of
the acquisition, upon closing. Costs incurred on acquisitions not
consummated are expensed when it is determined that the transaction
will not be consummated.
Income Taxes - The Company complies with SFAS No. 109, "Accounting for
Income Taxes", which requires an asset and liability approach to
financial reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future, based on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred income tax assets
to the amount expected to be realized.
Loss Per Common Share - The Company complies with statement of
Financial Accounting Standards ("SFAS") 128, "Earnings Per Share",
which 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 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. Diluted loss per common share is the same as
basic loss per common share for the years ended June 30, 1999 and 1998.
Unexercised stock options to purchase 1,062,500 and 144,000 shares of
the Company's common stock at June 30, 1999 and 1998 respectively were
not included in the computations of diluted earnings per common share
because their effect would have been antidilutive as a result of the
Company's losses.
Fair Value of Financial Instruments - The fair value of the Company's
assets and liabilities which qualify as financial instruments under
SFAS No. 107 "Disclosures about fair value of financial instruments,"
approximate the carrying amounts presented in the consolidated balance
sheet.
Use of Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
At June 30, 1999, prepaid expenses and other current assets consists of
the following:
Prepaid consulting costs $2,136,684
Prepaid advances 312,793
Other current assets 46,629
----------
$2,496,106
==========
NOTE 4 - PROPERTY AND EQUIPMENT:
At June 30, 1999, property and equipment consists of the following:
Furniture, fixtures and equipment $ 662,555
Leasehold improvements 886,750
----------
1,549,305
Less accumulated depreciation and amortization 423,989
----------
$1,125,316
==========
NOTE 5 - NOTE RECEIVABLE, STOCKHOLDER:
The Company has a promissory note receivable with a
stockholder/officer which provided for borrowings of approximately
$129,000, bearing interest at 8.5% per annum. The promissory note is
collateralized by 200,000 shares of the officers' common stock of the
Company and provides for mandatory repayments as defined in the note.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
At June 30, 1999, accounts payable and accrued expenses consists of the
following:
Accounts payable $ 866,029
Accrued rent 214,840
Other 149,847
----------
$1,230,716
==========
F-10
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of state and city taxes.
At June 30, 1999, the Company recorded deferred federal, state and city
income tax assets aggregating approximately $3,266,000 arising from net
operating loss carryforwards. A valuation allowance in the same amount
has been recorded, since management has no assurance that the tax
benefit will be realized.
At June 30, 1999, the Company has federal and New York State and City
net operating loss carryforwards of approximately $7,547,000 and
$7,614,000 respectively, which expire beginning in 2012.
The following reconciles income tax benefit computed at the federal
statutory rate to the actual provision for income taxes.
Years Ended
June 30,
-----------------
1999 1998
------ ------
Tax benefit computed
at federal statutory rate (34.00)% (34.00)%
Valuation allowance 34.00 34.00
------ ------
--% --%
====== ======
NOTE 8 - COMMITMENTS:
The Company has leases for office facilities which expire in various
years through July 2007. Rent expense for the years ended June 30, 1999
and 1998 was approximately $247,000 and $322,000, respectively.
The aggregate future minimum annual rental payments are as follows:
Year ending June 30,
2000 $ 297,000
2001 272,000
2002 270,000
2003 307,000
2004 310,000
Thereafter 956,000
-----------
$ 2,412,000
===========
F-11
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS (CONTINUED):
In June 1999, the Company entered into an oral agreement for consulting
services relating to restructuring, recapitalization and operations.
The agreement requires monthly payments of $33,333 per month through
December 1999.
In April 1999, the Company entered into a consulting agreement with a
consultant. The consultant will assist the Company through June 30,
2000 in a range of areas including identifying acquisition targets,
structuring transactions, employment issues and financings to support
the Company's growth and operations. As compensation for these
services, the consultant received 200,000 shares of restricted common
stock (which were subsequently registered with the Securities and
Exchange Commission in July) and three-year warrants to purchase
800,000 shares of common stock at the following prices: 100,000 at
$5.00 per share, 150,000 at $6.00 per share, 150,000 at $7.00 per
share, 150,000 at $8.00 per share, 125,000 at $9.00 per share and
125,000 at $10.00 per share (see Note 10). The Company valued the
warrants and stock issued at approximately $2,389,000. At June 30,
1999, approximately $1,939,000 remains unamortized.
During the year ended June 30, 1999, four executives of the Company
were being compensated based upon an employment modification agreement
entered into in September 1998. This agreement modified existing
employment agreements for the four executives and provided for base
compensation and certain bonuses as provided in the agreement. For the
years ended June 30, 1999 and 1998, approximately $1,391,000 and
$1,480,000 has been expensed under these employment agreements.
During the year, the Company entered into consulting agreements with
various consultants for professional and financial services. The
consultants will be compensated for their services through the issuance
of an aggregate of 495,000 warrants to purchase the Company's common
stock. The warrants typically vest after one year and have exercise
prices ranging from $4.00 to $10.00 per share. The warrants were valued
at approximately $240,000. As of June 30, 1999, approximately $35,000
was expensed under these agreements.
The Company has agreed to pay each of its outside directors $18,000 per
year, payable quarterly in the Company's common stock valued on the
last day of the applicable quarter. During 1999 and 1998, the Company
charged to operations $45,000 and $23,500, respectively, pursuant to
this agreement.
In April 1999, the Company entered into agreements for financial
consulting services related to proposed acquisitions and other special
projects with its outside Board members. The agreements expire in June
2001 and require the Company to issue an aggregate of 300,000 warrants
to purchase the Company's common stock at exercise prices ranging from
$5.00 to $5.25 per share. The warrants vest after one year and expire
in two years. The warrants were valued at approximately $123,000 and as
of June 30, 1999 approximately $10,000 was expensed under these
agreements.
NOTE 9 - ECONOMIC DEPENDENCY:
Approximately $5,340,000 and $7,705,000 of television and film
production revenues for the years ended June 30, 1999 and 1998,
respectively, were derived from four and three customers respectively.
Approximately $2,806,000 of recorded music and artist management
revenues for the year ended June 30, 1998 was derived from three
customers. At June 30, 1999 and 1998, approximately $122,000 and
$96,000, respectively was owed in the aggregate to the Company related
to these revenues.
F-12
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY:
In December 1998, investors represented by Cassandra Group, Inc., a
registered investment advisor ("Cassandra"), purchased 2,000,000
shares of common stock at a price of $1 per share or $2,000,000 in the
aggregate. The Company also raised $200,000 in December 1998 through
the sale of 200,000 shares to unaffiliated investors, at $1 per share.
In February 1999, the Company sold 10,000 shares of common stock to a
partner of the Company's outside legal counsel for $3 per share. In
addition, in February 1999, the Company issued to two of its executive
officers options to purchase an aggregate of 600,000 shares of the
Company's common stock under the Company's option plan, at an exercise
price of $5 per share expiring in three years.
In April 1999, the Company issued 200,000 shares of restricted common
stock to a consultant pursuant to an agreement whereby the consultant
will provide various services to the Company through June 30, 2000
(see Note 8).
In connection with an employment agreement, the Company issued options
to purchase 100,000 shares of common stock which vested immediately
exercisable at $3.00 per share and in July 1999 issued options to
purchase 250,000 shares of common stock which vested immediately
exercisable at $4.50 per share to an employee. The Company recorded an
expense of $100,000 related to this transaction.
NOTE 11 - STOCK OPTIONS:
On October 8, 1996, the Board of Directors adopted and the
stockholders approved the Option Plan. The Option Plan provides for
the granting 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, agents and employees
of, and consultants to the Company. The purpose of the Option Plan is
to attract and retain exemplary employees, agents, consultants and
directors. Options and SARs granted under the Option Plan may not be
exercisable for terms in excess of 10 years from the date of grant. In
addition, no options or SARs may be granted under the Option Plan
later than 10 years after the Option Plan's effective date. The total
number of shares of Common Stock with respect to which options and
SARs will be granted under the Option Plan is 1,500,000. The shares
subject to and available under the Option Plan may consist, in whole
or in part, of authorized but unissued stock or treasury stock not
reserved for any other purpose. Any shares subject to an option or SAR
that terminates, expires or lapses for any reason, and any shares
purchased pursuant to an option and subsequently repurchased by the
Company pursuant to the terms of the option, shall again be available
for grant under the Option Plan. At June 30, 1999 and 1998, options
under the Option Plan to purchase 1,027,500 and 109,000 shares of
common stock are outstanding, none of which have been exercised.
