SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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the Securities Exchange Act of 1934 (Amendment No. )
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Paradise Music & Entertainment, Inc.
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<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
53 West 23rd Street
New York, New York 10010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 29, 2000
NOTICE IS HEREBY GIVEN to the stockholders of PARADISE MUSIC &
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), that the Annual
Meeting of Stockholders (the "Meeting") will be held at the Company's offices at
53 West 23rd Street, 11th Floor, New York, NY 10010, at 10:00 a.m., New York
time, on June 29, 2000 for the following purposes:
1. To elect a board of five (5) directors to serve until the next Annual
Meeting of Stockholders and until their respective successors are duly elected
and qualified;
2. To consider and vote upon the appointment of Ernst & Young, LLP as the
Company's principal accountants; and
3. To transact such other business as may properly be brought before the
Meeting or any postponement or adjournment thereof.
Only stockholders of the Company of record at the close of business
on May 25, 2000 are entitled to notice of and to vote at the Meeting or any
postponement or adjournment thereof.
A copy of the Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1999 and Form 10-KSB for the transition fiscal period ended December
31, 1999 accompanies this notice.
By Order of the Board of Directors,
RICHARD J. FLYNN
Chief Financial Officer, Treasurer
and Secretary
New York, New York
June 1, 2000
RETURN OF PROXIES
A PROXY AND SELF-ADDRESSED ENVELOPE ARE ENCLOSED FOR YOUR USE IF YOU DO
NOT PLAN TO ATTEND THE MEETING IN PERSON. WE URGE EACH STOCKHOLDER WHO IS UNABLE
TO ATTEND THE MEETING TO VOTE BY PROMPTLY SIGNING AND RETURNING HIS OR HER
PROXY, REGARDLESS OF THE NUMBER OF SHARES OF STOCK HELD BY SUCH STOCKHOLDER. ANY
PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED BY THE STOCKHOLDER AT ANY TIME PRIOR
TO THE VOTING OF THE PROXY.
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
PROXY STATEMENT
GENERAL
The enclosed proxy ("Proxy") is solicited by the Board of Directors (the
"Board") of PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held at the
Company's offices at 53 West 23rd Street 11th Floor, New York, NY 10010, on June
29, 2000 at 10:00 a.m., New York time, or at any postponement or adjournment
thereof (the "Meeting.") The matters to be considered and acted upon at the
Meeting are described in the foregoing Notice of Annual Meeting of Stockholders
and this Proxy Statement. This Proxy Statement and the related form of Proxy are
being mailed on or about June 1, 2000 to all of the stockholders of the Company
of record on May 25, 2000. Any Proxy given by a stockholder may be revoked by
the stockholder at any time prior to the voting of the Proxy by delivering a
written notice to the Secretary of the Company, by executing and delivering a
later dated Proxy or by attending the Meeting and voting in person.
The management of the Company knows of no business other than the items
specified in the Notice of Annual Meeting of Stockholders which will be
presented for consideration at the Meeting. If any other matter is properly
presented, it is the intention of the persons named in the enclosed Proxy to
vote in accordance with their best judgment.
SOLICITATION OF PROXIES
The persons named as proxies are Jesse Dylan, Chief Executive Officer and
Chairman of the Board; Richard Flynn, Chief Financial Officer, Treasurer,
Secretary and a director; and Jeff Rosen, a director. Shares represented at the
Meeting by the enclosed Proxy will be voted in the manner specified by the
stockholder. In the absence of such specification, the shares will be voted FOR
(i) the election of each of the five persons nominated by the Board to serve as
directors; FOR (ii) the proposal to ratify the appointment of Ernst & Young, LLP
as the Company's principal accountants; and (iii) in the discretion of the
proxies, on such other business as may properly be brought before the Meeting.
The cost of preparing, assembling and mailing the Proxy, this Proxy Statement
and the other material enclosed will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers and employees of the
Company, without extra remuneration, may solicit proxies personally or by
telephone or other means of communication. The Company may also request
brokerage houses, banking institutions, and other custodians, nominees and
fiduciaries, with respect to shares held of record in their names or in the
names of their nominees, to forward the proxy material to the beneficial owners
of such shares and may reimburse them for their reasonable expenses in
forwarding the proxy material. The Company has retained Georgeson Shareholder
Communications, Inc. to assist with the solicitation of proxies for a fee not to
exceed $5,000, plus reimbursement for out-of-pocket expenses.
VOTING RIGHTS
Only stockholders of record at the close of business on May 25, 2000 (the
"Record Date") will be entitled to notice of and to vote at the Meeting or any
postponement or adjournment thereof. On the Record Date, the issued and
outstanding securities of the Company entitled to vote at the Meeting consisted
of 7,874,112 shares of Common Stock. There was no other class of voting
securities outstanding on the Record Date. Each outstanding share of Common
Stock is entitled to one vote which may be cast in person or by Proxy duly
authorized in writing. No shares have cumulative voting rights.
The holders of a majority of the voting power of the issued and
outstanding stock of the Company entitled to vote at the Meeting, present in
person or represented by Proxy, shall constitute a quorum for the transaction of
business. Abstentions and broker non-votes (i.e. shares held by brokers or
nominees as to which (i) instructions have not been received from the beneficial
owners and (ii) the broker or nominee does not have discretionary authority to
vote on a particular matter) are counted as present in determining whether the
quorum requirement is satisfied. If a quorum is present, the affirmative vote of
the holders of a plurality of the shares of Common Stock cast at the Meeting and
entitled to vote will be required to act on the election of directors. Thus,
abstentions and broker non-votes will not be included in the vote total in the
election of directors and will have no effect on the outcome of the vote. The
affirmative vote of the holders of a majority of the shares of Common Stock
present at the Meeting and entitled to vote will be required to act on all other
matters, including the appointment of the principal accountants, properly
brought before the Meeting. If a stockholder abstains on any such matter, the
stockholder's
<PAGE>
shares are considered present at the Meeting for such matter, but since they are
not affirmative votes for the matter, they will have the same effect as votes
against the matter. With respect to broker non-votes on such matter, the shares
are not considered entitled to vote at the Meeting for such matter and they are,
therefore, not counted in respect of such matter. Such broker non-votes have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for such matter by reducing the total number of shares from which the
majority is calculated.
The stockholders vote at the Meeting by casting ballots (in person or by
Proxy) which are tabulated by a person who is appointed by the Board of
Directors before the Meeting to serve as the inspector of election at the
Meeting and who has executed and verified an oath of office.
With regard to the proposals to be acted upon at the Meeting, dissenting
stockholders do not have appraisal rights.
Stockholders who do not expect to attend the Meeting, but wish to have
their shares of stock voted at the Meeting, are urged to complete, sign, date
and return the enclosed Proxy as promptly as possible.
To the best knowledge of the Company, none of the persons who were
executive officers or directors of the Company at any time since July 1, 1998,
none of the nominees for election as directors and none of the associates of any
of the foregoing, have any interest in the matters to be acted upon at the
Meeting, other than with reference to their election as directors.
SECURITY OWNERSHIP
The following table sets forth certain information as of the Record Date
regarding the share ownership of the Company by (i) each person who is known to
the Company to be the record or beneficial owner of more than five percent (5%)
of the Common Stock; (ii) each director, each person nominated to serve as a
director, and each executive officer who is named in the executive compensation
table described in this Proxy Statement; and (iii) all directors and executive
officers as a group. (The Company has no other classes of equity securities.)
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name and Address of Beneficial Owner (1) Ownership (2) Owned (3)
---------------------------------------- ------------- ---------
<S> <C> <C>
Named Executive Officers and Directors
Jesse Dylan 1,375,000 (4) 16.9%
Brian Doyle 514,250 (5)(6) 6.3%
Richard Flynn 514,250 (5)(6) 6.3%
John Loeffler 383,367 (6)(7)(8) 4.8%
Craig Rodgers 486,583 (9) 6.2%
Jon Small 372,333 (7)(10) 4.7%
M. Jay Walkingshaw 220,000 (11) 2.7%
Robert A. Buziak 27,182 (12) *
Thomas J. Edelman 217,752 (13) 2.7%
Jeffrey Rosen 211,640 (14) 2.6%
All executive officers and directors as a group (10 persons) 4,322,357 (4)-(14) 45.2%
Beneficial Owners of in Excess of 5% (other than directors and
named executive officers)
BayStar Capital, LP
1500 West Market Street, Suite 200
Mequon, WI 53092 842,105 (15) 9.99%
BayStar International, Ltd.
1500 West Market Street, Suite 200
Mequon, WI 53092 421,053 (16) 5.3%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name and Address of Beneficial Owner (1) Ownership (2) Owned (3)
---------------------------------------- ------------- ---------
<S> <C> <C>
Dana Giacchetto 900,000 (17) 10.4%
561 Broadway
New York, New York 10012
</TABLE>
----------
* Denotes less than 1%
(1) Unless otherwise indicated in the table above, 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) Jesse Dylan and
Craig Rodgers, which is c/o Straw Dogs, 8330 W. Third Street, Los Angeles,
CA 90048; (ii) Robert A. Buziak, which is c/o Buziak & Company, P.O. Box
2266, Marbledale, CT 06777; (iii) Thomas J. Edelman, which is c/o Patina
Oil & Gas Corporation, 1221 Avenue of the Americas 42nd floor, New York,
NY 10020-1080; and (iv) Jeffrey Rosen, which is c/o Davasee Enterprises,
67 Irving Place, 11th Floor, New York, New York 10003.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of options, warrants or
convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming (i)
that options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date hereof have been exercised and converted, and
(ii) 7,874,112 shares of Common Stock were outstanding, before any
consideration is given to such options, warrants or convertible
securities.
(4) Includes Mr. Dylan's 51% member interest in Consolidated Entertainment,
LLC. Includes non-qualified options to purchase 250,000 shares at an
exercise price of $5 per share which represents one-third of the
non-qualified options to purchase 750,000 shares granted on July 1, 1999.
(5) Includes non-qualified options to purchase 300,000 shares at $5 per share
granted on February 19, 1999.
(6) Includes non-qualified options to purchase 50,000 shares of common stock
at $5.25 per share granted on April 21, 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 Mr. Rodgers' 49% member interest in Consolidated Entertainment,
LLC. Includes non-qualified options to purchase 33,333 shares at $5 per
share which represents one-third of the non-qualified options to purchase
100,000 shares granted on July 1, 1999.
(10) Includes non-qualified options to purchase 65,000 shares at $5.25 per
share granted on July 1, 1999. Includes non-qualified options to purchase
8,333 shares at $5 per share which represents one-third of the
non-qualified options to purchase 25,000 shares granted on July 1, 1999.
(11) Includes non-qualified options to purchase 200,000 shares at $5 per share
which represents one-third of the non-qualified options to purchase
600,000 shares granted on October 1, 1999.
(12) Includes warrants to purchase 25,000 shares granted on January 26, 2000 at
$5 per share.
(13) Includes (i) non-qualified options granted in December 1996 to purchase
15,000 shares at $6 per share (ii) non-qualified options to purchase 5,000
shares granted under the Directors Option Program on January 22, 1997,
July 1, 1997, July 1, 1998 and July 1, 1999 at exercise prices of $6, $4,
$2.0625 and $5.125,
3
<PAGE>
respectively (an aggregate of 20,000 shares); and (iii) warrants to
purchase 100,000 shares granted on April 8, 1999 at $5 per share.
(14) Includes (i) non-qualified options to purchase 5,000 shares at $5.125 per
share granted under the Directors Option Program on July 1, 1999; and (ii)
warrants to purchase 200,000 shares granted on April 23, 1999 at $5.25 per
share.
(15) Does not include warrants to purchase 421,053 shares of common stock at
$2.61 per share vesting upon the earlier of (a) March 7, 2001 or (b) the
date upon which the closing bid price of the common stock is greater than
$9 per share. Includes 842,105 shares underlying a 9% Senior Convertible
Note in the amount of $2,000,000 which may be converted at a price of
$2,375 at BayStar Capital's discretion. As of May 25, 2000, BayStar
Capital's beneficial ownership upon conversion of the Note and exercise of
the warrants cannot exceed 9.99% of the total issued and outstanding
shares of common stock, and any excess is not convertible or exercisable.