In addition, the Board of Directors approved the adoption of the
Outside Directors Stock Option Program (the "Program"). The Program
provides for the granting of an aggregate of 100,000 stock options to
eligible directors of the Company (as defined in the Program). Each
eligible director shall receive 5,000 stock options per annum, subject
to adjustment, for their services on the Board on each July 1, that
they are serving as an eligible director. The options are exercisable
at the fair market value of the common stock on the last date
preceding the date of grant. The Program further provides that the
maximum term of the stock options may not exceed 5 years and the stock
options may be exercised at any time for a period of 5 years after the
date of grant. At June 30, 1999 and 1998, options to purchase 35,000
shares of common stock were outstanding, none of which have been
exercised.
F-13
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTIONS (CONTINUED):
The activity in the Option Plan and the Program are as follows:
Price
Per Share
Number of ------------
Options Range
------------ ------------
Balance outstanding,
July 1, 1997 35,000 $ 6.00
Granted 117,500 3.31 - 6.00
Cancelled 8,500 4.03
------------ ------------
Balance outstanding,
June 30, 1998 144,000 3.31 - 6.00
Granted 1,000,000 2.06 - 5.25
Cancelled 81,500 2.06 - 6.00
------------ ------------
Balance outstanding,
June 30, 1999 1,062,500 $2.06 - 6.00
============ ============
Exercisable
June 30, 1999 792,500 $2.06 - 6.00
============ ============
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation". The Company applies
Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its Option Plan and Program. Had compensation for
the Company's stock options been determined based on the fair value at
the grant dates, consistent with the provisions of SFAS No. 123, the
Company's consolidated net loss and loss per common share would have
been adjusted to the pro forma amounts indicated below:
Years Ended June 30,
--------------------------
1999 1998
------------ ------------
Net loss:
As reported $(3,713,929) $(2,869,129)
Pro forma (4,205,673) (2,975,323)
Basic and diluted loss per comon share:
As reported $ (0.98) $ (1.29)
Pro forma (1.11) (1.33)
F-14
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTIONS (CONTINUED):
The fair value of each option grant is estimated on the grant date
using the Black-Scholes option pricing model with the following
assumptions for grants for the years ended June 30, 1999 and 1998:
risk-free interest rate 5.0% and 6.0%, respectively, no dividend
yield, expected life of 5 years and expected volatility of 115.2% and
44.0% percent, respectively.
NOTE 12- RETIREMENT PLANS
Profit Sharing Plan
Effective July 1, 1997, the Company formed a Profit Sharing Plan (the
"Plan") covering substantially all employees who meet certain
eligibility requirements. The Company can contribute, on a
discretionary basis, up to 3% of the employees base salary to the
Plan. For the years ended June 30, 1999 and 1998, profit sharing
expense was $13,000 and $38,000.
401(k) Plan
Effective July 1, 1997, the Company formed a 401(k) plan covering
substantially all employees. Employees can contribute up to 15% of
their annual base salary, not to exceed $10,000 in 1999 and 1998. The
Plan does not provide for a Company match.
NOTE 13- INFORMATION CONCERNING BUSINESS SEGMENTS
The Company adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information ", effective July 1, 1998. SFAS 131
requires disclosures of segment information on the basis that is used
internally for evaluating segment performance and deciding how to
allocate resources to segments.
Segment information listed below reflects the two principal business
units of the Company during the year ended June 30, 1999 and 1998.
Each segment is managed according to the products or services provided
to the respective customers and segment information is reported on the
basis of reporting to the Company's Chief Operating Decision Maker
(CODM).
Year ended June 30, 1999:
<TABLE>
<CAPTION>
Recorded Television &
Music & Artist Film
Management Production Corporate Consolidated
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 1,158,701 $ 8,502,335 $ -- $ 9,661,036
Interest income 108 24,186 13,275 37,569
Depreciation and amortization 22,859 41,908 134,960 199,727
Pre tax income (loss) (1,298,166) 446,399 (2,856,162) (3,707,929)
Additions to long lived assets 5,794 41,653 104,777 152,224
Total assets 573,752 1,592,603 3,599,418 5,765,773
</TABLE>
F-15
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INFORMATION CONCERNING BUSINESS SEGMENTS (CONTINUED):
Year ended June 30, 1998:
<TABLE>
<CAPTION>
Recorded Television &
Music & Artist Film
Management Production Corporate Consolidated
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 3,099,084 $ 10,494,342 $ -- $ 13,593,426
Interest income 1,915 21,669 115,456 139,040
Depreciation and amortization 657,815 41,113 54,087 753,015
Pre tax income (loss) (1,948,719) 348,230 (1,256,640) (2,857,129)
Additions to long lived assets 75,334 139,882 1,028,716 1,243,932
Total assets 671,895 1,682,889 1,767,051 4,121,835
</TABLE>
NOTE 14 - SUBSEQUENT EVENTS:
In July 1999, investors represented by Cassandra, purchased 970,880
shares of common stock at a price of $4.25 per share or $4,126,240 in
the aggregate. The Company subsequently registered these shares in
addition to 266,500 shares previously unregistered of common stock
with the Securities and Exchange Commission.
Effective as of July, 1999 the Company employed an individual to
function as Chairman and Chief Executive Officer of the Company at a
rate of $750,000 per year. Upon the consumation of the Straw Dogs
acquisition such employment will be represented by an employment
agreement which provides for this salary rate plus 750,000 shares of
common stock under the option plan at $5.00 per share. These options
vest ratably over a three year period.
The board of directors has approved, subject to stockholder approval,
the increase of shares of common stock available for issuance under
the option plan to 5,000,000 shares.
F-16
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SUBSEQUENT EVENTS (CONTINUED):
In September 1999, the Company entered into an agreement to acquire
the assets of Consolidated Entertainment, LLC d/b/a Straw Dogs and
100% of the common stock of Spur & Buckle, Inc., Los Angeles based
television and commercial production companies, for an aggregate of
1,441,000 shares of restricted common stock. The purchase is subject
to stockholder approval and other closing conditions.
F-17
Exhibit 10.48
THE WARRANT REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE OFFERED, SOLD,
EXCHANGED OR TRANSFERRED IN ANY MANNER WHATSOEVER, EXCEPT IN COMPLIANCE WITH
SECTION 4 OF THIS WARRANT CERTIFICATE.
Warrant to Purchase 800,000
Shares of Common Stock
Original Issue Date: April 21, 1999
Exercise Price: 100,000 warrants at $5 per share
150,000 warrants at $6 per share
150,000 warrants at $7 per share
150,000 warrants at $8 per share
125,000 warrants at $9 per share
125,000 warrants at $10 per share
WARRANT TO PURCHASE COMMON STOCK
OF
PARADISE MUSIC & ENTERTAINMENT, INC.
This certifies that Dana Giacchetto or permitted assigns (collectively
referred to herein as, "the Warrant Holder"), is entitled, subject to Section
2.2 hereof and the other terms and conditions set forth herein, at any time and
from time to time commencing on the Original Issue Date set forth above through
the third anniversary of issue date (the "Expiration Date") to purchase from
Paradise Music & Entertainment, Inc., a corporation organized and existing under
the laws of the state of Delaware (hereinafter called the "Company"), up to
800,000 fully paid and non-assessable shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") upon surrender of this Warrant
Certificate, at the principal office of the Company, with the subscription form
annexed hereto duly executed by the Warrant Holder or an authorized
representative of the Warrant Holder, and simultaneous payment therefor in
lawful money of the United States of the purchase prices per share set forth
above subject to adjustment as provided below (such amount being referred to
herein as the "Purchase Price"). The number and type of securities issuable upon
exercise of this Warrant are subject to adjustment as provided below. The
Warrant represented by this Warrant Certificate may not be exercised after 5:00
p.m., New York time, on the Expiration Date.
<PAGE>
1. The Warrant. The Company has duly authorized the issuance of this
Warrant and the Warrant Shares (as defined below).