BayStar Capital, L.P. may deemed an affiliate of BayStar International,
Ltd.
(16) Does not include warrants to purchase 210,525 shares of common stock at
$2.61 per share vesting upon the earlier of (a) March 7, 2001 or (b) the
date upon which the closing bid price of the common stock is greater than
$9 per share. Includes 421,053 shares underlying a 9% Senior Convertible
Note in the amount of $1,000,000 which may be converted at a price of
$2,375 at BayStar International's discretion. As of May 25, 2000, BayStar
International's beneficial ownership upon conversion of the Note and
exercise of the warrants cannot exceed 9.99% of the total issued and
outstanding shares of common stock, and any excess is not convertible or
exercisable. BayStar International, Ltd. may be deemed an affiliate of
BayStar Capital, L.P.
(17) Includes warrants to purchase 800,000 shares of common stock and 100,000
shares of common stock owned by The Cassandra Group, Inc. ("Cassandra"),
of which Mr. Giacchetto is the President and majority shareholder. Does
not include shares previously reported as being held by Cassandra as a
result of its acting as a registered investor advisor to certain clients.
Based upon a review of 13-D and 13-G filings and a letter from Cassandra,
the Company believes that Cassandra is no longer acting as a registered
investment advisor.
Information contained in this Proxy Statement with regard to stock
ownership was obtained from the Company's stockholders list, filings with
governmental authorities, or from the named individual nominees, directors and
officers. The persons identified in the foregoing table disclaim beneficial
ownership of shares owned or held in trust for the benefit of members of their
families or entities with which they may be associated.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Board has nominated and proposes as nominees Jesse Dylan, Richard J.
Flynn, Thomas J. Edelman, Jeffrey Rosen and Robert A. Buziak (all of whom are
members of the present Board of the Company and all of whom have been elected
for a term ending at the Meeting) to serve as directors of the Company until the
Company's next Annual Meeting of Stockholders and until their respective
successors have been elected and qualified or until their earlier resignation or
removal. No family relationship exists among any of the executive officers and
directors of the Company. Messrs. Buziak, Edelman and Rosen are independent
directors of the Company.
Unless otherwise specified, shares represented by proxies will be voted in
favor of the election of all of the nominees, except that, in the event any
nominee should not continue to be available for election, such proxies will be
voted for the election of such persons as the Board may recommend unless the
Board reduces the number of directors. Management does not presently contemplate
that any of the nominees will become unavailable for any reason.
The Board of Directors Recommends a Vote "For" the Election of Each of
the Nominees.
4
<PAGE>
Information Covering Nominees
The following table sets forth the names of the nominees and certain information
with regard to each nominee as of the Record Date.
<TABLE>
<CAPTION>
Principal Occupation or
Name Age Director Since Position with Company Employment, if Different
---- ---- -------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Chief Executive Officer,
Chairman of the Board,
Jesse Dylan 34 January 1999 Director
Chief Financial Officer,
Richard J. Flynn (1) 42 October 1996 Treasurer, Secretary, Director
Thomas Edelman (1) (2) 49 October 1996 Director Chairman, Patina Oil & Gas
Corporation
Jeffrey Rosen (1) (2) 44 January 1999 Director General Manager, Davassee
Enterprises
Robert A. Buziak 57 January 2000 Director President, Buziak & Company,
LLC
</TABLE>
----------
(1) Member of Audit Committee
(2) Member of Compensation Committee
JESSE DYLAN, has served as Chief Executive Officer since July 1, 1999,
Chairman since April 1999 and as a director since January 1999. Prior to this,
Mr. Dylan served as president of Consolidated Entertainment, LLC d/b/a Straw
Dogs, a commercial production company, which he co-found in 1998 with Craig
Rodgers. Mr. Dylan has been engaged in the entertainment business for over five
years, as, among other things, a director of music videos and television
commercials. From 1994 through 1996, Mr. Dylan worked for H.K.M. Productions,
where he directed nationally acclaimed television commercials for numerous
national advertisers, including Coca-Cola, Pepsi, Nike, and Chase Manhattan. Mr.
Dylan began his directorial career at Propaganda Films where he directed music
videos for artists such as Lenny Kravitz, Tom Petty and Tom Waits, for which he
received the Rolling Stone Magazine Award.
RICHARD J. FLYNN, has served as Chief Financial Officer since 1999, and
Treasurer, Secretary and a director since 1996. From 1994 to 1996, Mr. Flynn was
the managing co-owner of All Access Entertainment Management Group ("All
Access"). Since 1996, Mr. Flynn has also been Vice President and General Manager
of All Access, and since 1997 he has been Vice President and General Manager of
Push Records. From 1990 until 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.
THOMAS J. EDELMAN, has served as a director since 1996 and a consultant
since April 1999. Mr. Edelman co-founded Snyder Oil Corporation and served as
its President and director from 1981 through 1997. Since 1996, Mr. Edelman has
served as Chairman and Chief Executive Officer of Patina Oil & Gas Corporation.
He is also the Chairman of Range Resources Corporation and of Bear Paw Energy,
LLC. He serves as a director of Star Gas, LLC, the general partner of Star Gas
Partners, LP. Prior to 1981, Mr. Edelman was a Vice President of The First
Boston Corporation.
JEFFREY ROSEN, has served as a director since January 1999 and a
consultant since April 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
5
<PAGE>
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.
ROBERT A. BUZIAK, has served as a director and consultant since January
2000. Mr. Buziak is a 28 year veteran of the entertainment industry with ties to
the music sector. Mr. Buziak is a former President of RCA Records and Sony's
TriStar Music Group and since 1995 has been President of his own consulting
firm. Buziak & Company, LLC works within the converging fields of music,
entertainment, and technology, working with clients like AT&T, TCI Music, and
Jeff McClusky and Associates. He has also been a board member, advisory board
member and consultant to several new media, gaming and Internet companies
including ConsumerNet (which was acquired by 247 Media in 1999), Paradigm Music
Entertainment, Feed the Monster, I-Rock, Click Radio and Music.com He played an
active role in the development and eventual sale of Paridigm Music Entertainment
to Liberty Media.
Information Concerning the Board of Directors and Committees
The business and affairs of the Company are managed by the Board of
Directors, which met or acted by unanimous written consent 8 times during the
fiscal year ended June 30, 1999 and 4 times during the transition fiscal period
ended December 31, 1999. During the fiscal year ended June 30, 1999, all current
directors attended 75% or more of the total number of meetings of the Board and
the Compensation Committees on which they served and during the transition
fiscal period ended December 31, 1999, all current directors attended 75 % or
more of the total number of meetings of the Board and the Compensation
Committees on which they served.
The Board maintains two standing committees ("Committees"): the Audit
Committee and the Compensation Committee. The Board does not maintain a standing
nominating committee.
The Audit Committee, consisting of Thomas J. Edelman, Richard J. Flynn and
Jeffrey Rosen, reviews the engagement of the Company's independent public
accountants and the independence of the accounting firm, the audit and non-audit
fees of the independent public accountants and the adequacy of the Company's
internal control procedures. The Audit Committee met 4 times during the fiscal
year ended June 30, 1999 and met 2 times during the transition fiscal period
ended December 31, 1999.
The Compensation Committee consisting of Thomas J. Edelman and Jeffrey
Rosen, makes recommendations to the Board (i) concerning compensation, including
incentive arrangements, of the Company's officers and other key employees,
including those executive officers who also serve on the Board, and (ii)
determination of the persons to whom options should be granted under the
Company's stock option plan and the number of options to be granted to such
persons. The Compensation Committee met 2 times during the fiscal year ended
June 30, 1999 and did not meet during the transition fiscal period ended
December 31, 1999.
6
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information as of the Record Date regarding the
executive officers of the Company:
<TABLE>
<CAPTION>
Executive
Name Age Position with Company Officer Since
----- ---- --------------------- ------------
<S> <C> <C> <C>
Bruce Boucher 43 Vice President Finance October 1999
Chief Executive Officer of All Access July 1996
Brian Doyle 43 Entertainment Management Group
Jesse Dylan 34 Chief Executive Officer July 1999
Chief Financial Officer, Treasurer and July 1996
Richard Flynn 42 Secretary
Chief Executive Officer of Rave Music, July 1996
John Loeffler 48 Chairman Emeritus
Craig Rodgers 41 Chief Executive Officer of Straw Dogs July 1999
Jon Small 52 Chief Executive Officer of Picture Vision July 1996
M. Jay Walkingshaw 51 Chief Operating Officer, President October 1999
</TABLE>
BRUCE BOUCHER has served as the Vice President of Finance since October
1999. Mr. Boucher has over twenty years of corporate financial management and
financial consulting experience, and possesses an in-depth understanding of the
areas of business planning, cash management, financial control systems, mergers
and acquisitions, and new business development. From 1990 to 1999, Mr. Boucher
was president of JB Associates, an independent consulting firm. Earlier in his
career Mr. Boucher was a senior financial manager at Nutri/Systems, Inc.
responsible for cash management and the design, implementation, and financing of
information technology systems. Mr. Boucher is a graduate of The Wharton School
of the University of Pennsylvania.
BRIAN DOYLE served as a director from our inception in 1996 through
January 2000. Mr. Doyle served as our Chief Executive Officer from December 1998
through April 1999 and as our Executive Vice President from 1996 through 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 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.
JOHN LOEFFLER has served as our Chairman Emeritus since April 1999 and as
a director from our inception in 1996 through January 2000. Mr. Loeffler served
as our Chairman of the Board and President from July 1996 through April 1999 and
served as Chief Executive Officer from 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 right, 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 a large number of well-known and leading
advertisers.
CRAIG RODGERS has served as the Chief Executive Officer of the Company's
Straw Dogs subsidiary since July 1, 1999. In 1998, Mr. Rodgers co-founded, along
with Jesse Dylan, Straw Dogs, where he served as its
7
<PAGE>
President. Previously, Mr. Rodgers worked for eight years as an executive
producer at Gartner/Grasso/GLG Productions. During his executive producing
career, Mr. Rodgers worked with many of the leading directors in the television
commercial production business, as well as the top executives in the advertising
industry.
JON SMALL served as a director and Executive Vice President from our
inception in 1996 through January, 2000. Since 1996, Mr. Small has been the
Chief Executive Officer of Picture Vision, an Emmy-award-winning video and
television program production company, which he founded in 1984. From 1984 to
1996, Mr. Small had been the President of Picture Vision. Picture Vision has
produced a number of music videos for acclaimed artists, several 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.
M. JAY WALKINGSHAW has served as our President and Chief Operating Officer
since October 1, 1999. From 1990 to 1999, he was president of Walkingshaw &
Associates, Inc., an independent consulting firm. Earlier in his career he was a
member of the executive group which founded and developed Tri-Star Pictures,
Inc., serving as its Executive Vice President and Chief Financial Officer.
Originally formed as a partnership among the Coca Cola Company (Columbia
Pictures), Time Inc. (Home Box Office) and CBS, Tri-Star subsequently became a
public company and, later, merged with Columbia Pictures. Columbia Pictures was
later sold to Sony, Inc. Previously, Mr. Walkingshaw was with Home Box Office
("HBO") during its early development and dramatic growth stage. As HBO's Vice
President of Program Operations he was responsible for all financial and
operational matters dealing with programming, including network scheduling,
research and origination. HBO is owned by Time Warner, Inc. Mr. Walkingshaw also
served as Vice President and Controller of Teleprompter Corporation, a major
cable system operator which was acquired by Westinghouse Broadcasting Corp.
Additional information with respect to Jesse Dylan and Richard Flynn is
set forth under "Information Covering Nominees."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded by or paid by the
Company or its subsidiaries during each of the last three fiscal years and the
transition fiscal period to Jesse Dylan, the Company's current Chief Executive
Officer; Brian Doyle, who served as Chief Executive Officer from December 1998
through April 1999 and Executive Vice President prior to December 1998; 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 (3 individuals) (other than
the persons who are already included because they have served or serve as Chief
Executive Officer), whose annual base salary and bonus compensation exceeded
$100,000 (the "Named Executive Officers").