2. Exercise.
2.1 Subject to the provisions of Section 2.2 below, this Warrant may
be exercised as to all or any portion of the shares covered by this Warrant
Certificate at any time and from time to time until 5:00 p.m., New York, New
York time on the Expiration Date, by surrendering this Warrant Certificate at
the then principal office of the Company (currently located at 53 West 23rd
Street, New York, New York 10010) with the subscription form duly executed by
the Warrant Holder or an authorized representative of the Warrant Holder,
together with payment by certified or official bank check or in immediately
available funds of the sum obtained by multiplying (i) the number of shares of
Common Stock as to which this Warrant is being exercised by (ii) the Purchase
Price.
2.2 This Warrant shall vest and become exercisable on the date
hereof.
2.3 Upon any exercise of this Warrant as provided in Section 2.1 for
less than all of the shares of Common Stock called for on the face of this
Warrant Certificate, this Warrant Certificate shall be surrendered, and (unless
it is after 5:00 p.m., New York, New York time on the Expiration Date) a new
Warrant Certificate of the same tenor, with the same Expiration Date and for the
purchase of the number of such shares of Common Stock not purchased upon such
exercise or any prior exercise shall be issued by the Company to the Warrant
Holder.
The term "Warrant" as used herein means the Warrant represented by
this Warrant Certificate and any Warrants delivered in substitution or exchange
therefor as provided herein. The term "Warrant Shares" as used herein means as
of any date all shares of Common Stock of the Company or other securities,
properties or rights theretofore issued or at the time issuable upon exercise of
the Warrant.
2.4 This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of surrender for exercise of this
Warrant Certificate (or, in the event this Warrant Certificate is not available,
on the date of surrender of the documents described in Section 6 hereof,
together with a letter containing substantially the information included on the
subscription form attached hereto) as provided above, and the person entitled to
receive the shares of Common Stock or other securities, properties or rights
issuable upon such exercise shall be treated for all purposes as the holder of
such shares, securities, properties or rights of record as of the close of
business on such date. Promptly following such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a stock
certificate or certificates for the full number of shares of Common Stock,
properties or rights issuable upon such exercise.
2.5 Unless the Warrant Shares are registered under the Securities
Act of 1933, as amended (the "Act"), the certificate or certificates
representing the Warrant Shares shall bear a legend in substantially the
following form:
2
<PAGE>
The securities represented by this certificate may only be sold,
exchanged or transferred in compliance with the registration requirements
of the Securities Act of 1933, as amended (the "Act") or an exemption
therefrom. The Company may require an opinion of counsel, satisfactory to
it, in connection with any transfer proposed to be made without
registration under the Act.
2.6 The Warrant Holder shall have the right at any time after the
date hereof to request that the Warrant Shares be included in one registration
statement filed by the Company other than a registration statement covering an
employee benefit plan and subject to the right on the underwriter of any
offering to request a holdback or limitation on the number of Warrant shares to
be registered. Such registration shall be without expense to the Warrant Holder.
3. Payment of Taxes. All shares of Common Stock or other securities issued
upon the exercise of this Warrant pursuant to the terms of this Warrant
Certificate shall be validly issued, fully paid and non-assessable, and the
Company shall pay all issuance taxes and other similar governmental charges that
may be imposed in respect of the issue or delivery thereof, but in no event
shall the Company pay a tax on or measured by the net income or gain attributed
to such exercise; neither shall the Company be required to pay any tax or other
charge imposed in connection with any transfer of this Warrant or any transfer
involved in the issuance of any certificate for shares of Common Stock or other
securities in any name other than that of the Warrant Holder.
4. Transfer and Exchange.
4.1 This Warrant is issued upon the following terms, to all of which
the Warrant Holder by the taking hereof consents and agrees:
(a) subject to the restrictions set forth in paragraph (d) below,
title to this Warrant may be transferred by endorsement (by the registered
holder hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) subject to the restrictions set forth in paragraph (d) below,
any person in possession of this Warrant properly endorsed is authorized to
represent himself as absolute owner hereof and is empowered to transfer absolute
title hereto by endorsement and delivery hereof to a bona fide purchaser hereof
for value;
(c) this Warrant and all Warrant Shares may be disposed of only in
accordance with the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder by the Securities and Exchange
Commission. In connection with any such proposed disposition, the Company may
require such holder to furnish an opinion of counsel, satisfactory to the
Company, that the proposed disposition, if effected, will not violate the
registration requirements of the Act; and
3
<PAGE>
(d) Notwithstanding anything to the contrary contained herein, this
Warrant shall not be sold, assigned, pledged or otherwise transferred except
with the prior written consent of the Company and any purported transfer in
violation of this clause shall be void and of no force or effect.
4.2 Until any permitted transfer is effected on the books of the
Company, the Company may treat the prior holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
5. Certain Adjustments of Purchase Price and Number of Share
5.1 Adjustment for Stock Splits, Reverse Splits, Stock Dividends,
Reclassification. Recapitalizations, etc. If at any time or from time to time
after the Original Issue Date the Company shall increase or decrease the number
of outstanding shares of Common Stock, by means of any stock dividend, stock
split, reverse split, subdivision, combination or reclassification of shares,
recapitalization or other similar event, then, in each such event, the Purchase
Price shall, simultaneously, with the happening of such event, be adjusted by
multiplying the then Purchase Price, by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price as then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 5. 1. The holder of
this Warrant shall thereafter, on the exercise hereof, be entitled to receive
that number of shares of Common Stock determined by multiplying the number of
shares of Common Stock which would otherwise (but for the provisions of this
Section 5. 1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase Price which would otherwise (but for the provisions of
this Section 5. 1) be in effect, and (ii) the denominator is the Purchase Price
in effect on the date of such exercise.
5.2 Adjustment for Reorganization, Merger, Consolidation or
Disposition of Assets. If at any time or from time to time after the Original
Issue Date the Company shall reorganize its capital (other than in a
recapitalization as to which an adjustment is made pursuant to Section 5.1
above), consolidate, amalgamate or merge with or into another corporation (as a
result of which the Company is not the surviving corporation), or sell, transfer
or otherwise dispose of all or substantially all of its property, assets or
business to another entity and, pursuant to the terms of such reorganization,
merger, amalgamation or consolidation, shares of common stock of the successor
or acquiring entity, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring entity ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then the Warrant Holder shall have the
right thereafter to receive, upon any present or future exercise of this Warrant
and payment of the Purchase Price as provided for herein, the number of shares
of common stock of the successor or acquiring entity or of the Company, if it is
the surviving corporation, and Other Property received upon or as a result of
such reorganization, merger, amalgamation or consolidation by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
4
<PAGE>
immediately prior to such event. In case of any such reorganization, merger,
consolidation or disposition of assets, the successor or acquiring entity (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all of the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 5. The foregoing provisions of this
Section 5.2 shall similarly apply to successive reorganizations, amalgamations,
mergers, or consolidations.
6. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof a new Warrant Certificate of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of this Warrant such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of this Warrant.
8. Notice. All notices and other communications shall be deemed validly
given, made or served if in writing and delivered (as of such delivery) or sent
by certified mail (as of three days after deposit in a United States post
office), postage prepaid, return receipt requested, or by facsimile or overnight
courier service, charges prepaid (as of the date of confirmation of receipt):
(i) if to the Warrant Holder, to the address or telecopy number furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address or telecopy number to the Company in writing; or (ii) if to the
Company, to the address set forth in Section 2.1 hereof or to such other address
or telecopy number furnished in writing by the Company to the Warrant Holder.
9. Change: Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10. No Rights or Liability as a Stockholder. Except as otherwise expressly
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed a stockholder of the Company for any purpose,
nor shall anything contained in this Warrant be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, or receive
dividends or subscription rights, prior to the issuance to the holder of this
Warrant of the Common Stock or other securities which he is then entitled to
receive upon the due exercise of this Warrant.
5
<PAGE>
11. Heading. The headings in this Warrant are for purposes of convenience
in reference only and shall not be deemed to constitute a part hereof or to
affect the interpretation of any provision of this Warrant.
12. Governing Law. This Warrant shall be construed and enforced in
accordance with and shall be governed by the laws of the state of New York
(without reference to its rules as to conflicts of laws).
PARADISE MUSIC & ENTERTAINMENT, INC.