8
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (1) Awards
----------------------- ------
Securities
Year Ended Other Annual Underlying
----
Name and Principal Position June 30 Salary ($) Bonus ($) Compensation(2) Options
--------------------------- ---- ---------- --------- --------------- -------
<S> <C> <C> <C> <C> <C>
Jesse Dylan Stub 1999* $375,000 -- -- 750,000
Chief Executive Officer 1999 -- -- -- --
(since July 1999) 1998 -- -- -- --
1997 -- -- -- --
Brian Doyle Stub 1999* $137,500 -- 12,500 --
Former Chief Executive 1999 225,000 75,000 25,000 350,000
Officer (until April 1999) 1998 300,000 -- 28,000 --
1997 150,000 162,500 7,000 --
John Loeffler Stub 1999* $162,500 -- 12,500 --
Former Chief Executive 1999 225,000 100,000 25,000 50,000
Officer (until December 1998) 1998 310,000 -- 34,000 --
1997 150,000 191,000 34,000 5,000
Richard Flynn Stub 1999* $137,500 -- 12,500 --
Chief Financial Officer 1999 225,000 100,000 18,000 350,000
(since December 1998) 1998 300,000 -- 15,000 --
1997 150,000 162,500 -- --
Jon Small Stub 1999* $187,500 -- 25,000 90,000
(Chief Executive Officer of 1999 345,000 125,000 50,000 50,000
Picture Vision) 1998 310,000 150,000 60,000 --
1997 150,000 189,000 36,000 5,000
Craig Rodgers Stub 1999* $175,000 -- -- 100,000
(Chief Executive Officer 1999 -- -- -- --
of Straw Dogs ) 1998 -- -- -- --
1997 -- -- -- --
</TABLE>
* Stub 1999 refers to the six month period July 1, 1999 through December
31, 1999.
(1) The Company was incorporated in July 1996. Compensation for each period
set forth above includes amounts paid by Rave Music, Picture Vision, All
Access, Push Records, and Straw Dogs.
(2) Includes amounts paid by the Company which the Company deemed to be for
the benefit of such executive, including amounts paid for lodging,
transportation, insurance, leases, entertainment and other perquisites.
Option Grants in Fiscal Year ended June 30, 1999 and Transition Fiscal period
July 1, 1999 through December 31, 1999
Option Grants in Fiscal Year ended June 30, 1999
The following table sets forth, for each of the Named Executive Officers,
information regarding individual grants of options made during the fiscal year
ended June 30, 1999.
9
<PAGE>
Individual Grants
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
----------------------------------------------------------------------------------------------------------------------
# of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base
Name Granted in Fiscal Year Price ($/sh) Expiration Date
---- ------- -------------- ------------ ---------------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jesse Dylan -- -- -- --
----------------------------------------------------------------------------------------------------------------------
M. Jay Walkingshaw -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Brian Doyle 300,000 19% $5.00 2/19/02
----------------------------------------------------------------------------------------------------------------------
50,000 3% $5.25 4/22/02
----------------------------------------------------------------------------------------------------------------------
John Loeffler 50,000 3% $5.25 4/22/02
----------------------------------------------------------------------------------------------------------------------
Richard Flynn 300,000 19% $5.00 2/19/02
----------------------------------------------------------------------------------------------------------------------
50,000 3% $5.25 4/22/02
----------------------------------------------------------------------------------------------------------------------
Jon Small 50,000 3% $5.25 4/22/02
----------------------------------------------------------------------------------------------------------------------
Craig Rodgers -- -- -- --
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Option Grants in Transition Fiscal Period July 1, 1999 through December 31, 1999
The following table sets forth, for each of the Named Executive Officers,
information regarding individual grants of options made during the transition
fiscal period July 1, 1999 through December 31, 1999.
Individual Grants
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
----------------------------------------------------------------------------------------------------------------------
% of Total Options
# of Securities Granted to Employees
Underlying Options in Transition Fiscal Exercise or Base
Name Granted Period Price ($/sh) Expiration Date
---- ------- ------ ------------ ---------------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jesse Dylan 750,000 47.2% $5.00 6/30/09
----------------------------------------------------------------------------------------------------------------------
M. Jay Walkingshaw 600,000 37.7% $5.00 6/30/09
----------------------------------------------------------------------------------------------------------------------
Brian Doyle -- -- -- --
----------------------------------------------------------------------------------------------------------------------
John Loeffler -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Richard Flynn -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Jon Small 90,000 5.7% $5.00 - $5.25 6/30/02 - 6/30/09
----------------------------------------------------------------------------------------------------------------------
Craig Rodgers 100,000 6.3% $5.00 6/30/09
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregate Option Exercises; Fiscal 1999 Year End and Transition Fiscal Option
Values
The following table provides information related to options exercised by
the Named Executive Officers during fiscal 1999 and the transition fiscal period
ended December 31, 1999 and the number and value of options held at December 31,
1999 which are currently exercisable. No options were exercised during the
fiscal year ended June 30, 1999 or during the transition fiscal period ended
December 31, 1999.
10
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options
Options at Transition FY-End at Transition FY-End
---------------------------- --------------------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian Doyle -- -- 350,000 -- -- --
Jesse Dylan -- -- 250,000 500,000 -- --
Richard Flynn -- -- 350,000 -- -- --
John Loeffler -- -- 55,000 -- -- --
Craig Rodgers -- -- 33,333 66,667 -- --
Jon Small -- -- 78,333 66,667 -- --
M. Jay Walkingshaw -- -- 200,000 400,000 -- --
</TABLE>
Directors' Compensation
Pursuant to the Company's Outside Directors Plan, directors who are not
employees of the Company ("Outside Directors") received non-qualified options to
receive 5,000 shares on January 22, 1997 at $6 per share and are entitled to
receive non-qualified options to purchase 5,000 shares of Common Stock for each
year of service, payable in advance on July 1 of each year. The option exercise
price is the closing bid price of the Common Stock on the first trading day of
each fiscal year. Accordingly, 5,000 options were granted at $4 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 each received annualized compensation in the
amount of $18,000, paid with an aggregate of 26,961 shares of Common Stock. For
the transition fiscal period ended December 31, 1999, persons who were Outside
Directors each received 3,185 shares of common stock.
All directors are reimbursed for certain expenses in connection with
attendance at Board of Directors and Committee meetings. Other than with respect
to reimbursement of expenses, directors who are employees or officers of the
Company or who are associated with the Company do not receive compensation for
service as directors.
Employment Agreements, Termination of Employment and Change in Control
Arrangements
Mr. Dylan is employed as our Chairman and Chief Executive Officer, 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
generates revenue for the Company by directing commercial and other television
projects. 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 the Company's overall performance. He received ten year
options to purchase 750,000 shares of common stock. The options vest ratably
over a three year period (provided Mr. Dylan is employed by us at that time),
and have an exercise price of $5 per share. Upon a change of control of the
Company, Mr. Dylan will receive the balance of his salary plus the vesting of
all options granted to him.
M. Jay Walkingshaw is employed as our President and Chief Operating
Officer. He entered into an agreement through June 30, 2003 which provides for a
base salary of $450,000 per year plus 600,000 options at $5.00 per share vesting
one-third each on July 1, 2000, July 1, 2001 and July 1, 2002. In addition he
was paid a signing bonus of $12,500 in October 1999. Upon a change of control of
the Company, Mr. Walkingshaw has the right to terminate the agreement and
receive the balance of his salary and the vesting of all options granted to him.
11
<PAGE>
Brian Doyle, Richard Flynn and John Loeffler are each employed under employment
agreements dated July 1, 1997 as amended. Under the terms currently in effect,
each of the agreements terminates on June 30, 2001, although informal
understandings have been reached to extend the terms to June 30, 2002. For the
six month period ending December 31, 1999, Mr. Doyle and Mr. Flynn were paid at
the rate of $275,000 per annum and Mr. Loeffler was paid at the rate of $325,000
per annum. In addition, each has been awarded a bonus of $75,000, $100,000 and
$100,000 respectively. Future bonuses for John Loeffler will be at least
$100,000 if the pre-tax profits of Rave exceed $500,000. Mr. Doyle is entitled
to a bonus of $100,000 if the pre-tax profits of All Access exceed $500,000. All
other bonuses are in the discretion of the Board of Directors.
Jon Small is employed as the President and Chief Executive Officer of Picture
Vision under an employment contract for a three year term which began on July 1,
1999. His base salary for the first year is $375,000 (increasing to $387,500 for
the second year and $400,000 for the third year). He received a bonus of
$125,000 in the first year of the contract, and is also entitled to a bonus of
$100,000 in each subsequent year of the contract that the pre-tax profits of
Picture Vision exceeds $500,000.
Craig Rodgers is employed as Chief Executive Officer of Straw Dogs for a three
year term which began on July 1, 1999 at an annual salary of $350,000. Mr.
Rodgers' compensation is to be reviewed annually with bonus awards or increases
in salary to be considered based on his and Straw Dogs' overall performance. Mr.
Rodgers is entitled to receive an annual bonus of $100,000 per year if the
pre-tax profits of Straw Dogs at the end of each fiscal year are at least
$850,000.
For the six month period ending December 31, 1999 and the year ending June 30,
1999, approximately $1,437,000 and $1,391,000 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.
PROPOSAL NO. 2
APPOINTMENT OF ERNST & YOUNG, LLP AS PRINCIPAL ACCOUNTANTS
On February 7, 2000, the Company dismissed Rothstein, Kass & Company, P.C.
as its principal accountants. The Company appointed Ernst & Young, LLP as its
principal accountants on February 7, 2000. This change was approved by the
Company's Board of Directors on the same date.
Rothstein Kass & Company's report on the financial statements for June 30,
1999 and the year then ended, contained no adverse opinion or disclaimer of
opinion, and were not modified as to uncertainty, audit scope, or accounting
principles. Rothstein Kass & Company's report on the financial statements for
June 30, 1998 and the year then ended contained no adverse opinion or disclaimer
of opinion, and were not modified as to audit scope or accounting principles,
but it did contain an explanatory paragraph as to the Company's ability to
continue as a going concern.
The Company is not, nor has it ever been, involved in any dispute or
disagreement about any matter of accounting principles or practices, financial
statement disclosure, audit scope or procedures, or any reportable events with
Rothstein Kass & Company.
Vote Required for Approval
Approval of appointment of Ernst & Young, LLP as the Company's principal
accountants.
The Board of Directors recommends a vote FOR Proposal No. 2.
12
<PAGE>
OTHER BUSINESS
Management of the Company knows of no other business which will be
presented for consideration at the Meeting, but should any other matters be
brought before the Meeting, it is intended that the persons named in the
accompanying proxy will vote such proxy in their discretion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, the Company entered into a consulting agreement with
Robert A. Buziak, an outside director. Mr. Buziak has agreed to provide business
advice to us, in addition to his service as a director. Mr. Buziak will provide
consulting services for the period January 26, 2000 through January 25, 2001,
and will receive 25,000 three-year warrants which vest and are exercisable
immediately at $5.00 per share.
On December 16, 1999, we acquired substantially all of the business and
assets of Straw Dogs for 900,000 shares of common stock, and assumed
substantially all the liabilities of Straw Dogs. Straw was owned and operated by
Jesse Dylan and Craig Rodgers. Mr. Dylan is our Chairman and Chief Executive
Officer and a director and Craig Rodgers is the Chief Executive Officer of the
Straw Dogs operating subsidiary. We have also purchased, effective on December
16, 1999, all of the stock of Spur & Buckle, an affiliated entity of Jesse Dylan
for 541,000 shares of common stock. Both of these transactions were approved by
stockholders. Upon consummation of the Straw Dogs and Spur & Buckle
transactions, Mr. Dylan received (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. Mr. Rodgers received (i)
441,000 shares of common stock, (ii) a three year employment agreement with (a)
an annual salary of $350,000; (b) ten year non-qualified options to purchase
100,000 shares at $5 per share; and (c) an annual compensation review with bonus
awards or salary increases to be based on Mr. Rodgers' performance and our
overall performance.
Effective October 1, 1999, we entered into an employment agreement with M.