By:
------------------------------------
Name:
Title:
6
<PAGE>
WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned holder of this Warrant Certificate irrevocably elects to
exercise the right, represented by this Warrant Certificate, to purchase
__________ [insert number of shares] shares of Common Stock of Paradise Music &
Entertainment, Inc., and herewith tenders payment therefor in the amount of
$___________ [insert purchase price], all in accordance with the terms of this
Warrant Certificate. The undersigned requests that a certificate for such
securities be registered in the name of _____________________ whose address is
___________________.
Date: ________________
----------------------------------------
(Signature of Holder)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip)
----------------------------------------
(Social Security Number/Federal Tax
Identification No.)
7
<PAGE>
WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned holder of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address Number of Shares
- ---------------- ------- ----------------
and does hereby irrevocably constitute and appoint ___________ attorney to make
such transfer on the books of Paradise Music & Entertainment, Inc., maintained
for the purpose, with full power of substitution in the premises.
Date:
-----------------------------------
Signature
-------------------------------
Witness
---------------------------------
8
CONSULTING AGREEMENT
AGREEMENT made as of the 23rd day of April, 1999, by and between
PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation (the "Company"),
and JEFFREY ROSEN (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company wishes to engage the Consultant to render
certain services to it and the Consultant wishes to accept such engagement, upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Engagement
The Company agrees to engage the Consultant during the Term
specified in paragraph 2, and the Consultant agrees to accept such engagement,
upon the terms and conditions hereinafter set forth.
2. Term
Subject to the terms and conditions of this Agreement, the
Consultant's engagement by the Company shall be for a term commencing on the
date hereof and expiring on June 30, 2001 (the " Term").
1
<PAGE>
3. Duties and Responsibilities
(a) During the Term, the Consultant will review (including by
preparing due diligence investigations), analyze and assist in the structuring
of proposed business ventures between the Company and third parties which
ventures may originate either from the Consultant, the Company or otherwise. The
services provided hereunder are in addition to those provided by the Consultant
as a director of the Company for which the Consultant is separately compensated.
(b) During the Term, the Consultant agrees that he will (i) devote
sufficient time as shall be necessary to properly carry out his obligations
under is agreement; (ii) carry out his duties in a competent and professional
manner, and (iii) work with the employees of the Company in a competent and
professional manner. Notwithstanding the foregoing, the Consultant shall be
permitted to engage in other business activities (as an active participant or a
passive investor), provided that such activities are not rendered for a company
whose business is in competition with the Company and provided that such
activities (individually or collectively) do not violate the provisions of
paragraph 6 below or materially interfere with the performance of his duties or
responsibilities under this Agreement.
4. Compensation
For all services during the Term, the Consultant will receive
200,000 warrants to purchase shares of the Company's Common Stock at $5.25
per share. The warrants will be for a two year period, will be issued on
the date hereof and will vest one year from the date hereof. The warrants
will be exercisable commencing one year from the date hereof and will have
piggyback registration rights for one piggyback registration at any time
after the first anniversary of the date of the warrant subject to
underwriters holdback or limitation on the number of shares to be
included. No other compensation is being paid to Consultant for services
under this Agreement. The warrants must be approved by the stockholders of
the Company before they can be issued. In the event that the issuance of
the warrants is not approved by the stockholders other mutually agreed
upon compensation shall be paid to the consultant in lieu of such
warrants.
2
<PAGE>
5. Expenses
Except as otherwise agreed in writing between the Company and the
Consultant, the Company shall be under no obligation to pay or to reimburse the
Consultant during the Term for his expenses incurred in the performance of his
services hereunder.
6. Non-Competition and Protection of Confidential Information
(a) The Consultant acknowledges that his rendering of services
hereunder may require the disclosure to the Consultant of confidential
information and trade secrets of the Company and consequently he agrees that it
is reasonable and necessary for the protection of the goodwill and business of
the Company that he makes the covenants contained herein. Accordingly, the
Consultant agrees that during the Term and for a two year period thereafter, he
shall not, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be engaged as a consultant by the
Company:
(i) attempt in any manner to persuade any customer, supplier or
client of the Company to cease to do business or to reduce the amount of
business which any such customer, supplier or client has customarily done
or contemplates doing with the Company; or
(ii) employ as an employee or retain as a consultant, or persuade or
attempt to persuade anyone else to employ anyone who is then or at any
time during the preceding twelve months was an employee of or consultant
to the Company, to leave the employ of the Company or to become employed
as an employee or retained as a consultant by anyone other than the
Company; provided, however, if such employee or consultant was
involuntarily terminated by the Company, the Consultant may employ or
retain such person after obtaining the prior written consent of the
Company, which consent will not be unreasonably withheld; or
(b) The Consultant agrees that he will not at any time (whether
during the Term or after termination of this Agreement), disclose to anyone any
confidential information or trade secret of the Company, or utilize such
confidential information or trade secret for his
3
<PAGE>
own benefit, or for the benefit of third parties. The term "confidential
information or trade secret" does not include information which (i) becomes
generally available to the public other than by breach of this provision or (ii)
the Consultant learns from a third party who is not under an obligation of
confidence to the Company.
(c) If the Consultant commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 6(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction without being required to post
bond or other security and without having to prove the inadequacy of the
available remedies at law, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company. In addition, the
Company may take all such other actions and remedies available to it under law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach. The parties acknowledge that the type and
periods of restriction imposed in the provisions of paragraphs 6(a) and (b)
above are fair and reasonable and are reasonably required for the protection of
the Company, and that the time, scope, geographic area and other provisions of
this paragraph 6 have been specifically negotiated by both parties with advice
of counsel. If any of the covenants in paragraphs 6(a) or (b) above, or any part
thereof, is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in paragraphs 6(a) or (b), or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or areas of such provision and, in its
reduced form, such provision shall then be enforceable.
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7. Enforceability
The failure of any party at any time to require performance by
another 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 in this
Agreement; nor shall the waiver by any 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.
8. Assignment
This Agreement is a personal contract and the Consultant's rights
and obligations hereunder may not be transferred, assigned, pledged or
hypothecated by the Consultant. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and permitted
assigns of the Company. If the Company shall be merged into or consolidated with
another entity, the provisions of this Agreement shall be binding upon and inure
to the benefit of the entity surviving such merger or resulting from such
consolidation. If all or substantially all of the assets of the Company are
transferred to another entity, the Company shall cause the entity acquiring such
assets to assume and be responsible for the Company's obligations hereunder.
9. Modification; Renewal
This Agreement may not be orally canceled, changed, modified or
amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement. Any renewal of this Agreement beyond the period specified in
paragraph 2 above shall be set forth in a writing executed by both parties
hereto.
10. Severability; Survival
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the invalid or unenforceable part had
been severed and deleted. The respective rights and obligations of the parties
hereunder shall survive the termination of the Consultant's employment to the
extent necessary to the intended preservation of such rights and obligations.
11. Notice
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Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
If to the Consultant:
Jeffrey Rosen
Davasee Enterprises
67 Irving Place, 11th Floor
New York, New York 10010
If to the Company:
Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
with a copy to:
Walter M. Epstein, Esq.
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
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12. Applicable Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without application of conflict of law
provisions applicable herein. This Agreement shall be deemed to have been
executed and delivered in the State of New York. In any legal action relating to
this Agreement, the parties each agree (a) to the exercise of jurisdiction over
it or him in a state or Federal court in New York County, New York and (b) that
such action shall be initiated in one of the courts specified in clause (a)
above.
13. Entire Agreement
This Agreement represents the entire agreement between the Company
and the Consultant with respect to the subject matter hereof, and all prior
agreements relating to the employment of the Consultant by the Company, written
or oral, are nullified and superseded hereby.
14. Litigation
In any litigation relating to this Agreement, the prevailing party
shall be entitled to reimbursement from the other party for its or his
reasonable attorneys fees and reasonable out-of-pocket costs related to such
litigation.
15. Headings
The headings contained in this Agreement are for reference purposes
only, and shall not affect the means or interpretation of this Agreement.