Jay Walkingshaw through June 30, 2003 which provides for an annual salary of
$450,000 per year and ten year non-qualified options to purchase 600,000 shares
at $5 per share. The options vest in one-third installments on July 1, 2000,
July 1, 2001 and July 1, 2002. Mr. Walkingshaw also received a signing bonus of
$12,500 in October 1999.
In April 1999, subject to shareholder approval which was obtained on
December 16, 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, 2000, 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 provide
services for the period April 8, 1999 through June 30, 2000 and will receive
100,000 three-year warrants which vest after one year and which are exercisable
at $5 per share.
We entered into a financial consulting agreement with Dana Giacchetto,
president of Cassandra, during the period April 1999 to April 2000. Mr.
Giacchetto is a beneficial owner of in excess of 10% of the Company's shares
based upon the inclusion of unexercised warrants. As compensation for his
consulting services. Mr. Giacchetto received 200,000 shares of 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.
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 December 31, 1999, $70,878 is outstanding under this promissory
note.
13
<PAGE>
The Company entered into a ten year lease with 8330 West Third Street, LLC
("8330"), an affiliate of Mr. Dylan and Mr. Rodgers for 10,147 square feet of
space at the rental rate of $2.25 per square foot per month. This rate is
subject to escalation in accordance with inflation after 5 years. The rental
rate was determined by an independent appraisal of market rate. As described in
the proxy statement dated November 10, 1999, for the special meeting of
stockholders held on December 16, 1999, at which the Straw Dogs acquisition was
approved, the Asset Purchase agreement between the Company and Straw Dogs was
supplemented by a letter agreement dated September 22, 1999. An exhibit to the
letter agreement set forth the agreed upon terms covering the leasing of space
from 8330 by the Company. 8330 signed a promissory note payable to the Company,
dated December 16, 1999 which will reflect the full indebtedness owed the
Company. The note provides for monthly payments by 8330 to the Company pursuant
to a ten year self amortizing payment schedule with interest at prime plus 1%
floating quarterly with a floor of 6% and capped at 12 1/2%. The payment
obligation under the note has been acknowledged by Mr. Dylan and Mr. Rodgers as
their personal obligation as provided for in the Asset Purchase Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires officers and directors of the Company and holders of
more than 10% of the Common Stock (collectively "Reporting Persons") to file
reports of initial ownership, ownership and changes in ownership of the Common
Stock with the Securities and Exchange Commission within certain time periods
and to furnish the Company with copies of all such reports. Based solely on its
review of copies of such reports furnished to the Company by such Reporting
Persons or on the written representations of such Reporting Persons that no
reports on Form 4 or 5 were required, the Company believes that during the
fiscal year ended June 30, 1999, and the transition fiscal period ended December
31, 1999, all of the Reporting Persons complied with their Section 16(a) filing
requirements.
INDEPENDENT ACCOUNTANTS
The Company has engaged Ernst & Young, LLP as independent public
accountants for the Company's transition period ended December 31, 1999.
Representatives of Ernst & Young, LLP are expected to be present at the Meeting,
will have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions. The Company
engaged Rothstein Kass & Company as independent public accountants for the
Company's fiscal year ended June 30, 1999. Representatives of Rothstein Kass &
Company are expected to be present at the Meeting, will have the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
ANNUAL REPORT
The Annual Report of the Company on Form 10-KSB for the fiscal year ended
June 30, 1999 and Form 10-KSB for the transition fiscal period ended December
31, 1999 is being furnished herewith to stockholders of record of the Company on
the Record Date.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any stockholder desiring to present proposals to stockholders at the next
Annual Meeting of the Company must transmit such proposal to the Company in
writing and such proposal must be received by the Secretary of the Company at
its offices no later than February 1, 2001. All such proposals should be in
compliance with applicable SEC regulations.
By Order of the Board of Directors,
/s/ Richard J. Flynn
----------------------------------------
Chief Financial Officer, Secretary
and Treasurer
14
<PAGE>
Appendix A
PARADISE MUSIC & ENTERTAINMENT, INC.
53 West 23rd Street, 11th Floor, New York, NY 10010
FORM OF PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PARADISE MUSIC &
ENTERTAINMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
June 29, 2000
The undersigned hereby appoints JESSE DYLAN, RICHARD FLYNN and JEFF ROSEN
as Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated below, all of the shares of
Common Stock, $.01 par value, of PARADISE MUSIC & ENTERTAINMENT, INC., held of
record by the undersigned at the close of business on May 25, 2000 at the Annual
Meeting of Stockholders (the "Meeting") of PARADISE MUSIC & ENTERTAINMENT, INC.
on June 29, 2000, at 10:00 am, or at any adjournments thereof.
1. Election of Directors
|_| For all nominees listed below |_| WITHHOLD AUTHORITY
(except as indicated otherwise below)
INSTRUCTION: to withhold authority to vote for an individual nominee,
write such nominee's name in this space ____________________________
NOMINEES: Jesse Dylan, Richard J. Flynn, Robert A. Buziak, Thomas J.
Edelman and Jeffrey Rosen.
2. To ratify the appointment of Ernst & Young, LLP as the Company's principal
accountants.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
(To be signed on reverse)
15
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ABOVE
In the absence of instructions, this Proxy will be voted in favor of proposals
one, two and three.
Please sign exactly as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please indicate the capacity in which
signing. When a ballot is given by a corporation, please give your full
corporation name and have the ballot signed by the president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: ________________, 2000
_________________________
Shareholder Name
_________________________
Shareholder Signature
_________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
16
<PAGE>
May 31, 2000
Dear Fellow PDSE Shareholders:
Before I sat down to write this letter, my first as your Chairman, I took a few
moments to reflect upon what brought me to Paradise Music & Entertainment, Inc.
("PDSE") and why I am so excited to be a part of the company. I'd like to share
that information with you.