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<PAGE>
16. Independent Contractor
The Consultant acknowledges that all services performed for the
Company shall be as an independent contractor and that the Consultant therefore
shall be responsible for the collection and payment of all withholdings,
contributions and payroll taxes relating to his services. The Consultant further
agrees to indemnify and hold harmless the Company against any loss, costs or
liabilities, including attorneys' fees, that the Company may incur as a result
of the Consultant's obligations under this paragraph 16. The Consultant also
acknowledges that his engagement as an independent contractor shall not
constitute the Consultant the agent or employee of the Company and the
Consultant shall not have the authority to contract in the name or on behalf of
the Company, or to commit the Company in any respect, except upon the prior
written instructions of the Chief Executive Officer of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
---------------------------------------
Name:
Title:
---------------------------------------
Jeffrey Rosen
THE WARRANT REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE OFFERED, SOLD,
EXCHANGED OR TRANSFERRED IN ANY MANNER WHATSOEVER, EXCEPT IN COMPLIANCE WITH
SECTION 4 OF THIS WARRANT CERTIFICATE.
Warrant to Purchase 200,000
Shares of Common Stock
Original Issue Date: April 23, 1999
Exercise Price: 200,000 warrants at $5.25 per share
WARRANT TO PURCHASE COMMON STOCK
OF
PARADISE MUSIC & ENTERTAINMENT, INC.
This certifies that Jeffrey Rosen or permitted assigns (collectively
referred to herein as, "the Warrant Holder"), is entitled, subject to Section
2.2 hereof and the other terms and conditions set forth herein, at any time and
from time to time commencing one year after the Original Issue Date set forth
above through the second anniversary of issue date (the "Expiration Date") to
purchase from Paradise Music & Entertainment, Inc., a corporation organized and
existing under the laws of the state of Delaware (hereinafter called the
"Company"), up to 200,000 fully paid and non-assessable shares of Common Stock,
$.01 par value per share, of the Company ("Common Stock") upon surrender of this
Warrant Certificate, at the principal office of the Company, with the
subscription form annexed hereto duly executed by the Warrant Holder or an
authorized representative of the Warrant Holder, and simultaneous payment
therefor in lawful money of the United States of the purchase prices per share
set forth above subject to adjustment as provided below (such amount being
referred to herein as the "Purchase Price"). The number and type of securities
issuable upon exercise of this Warrant are subject to adjustment as provided
below. The Warrant represented by this Warrant Certificate may not be exercised
after 5:00 p.m., New York time, on the Expiration Date.
13. The Warrant. The Company has duly authorized the issuance of this
Warrant and the Warrant Shares (as defined below), subject to requisite
stockholder approval. This Warrant shall not take effect unless and until
stockholder approval has been obtained..
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14. Exercise.
14.1 Subject to the provisions of Section 2.2 below, this Warrant
may be exercised as to all or any portion of the shares covered by this Warrant
Certificate at any time and from time to time until 5:00 p.m., New York, New
York time on the Expiration Date, by surrendering this Warrant Certificate at
the then principal office of the Company (currently located at 53 West 23rd
Street, New York, New York 10010) with the subscription form duly executed by
the Warrant Holder or an authorized representative of the Warrant Holder,
together with payment by certified or official bank check or in immediately
available funds of the sum obtained by multiplying (i) the number of shares of
Common Stock as to which this Warrant is being exercised by (ii) the Purchase
Price.
14.2 This Warrant shall vest and become exercisable on the date
hereof.
14.3 Upon any exercise of this Warrant as provided in Section 2.1
for less than all of the shares of Common Stock called for on the face of this
Warrant Certificate, this Warrant Certificate shall be surrendered, and (unless
it is after 5:00 p.m., New York, New York time on the Expiration Date) a new
Warrant Certificate of the same tenor, with the same Expiration Date and for the
purchase of the number of such shares of Common Stock not purchased upon such
exercise or any prior exercise shall be issued by the Company to the Warrant
Holder.
The term "Warrant" as used herein means the Warrant represented by
this Warrant Certificate and any Warrants delivered in substitution or exchange
therefor as provided herein. The term "Warrant Shares" as used herein means as
of any date all shares of Common Stock of the Company or other securities,
properties or rights theretofore issued or at the time issuable upon exercise of
the Warrant.
14.4 This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of surrender for exercise of this
Warrant Certificate (or, in the event this Warrant Certificate is not available,
on the date of surrender of the documents described in Section 6 hereof,
together with a letter containing substantially the information included on the
subscription form attached hereto) as provided above, and the person entitled to
receive the shares of Common Stock or other securities, properties or rights
issuable upon such exercise shall be treated for all purposes as the holder of
such shares, securities, properties or rights of record as of the close of
business on such date. Promptly following such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a stock
certificate or certificates for the full number of shares of Common Stock,
properties or rights issuable upon such exercise.
14.5 Unless the Warrant Shares are registered under the Securities
Act of 1933, as amended (the "Act"), the certificate or certificates
representing the Warrant Shares shall bear a legend in substantially the
following form:
The securities represented by this certificate may only be sold,
exchanged or transferred in compliance with the registration requirements
of the Securities Act of 1933, as amended (the "Act") or an exemption
therefrom.
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The Company may require an opinion of counsel, satisfactory to it, in
connection with any transfer proposed to be made without registration
under the Act.
14.6 The Warrant Holder shall have the right at any time after one
year from the date hereof to request that the Warrant Shares be included in one
registration statement filed by the Company other than a registration statement
covering an employee benefit plan and subject to the right on the underwriter of
any offering to request a holdback or limitation on the number of Warrant shares
to be registered. Such registration shall be without expense to the Warrant
Holder.
15. Payment of Taxes. All shares of Common Stock or other securities
issued upon the exercise of this Warrant pursuant to the terms of this Warrant
Certificate shall be validly issued, fully paid and non-assessable, and the
Company shall pay all issuance taxes and other similar governmental charges that
may be imposed in respect of the issue or delivery thereof, but in no event
shall the Company pay a tax on or measured by the net income or gain attributed
to such exercise; neither shall the Company be required to pay any tax or other
charge imposed in connection with any transfer of this Warrant or any transfer
involved in the issuance of any certificate for shares of Common Stock or other
securities in any name other than that of the Warrant Holder.
16. Transfer and Exchange.
16.1 This Warrant is issued upon the following terms, to all of
which the Warrant Holder by the taking hereof consents and agrees:
(a) subject to the restrictions set forth in paragraph (d) below,
title to this Warrant may be transferred by endorsement (by the registered
holder hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) subject to the restrictions set forth in paragraph (d) below,
any person in possession of this Warrant properly endorsed is authorized to
represent himself as absolute owner hereof and is empowered to transfer absolute
title hereto by endorsement and delivery hereof to a bona fide purchaser hereof
for value;
(c) this Warrant and all Warrant Shares may be disposed of only in
accordance with the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder by the Securities and Exchange
Commission. In connection with any such proposed disposition, the Company may
require such holder to furnish an opinion of counsel, satisfactory to the
Company, that the proposed disposition, if effected, will not violate the
registration requirements of the Act; and
(d) Notwithstanding anything to the contrary contained herein, this
Warrant shall not be sold, assigned, pledged or otherwise transferred except
with the prior written consent of the Company and any purported transfer in
violation of this clause shall be void and of no force or effect.
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16.2 Until any permitted transfer is effected on the books of the
Company, the Company may treat the prior holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
17. Certain Adjustments of Purchase Price and Number of Share
17.1 Adjustment for Stock Splits, Reverse Splits, Stock Dividends,
Reclassification. Recapitalizations, etc. If at any time or from time to time
after the Original Issue Date the Company shall increase or decrease the number
of outstanding shares of Common Stock, by means of any stock dividend, stock
split, reverse split, subdivision, combination or reclassification of shares,
recapitalization or other similar event, then, in each such event, the Purchase
Price shall, simultaneously, with the happening of such event, be adjusted by
multiplying the then Purchase Price, by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price as then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 5. 1. The holder of
this Warrant shall thereafter, on the exercise hereof, be entitled to receive
that number of shares of Common Stock determined by multiplying the number of
shares of Common Stock which would otherwise (but for the provisions of this
Section 5. 1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase Price which would otherwise (but for the provisions of
this Section 5. 1) be in effect, and (ii) the denominator is the Purchase Price
in effect on the date of such exercise.
17.2 Adjustment for Reorganization, Merger, Consolidation or
Disposition of Assets. If at any time or from time to time after the Original
Issue Date the Company shall reorganize its capital (other than in a
recapitalization as to which an adjustment is made pursuant to Section 5.1
above), consolidate, amalgamate or merge with or into another corporation (as a
result of which the Company is not the surviving corporation), or sell, transfer
or otherwise dispose of all or substantially all of its property, assets or
business to another entity and, pursuant to the terms of such reorganization,
merger, amalgamation or consolidation, shares of common stock of the successor
or acquiring entity, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring entity ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then the Warrant Holder shall have the
right thereafter to receive, upon any present or future exercise of this Warrant
and payment of the Purchase Price as provided for herein, the number of shares
of common stock of the successor or acquiring entity or of the Company, if it is
the surviving corporation, and Other Property received upon or as a result of
such reorganization, merger, amalgamation or consolidation by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization, merger,
consolidation or disposition of assets, the successor or acquiring entity (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all
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of the obligations and liabilities hereunder, subject to such modifications as
may be deemed appropriate (as determined by resolution of the Board of Directors
of the Company) in order to provide for adjustments of shares of the Common
Stock for which this Warrant is exercisable which shall be as nearly equivalent
as practicable to the adjustments provided for in this Section 5. The foregoing
provisions of this Section 5.2 shall similarly apply to successive
reorganizations, amalgamations, mergers, or consolidations.
18. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof a new Warrant Certificate of like tenor.
19. Reservation of Common Stock. The Company shall at all times reserve
and keep available for issue upon the exercise of this Warrant such number of
its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of this Warrant.
20. Notice. All notices and other communications shall be deemed validly
given, made or served if in writing and delivered (as of such delivery) or sent
by certified mail (as of three days after deposit in a United States post
office), postage prepaid, return receipt requested, or by facsimile or overnight
courier service, charges prepaid (as of the date of confirmation of receipt):
(i) if to the Warrant Holder, to the address or telecopy number furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address or telecopy number to the Company in writing; or (ii) if to the
Company, to the address set forth in Section 2.1 hereof or to such other address
or telecopy number furnished in writing by the Company to the Warrant Holder.
21. Change: Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
22. No Rights or Liability as a Stockholder. Except as otherwise expressly
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed a stockholder of the Company for any purpose,
nor shall anything contained in this Warrant be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, or receive
dividends or subscription rights, prior to the issuance to the holder of this
Warrant of the Common Stock or other securities which he is then entitled to
receive upon the due exercise of this Warrant.
23. Heading. The headings in this Warrant are for purposes of convenience
in reference only and shall not be deemed to constitute a part hereof or to
affect the interpretation of any provision of this Warrant.
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24. Governing Law. This Warrant shall be construed and enforced in
accordance with and shall be governed by the laws of the state of New York
(without reference to its rules as to conflicts of laws).
PARADISE MUSIC & ENTERTAINMENT, INC.
By:_____________________________________
Name:
Title:
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<PAGE>
WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned holder of this Warrant Certificate irrevocably elects to
exercise the right, represented by this Warrant Certificate, to purchase
__________ [insert number of shares] shares of Common Stock of Paradise Music &
Entertainment, Inc., and herewith tenders payment therefor in the amount of
$___________ [insert purchase price], all in accordance with the terms of this
Warrant Certificate. The undersigned requests that a certificate for such
securities be registered in the name of _____________________ whose address is
___________________.
Date: ________________
________________________________________
(Signature of Holder)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip)
________________________________________
(Social Security Number/Federal Tax
Identification No.)
<PAGE>
WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned holder of this Warrant hereby sells,
assigns and transfers unto the Assignee named below all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock set forth below:
Name of Assignee Address Number of Shares
- ---------------- ------- ----------------
and does hereby irrevocably constitute and appoint ___________ attorney to make
such transfer on the books of Paradise Music & Entertainment, Inc., maintained
for the purpose, with full power of substitution in the premises.
Date:___________________________________
Signature_______________________________
Witness_________________________________
CONSULTING AGREEMENT
AGREEMENT made as of the 8th day of April, 1999, by and between
PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation (the "Company"),
and THOMAS J. EDELMAN (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company wishes to engage the Consultant to render
certain services to it and the Consultant wishes to accept such engagement, upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Engagement
The Company agrees to engage the Consultant during the Term
specified in paragraph 2, and the Consultant agrees to accept such engagement,
upon the terms and conditions hereinafter set forth.
2. Term
Subject to the terms and conditions of this Agreement, the
Consultant's engagement by the Company shall be for a term commencing on the
date hereof and expiring on June 30, 2001 (the " Term").
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3. Duties and Responsibilities
(a) During the Term, the Consultant will review (including by
preparing due diligence investigations), analyze and assist in the structuring
of proposed business ventures between the Company and third parties which
ventures may originate either from the Consultant, the Company or otherwise. The
services provided hereunder are in addition to those provided by the Consultant
as a director of the Company for which the Consultant is separately compensated.
(b) During the Term, the Consultant agrees that he will (i) devote
sufficient time as shall be necessary to properly carry out his obligations
under is agreement; (ii) carry out his duties in a competent and professional
manner, and (iii) work with the employees of the Company in a competent and
professional manner. Notwithstanding the foregoing, the Consultant shall be
permitted to engage in other business activities (as an active participant or a
passive investor), provided that such activities are not rendered for a company
whose business is in competition with the Company and provided that such
activities (individually or collectively) do not violate the provisions of
paragraph 6 below or materially interfere with the performance of his duties or
responsibilities under this Agreement.
4. Compensation
For all services during the Term, the Consultant will receive
100,000 warrants to purchase shares of the Company's Common Stock at $5
per share. The warrants will be for a three year period, will be issued on
the date hereof and will vest one year from the date hereof. The warrants
will be exercisable commencing one year from the date hereof and will have
piggyback registration rights for one piggyback registration at any time
after the first anniversary of the date of the warrant subject to
underwriters holdback or limitation on the number of shares to be
included. No other compensation is being paid to Consultant for services
under this Agreement. The warrants must be approved by the stockholders of
the Company before they can be issued. In the event that the issuance of
the warrants is not approved by the stockholders other mutually agreed
upon compensation shall be paid to the consultant in lieu of such
warrants.
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5. Expenses
Except as otherwise agreed in writing between the Company and the
Consultant, the Company shall be under no obligation to pay or to reimburse the
Consultant during the Term for his expenses incurred in the performance of his
services hereunder.
6. Non-Competition and Protection of Confidential Information
(a) The Consultant acknowledges that his rendering of services
hereunder may require the disclosure to the Consultant of confidential
information and trade secrets of the Company and consequently he agrees that it
is reasonable and necessary for the protection of the goodwill and business of
the Company that he makes the covenants contained herein. Accordingly, the
Consultant agrees that during the Term and for a two year period thereafter, he
shall not, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be engaged as a consultant by the
Company:
(i) attempt in any manner to persuade any customer, supplier or
client of the Company to cease to do business or to reduce the amount of
business which any such customer, supplier or client has customarily done
or contemplates doing with the Company; or
(ii) employ as an employee or retain as a consultant, or persuade or
attempt to persuade anyone else to employ anyone who is then or at any
time during the preceding twelve months was an employee of or consultant
to the Company, to leave the employ of the Company or to become employed
as an employee or retained as a consultant by anyone other than the
Company; provided, however, if such employee or consultant was
involuntarily terminated by the Company, the Consultant may employ or
retain such person after obtaining the prior written consent of the
Company, which consent will not be unreasonably withheld; or
(b) The Consultant agrees that he will not at any time (whether
during the Term or after termination of this Agreement), disclose to anyone any
confidential information or trade secret of the Company, or utilize such
confidential information or trade secret for his
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own benefit, or for the benefit of third parties. The term "confidential
information or trade secret" does not include information which (i) becomes
generally available to the public other than by breach of this provision or (ii)
the Consultant learns from a third party who is not under an obligation of
confidence to the Company.
(c) If the Consultant commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 6(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction without being required to post
bond or other security and without having to prove the inadequacy of the
available remedies at law, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company. In addition, the
Company may take all such other actions and remedies available to it under law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach. The parties acknowledge that the type and
periods of restriction imposed in the provisions of paragraphs 6(a) and (b)
above are fair and reasonable and are reasonably required for the protection of
the Company, and that the time, scope, geographic area and other provisions of
this paragraph 6 have been specifically negotiated by both parties with advice
of counsel. If any of the covenants in paragraphs 6(a) or (b) above, or any part
thereof, is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in paragraphs 6(a) or (b), or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or areas of such provision and, in its
reduced form, such provision shall then be enforceable.
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7. Enforceability
The failure of any party at any time to require performance by
another 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 in this
Agreement; nor shall the waiver by any 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.
8. Assignment
This Agreement is a personal contract and the Consultant's rights
and obligations hereunder may not be transferred, assigned, pledged or
hypothecated by the Consultant. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and permitted
assigns of the Company. If the Company shall be merged into or consolidated with
another entity, the provisions of this Agreement shall be binding upon and inure
to the benefit of the entity surviving such merger or resulting from such
consolidation. If all or substantially all of the assets of the Company are
transferred to another entity, the Company shall cause the entity acquiring such
assets to assume and be responsible for the Company's obligations hereunder.
9. Modification; Renewal
This Agreement may not be orally canceled, changed, modified or
amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement. Any renewal of this Agreement beyond the period specified in
paragraph 2 above shall be set forth in a writing executed by both parties
hereto.
10. Severability; Survival
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the invalid or unenforceable part had
been severed and deleted. The respective rights and obligations of the parties
hereunder shall survive the termination of the Consultant's employment to the
extent necessary to the intended preservation of such rights and obligations.
11. Notice
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<PAGE>
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
If to the Consultant:
Thomas J. Edelman
c/o Patina Oil & Gas Corporation
375 Park Avenue, Suite 801
New York, New York 10152
If to the Company:
Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
with a copy to:
Walter M. Epstein, Esq.
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
6
<PAGE>
12. Applicable Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without application of conflict of law
provisions applicable herein. This Agreement shall be deemed to have been
executed and delivered in the State of New York. In any legal action relating to
this Agreement, the parties each agree (a) to the exercise of jurisdiction over
it or him in a state or Federal court in New York County, New York and (b) that
such action shall be initiated in one of the courts specified in clause (a)
above.
13. Entire Agreement
This Agreement represents the entire agreement between the Company
and the Consultant with respect to the subject matter hereof, and all prior
agreements relating to the employment of the Consultant by the Company, written
or oral, are nullified and superseded hereby.
14. Litigation
In any litigation relating to this Agreement, the prevailing party
shall be entitled to reimbursement from the other party for its or his
reasonable attorneys fees and reasonable out-of-pocket costs related to such
litigation.
15. Headings
The headings contained in this Agreement are for reference purposes
only, and shall not affect the means or interpretation of this Agreement.
7
<PAGE>
16. Independent Contractor
The Consultant acknowledges that all services performed for the
Company shall be as an independent contractor and that the Consultant therefore
shall be responsible for the collection and payment of all withholdings,
contributions and payroll taxes relating to his services. The Consultant further
agrees to indemnify and hold harmless the Company against any loss, costs or
liabilities, including attorneys' fees, that the Company may incur as a result
of the Consultant's obligations under this paragraph 16. The Consultant also
acknowledges that his engagement as an independent contractor shall not
constitute the Consultant the agent or employee of the Company and the
Consultant shall not have the authority to contract in the name or on behalf of
the Company, or to commit the Company in any respect, except upon the prior
written instructions of the Chief Executive Officer of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PARADISE MUSIC & ENTERTAINMENT, INC.
----------------------------------------
Name:
Title:
----------------------------------------
Thomas J. Edelman
THE WARRANT REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE OFFERED, SOLD,
EXCHANGED OR TRANSFERRED IN ANY MANNER WHATSOEVER, EXCEPT IN COMPLIANCE WITH
SECTION 4 OF THIS WARRANT CERTIFICATE.
Warrant to Purchase 100,000
Shares of Common Stock
Original Issue Date: April 8, 1999
Exercise Price: 100,000 warrants at $5 per share
WARRANT TO PURCHASE COMMON STOCK
OF
PARADISE MUSIC & ENTERTAINMENT, INC.
This certifies that Thomas J. Edelman or permitted assigns (collectively
referred to herein as, "the Warrant Holder"), is entitled, subject to Section
2.2 hereof and the other terms and conditions set forth herein, at any time and
from time to time commencing one year after the Original Issue Date set forth
above through the third anniversary of issue date (the "Expiration Date") to
purchase from Paradise Music & Entertainment, Inc., a corporation organized and
existing under the laws of the state of Delaware (hereinafter called the
"Company"), up to 100,000 fully paid and non-assessable shares of Common Stock,
$.01 par value per share, of the Company ("Common Stock") upon surrender of this
Warrant Certificate, at the principal office of the Company, with the
subscription form annexed hereto duly executed by the Warrant Holder or an
authorized representative of the Warrant Holder, and simultaneous payment
therefor in lawful money of the United States of the purchase prices per share
set forth above subject to adjustment as provided below (such amount being
referred to herein as the "Purchase Price"). The number and type of securities
issuable upon exercise of this Warrant are subject to adjustment as provided
below. The Warrant represented by this Warrant Certificate may not be exercised
after 5:00 p.m., New York time, on the Expiration Date.
25. The Warrant. The Company has duly authorized the issuance of this
Warrant and the Warrant Shares (as defined below), subject to requisite
stockholder approval. This Warrant shall not take effect unless and until
stockholder approval has been obtained.
1
<PAGE>
26. Exercise.
26.1 Subject to the provisions of Section 2.2 below, this Warrant
may be exercised as to all or any portion of the shares covered by this Warrant
Certificate at any time and from time to time until 5:00 p.m., New York, New
York time on the Expiration Date, by surrendering this Warrant Certificate at
the then principal office of the Company (currently located at 53 West 23rd
Street, New York, New York 10010) with the subscription form duly executed by
the Warrant Holder or an authorized representative of the Warrant Holder,
together with payment by certified or official bank check or in immediately
available funds of the sum obtained by multiplying (i) the number of shares of
Common Stock as to which this Warrant is being exercised by (ii) the Purchase
Price.
26.2 This Warrant shall vest and become exercisable on the date
hereof.
26.3 Upon any exercise of this Warrant as provided in Section 2.1
for less than all of the shares of Common Stock called for on the face of this
Warrant Certificate, this Warrant Certificate shall be surrendered, and (unless
it is after 5:00 p.m., New York, New York time on the Expiration Date) a new
Warrant Certificate of the same tenor, with the same Expiration Date and for the
purchase of the number of such shares of Common Stock not purchased upon such
exercise or any prior exercise shall be issued by the Company to the Warrant
Holder.
The term "Warrant" as used herein means the Warrant represented by
this Warrant Certificate and any Warrants delivered in substitution or exchange
therefor as provided herein. The term "Warrant Shares" as used herein means as
of any date all shares of Common Stock of the Company or other securities,
properties or rights theretofore issued or at the time issuable upon exercise of
the Warrant.
26.4 This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of surrender for exercise of this
Warrant Certificate (or, in the event this Warrant Certificate is not available,
on the date of surrender of the documents described in Section 6 hereof,
together with a letter containing substantially the information included on the
subscription form attached hereto) as provided above, and the person entitled to
receive the shares of Common Stock or other securities, properties or rights
issuable upon such exercise shall be treated for all purposes as the holder of
such shares, securities, properties or rights of record as of the close of
business on such date. Promptly following such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a stock
certificate or certificates for the full number of shares of Common Stock,
properties or rights issuable upon such exercise.
26.5 Unless the Warrant Shares are registered under the Securities
Act of 1933, as amended (the "Act"), the certificate or certificates
representing the Warrant Shares shall bear a legend in substantially the
following form:
The securities represented by this certificate may only be sold,
exchanged or transferred in compliance with the registration requirements
of the Securities Act of 1933, as amended (the "Act") or an exemption
therefrom. The Company may require an opinion of counsel, satisfactory to
it, in connection with any transfer proposed to be made without
registration under the Act.
2
<PAGE>
26.6 The Warrant Holder shall have the right at any time after one
year from the date hereof to request that the Warrant Shares be included in one
registration statement filed by the Company other than a registration statement
covering an employee benefit plan and subject to the right on the underwriter of
any offering to request a holdback or limitation on the number of Warrant shares
to be registered. Such registration shall be without expense to the Warrant
Holder.
27. Payment of Taxes. All shares of Common Stock or other securities
issued upon the exercise of this Warrant pursuant to the terms of this Warrant
Certificate shall be validly issued, fully paid and non-assessable, and the
Company shall pay all issuance taxes and other similar governmental charges that
may be imposed in respect of the issue or delivery thereof, but in no event
shall the Company pay a tax on or measured by the net income or gain attributed
to such exercise; neither shall the Company be required to pay any tax or other
charge imposed in connection with any transfer of this Warrant or any transfer
involved in the issuance of any certificate for shares of Common Stock or other
securities in any name other than that of the Warrant Holder.
28. Transfer and Exchange.
28.1 This Warrant is issued upon the following terms, to all of
which the Warrant Holder by the taking hereof consents and agrees:
(a) subject to the restrictions set forth in paragraph (d) below,
title to this Warrant may be transferred by endorsement (by the registered
holder hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) subject to the restrictions set forth in paragraph (d) below,
any person in possession of this Warrant properly endorsed is authorized to
represent himself as absolute owner hereof and is empowered to transfer absolute
title hereto by endorsement and delivery hereof to a bona fide purchaser hereof
for value;
(c) this Warrant and all Warrant Shares may be disposed of only in
accordance with the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder by the Securities and Exchange
Commission. In connection with any such proposed disposition, the Company may
require such holder to furnish an opinion of counsel, satisfactory to the
Company, that the proposed disposition, if effected, will not violate the
registration requirements of the Act; and
(d) Notwithstanding anything to the contrary contained herein, this
Warrant shall not be sold, assigned, pledged or otherwise transferred except
with the prior written consent of the Company and any purported transfer in
violation of this clause shall be void and of no force or effect.
3
<PAGE>
28.2 Until any permitted transfer is effected on the books of the
Company, the Company may treat the prior holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
29. Certain Adjustments of Purchase Price and Number of Share
29.1 Adjustment for Stock Splits, Reverse Splits, Stock Dividends,
Reclassification. Recapitalizations, etc. If at any time or from time to time
after the Original Issue Date the Company shall increase or decrease the number
of outstanding shares of Common Stock, by means of any stock dividend, stock
split, reverse split, subdivision, combination or reclassification of shares,
recapitalization or other similar event, then, in each such event, the Purchase
Price shall, simultaneously, with the happening of such event, be adjusted by
multiplying the then Purchase Price, by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price as then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 5. 1. The holder of
this Warrant shall thereafter, on the exercise hereof, be entitled to receive
that number of shares of Common Stock determined by multiplying the number of
shares of Common Stock which would otherwise (but for the provisions of this
Section 5. 1) be issuable on such exercise by a fraction of which (i) the
numerator is the Purchase Price which would otherwise (but for the provisions of
this Section 5. 1) be in effect, and (ii) the denominator is the Purchase Price
in effect on the date of such exercise.
29.2 Adjustment for Reorganization, Merger, Consolidation or
Disposition of Assets. If at any time or from time to time after the Original
Issue Date the Company shall reorganize its capital (other than in a
recapitalization as to which an adjustment is made pursuant to Section 5.1
above), consolidate, amalgamate or merge with or into another corporation (as a
result of which the Company is not the surviving corporation), or sell, transfer
or otherwise dispose of all or substantially all of its property, assets or
business to another entity and, pursuant to the terms of such reorganization,
merger, amalgamation or consolidation, shares of common stock of the successor
or acquiring entity, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring entity ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then the Warrant Holder shall have the
right thereafter to receive, upon any present or future exercise of this Warrant
and payment of the Purchase Price as provided for herein, the number of shares
of common stock of the successor or acquiring entity or of the Company, if it is
the surviving corporation, and Other Property received upon or as a result of
such reorganization, merger, amalgamation or consolidation by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization, merger,
consolidation or disposition of assets, the successor or acquiring entity (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all
4
<PAGE>
of the obligations and liabilities hereunder, subject to such modifications as
may be deemed appropriate (as determined by resolution of the Board of Directors
of the Company) in order to provide for adjustments of shares of the Common
Stock for which this Warrant is exercisable which shall be as nearly equivalent
as practicable to the adjustments provided for in this Section 5. The foregoing
provisions of this Section 5.2 shall similarly apply to successive
reorganizations, amalgamations, mergers, or consolidations.
30. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof a new Warrant Certificate of like tenor.
31. Reservation of Common Stock. The Company shall at all times
reserve and keep available for issue upon the exercise of this Warrant such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
32. Notice. All notices and other communications shall be deemed
validly given, made or served if in writing and delivered (as of such delivery)
or sent by certified mail (as of three days after deposit in a United States
post office), postage prepaid, return receipt requested, or by facsimile or
overnight courier service, charges prepaid (as of the date of confirmation of
receipt): (i) if to the Warrant Holder, to the address or telecopy number
furnished to the Company in writing by the last holder of this Warrant who shall
have furnished an address or telecopy number to the Company in writing; or (ii)
if to the Company, to the address set forth in Section 2.1 hereof or to such
other address or telecopy number furnished in writing by the Company to the
Warrant Holder.
33. Change: Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
34. No Rights or Liability as a Stockholder. Except as otherwise
expressly provided herein, no holder, as such, of this Warrant shall be entitled
to vote or receive dividends or be deemed a stockholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings, or
receive dividends or subscription rights, prior to the issuance to the holder of
this Warrant of the Common Stock or other securities which he is then entitled
to receive upon the due exercise of this Warrant.
35. Heading. The headings in this Warrant are for purposes of
convenience in reference only and shall not be deemed to constitute a part
hereof or to affect the interpretation of any provision of this Warrant.
5
<PAGE>
36. Governing Law. This Warrant shall be construed and enforced in
accordance with and shall be governed by the laws of the state of New York
(without reference to its rules as to conflicts of laws).
PARADISE MUSIC & ENTERTAINMENT, INC.
By:_____________________________________
Name:
Title:
6
<PAGE>
WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned holder of this Warrant Certificate irrevocably elects to
exercise the right, represented by this Warrant Certificate, to purchase
__________ [insert number of shares] shares of Common Stock of Paradise Music &
Entertainment, Inc., and herewith tenders payment therefor in the amount of
$___________ [insert purchase price], all in accordance with the terms of this
Warrant Certificate. The undersigned requests that a certificate for such
securities be registered in the name of _____________________ whose address is
___________________.
Date: ________________
________________________________________
Signature of Holder)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip)
________________________________________
(Social Security Number/Federal Tax
Identification No.)
<PAGE>
WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned holder of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address Number of Shares
- ---------------- ------- ----------------
and does hereby irrevocably constitute and appoint ___________ attorney to make
such transfer on the books of Paradise Music & Entertainment, Inc., maintained
for the purpose, with full power of substitution in the premises.
Date:___________________________________
Signature_______________________________
Witness_________________________________
1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Paradise Music & Entertainment, Inc. on Form S-3 dated January 7, 1999 (file #
333-69581) and Form S-3 dated July 29, 1999 (file # 333-83517) of our report,
dated August 10, 1999 except for note 14 as to which the date is September 24,
1999 on our audits of the consolidated financial statements of Paradise Music &
Entertainment, Inc. as of June 30, 1999 and for the years ended June 30, 1999
and 1998.
Rothstein, Kass & Company, P.C.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 930,642
<SECURITIES> 0
<RECEIVABLES> 810,922
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,237,670
<PP&E> 1,549,305
<DEPRECIATION> 423,989
<TOTAL-ASSETS> 5,765,773
<CURRENT-LIABILITIES> 1,721,717
<BONDS> 0
0
0
<COMMON> 53,457
<OTHER-SE> 3,990,599
<TOTAL-LIABILITY-AND-EQUITY> 5,765,773
<SALES> 9,661,036
<TOTAL-REVENUES> 9,661,036
<CGS> 6,305,511
<TOTAL-COSTS> 6,305,511
<OTHER-EXPENSES> 7,101,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,707,929)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (3,713,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,713,929)
<EPS-BASIC> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