About eighteen months ago, after learning about PDSE's origins, I became an
investor. I was intrigued with the idea of a publicly held company that avoids
the high visibility, big-budget projects traditionally associated with the music
and entertainment industries. I liked the fact that PDSE followed a "picks and
shovels" approach, concentrated on supplying these industries with products and
services that they need to function on a day-to-day basis. During my due
diligence process I got to know the management team and was impressed with their
solid understanding of the creative process and their dedication to making the
company financially successful. Later, after sharing my ideas with them about
how I thought their business model could be improved, they invited me to join
the company. Based upon our shared belief about its potential, my partner, Craig
Rodgers, and I agreed to sell our television commercial production company,
Straw Dogs, to PDSE, and last year as a part of the arrangement, I became
Chairman and CEO.
The music and entertainment industries are currently experiencing some
fundamental changes as they shift from an analog to a digital marketplace. As a
result, they are in the early stages of an industry-wide, structural
transformation. This transformation is being driven by the Internet and
technological advances in high speed, high capacity broadband telecommunications
networks, data compression, digital media, and audio and video data streaming.
These technologies are dramatically and, I believe, permanently altering the
relationships and equilibrium between artists and the filmed entertainment and
record companies. Consequently, virtually every aspect of the music and
entertainment industries is being changed, often radically. I believe that these
changes present PDSE with a unique opportunity to leverage its existing assets
to become a leading supplier to the emerging "digital entertainment" world,
while continuing to aggressively build its traditional businesses.
Here is my vision for PDSE. As we continue to evolve, I believe we can build
upon the company's expertise in traditional music, television and film
production and become a leading studio in the emerging "digital entertainment"
industry, one that manages artistic and intellectual assets over the full range
of media, including film, records, television, digital products and the
Internet, and creates and produces digital content for worldwide distribution.
To reach this goal, we are implementing a number of changes at PDSE. Some of
these changes are already in process; others will be made over the coming
months. Each will help the company improve its operations, short-term and
long-term. Internally, we have increased business unit operating efficiencies
and improved cross-organizational effectiveness, and we plan to continue adding
artistic talent. Externally, we plan to heighten the company's visibility in the
marketplace and on Wall Street, continue to strengthen the company's financial
condition and to establish additional strategic relationships with organizations
that can help the company meet its goals. In the marketplace, we plan to boost
share in the niche markets where we already operate and enter new niche markets
where we can acquire and/or build profitable businesses.
I would now like to provide you with some background information about each of
PDSE's business units, a recap of some of the exciting changes that have taken
place over the past year, and some comments about the company's financial
results for the period July 1, 1999 to March 31, 2000.
<PAGE>
BUSINESS UNITS
PDSE, through three business units, serves several segments of the entertainment
industry:
PDSE Film & Television Group - Film & Television Production
o Straw Dogs (acquired December 1999) -- production of television
commercials and development of film and television properties.
o Picture Vision -- production of television and cable specials, commercials
and music videos.
PDSE Music Group - Recorded Music & Artist Management
o Paradise Records -- production and commercial release (directly and
through various joint ventures) of recorded music.
o Rave Music -- production of original scores and advertising themes for
television, radio and films.
o All Access Entertainment Management Group -- artist management services.
PDSE Digital Group - Digital & Web-based Entertainment
o Paradise Digital Productions (established January 2000) -- creation,
production and delivery of client-owned, Internet-related content.
o Matter (established May 2000) -- design and consulting services for new
media entertainment for broadband and the Internet.
Recent Highlights
Approximately a year ago, PDSE did a top-to-bottom review of all of its
operations and began implementing a comprehensive restructuring program to
correct financial and operating problems. The positive effects of this program
have already been demonstrated by PDSE's recent financial performance.
Strengthened Management Team
PDSE has significantly strengthened its senior management team. In October, 1999
M. Jay Walkingshaw, formerly Executive Vice President and Chief Financial
Officer of Tri-Star Pictures and Vice President of Operations at HBO joined PDSE
as President and Chief Operating Officer. Mark Pollard joined the company as
Vice President, Business Development. Richard J. Flynn, a PDSE co-founder,
assumed new responsibilities as Executive Vice President, Operations.
Additionally, Bruce Boucher joined the company as Vice President, Finance. These
appointments will allow PDSE co-founders John Loeffler (who oversees Rave
Music), Jon Small (who oversees Picture Vision) and Brian Doyle (who oversees
All Access and Paradise Records) to focus all their efforts on managing and
growing their respective operating companies. When PDSE completed its
acquisition of Straw Dogs in December 1999, Craig Rodgers, joined the company as
President of Straw Dogs. In January 2000, Matt Rader, a film and television
veteran, joined the company as President of Paradise Digital Productions.
Additional Capitalization
Between July and October 1999, the company raised $6.2 million in equity
financings. This funding substantially improved the company's capital structure
and provided PDSE with the
2
<PAGE>
working capital necessary to begin its restructuring. Subsequently, in March
2000, the company further improved its working capital position by raising
$3,000,000 in convertible note financings with BayStar Capital, LP, and BayStar
International, Ltd.
Straw Dogs Acquisition
On September 27,1999, PDSE entered the television commercial production business
on a large scale when it agreed to acquire Straw Dogs, a leading television
commercial production company with a talented cast of directors and
relationships with a number of premier advertising agencies. Profitable in its
first full fiscal year of operations (ended June 30, 1999), Straw Dogs had
revenues of approximately $19 million with pro forma pre-tax operating income of
approximately $1 million. The transaction closed on December 16, 1999.
PDSE Music Group
In the latter part of 1999, as a part of a PDSE Music Group initiative, PDSE
revised Push Records' distribution and promotional business model. In connection
with this action, Push adopted a lower risk, lower cost approach by establishing
a marketing and promotions joint venture with V2 Records. This partnership
substantially expanded Paradise Record's distribution and promotional
capabilities, while significantly reducing its operating costs. In concert with
PDSE Music Group's new strategy, Paradise Records acquired Mesa/Bluemoon Records
(Worldbeat, Smooth Jazz, Pop/Rock), Indie 5000 (Experimental Hip-Hop), and
created Label M, a jazz record label (May 2000), and entered into licensing,
marketing and distribution and joint venture agreements with leading independent
labels in a number of musical genres, including: Trippin'`N Rhythm/Hardcastle
Records, (Smooth Jazz), Jazzica (Urban/Adult Contemporary and Smooth Jazz/NAC
and Urban Adult Contemporary Jazz), and Kinetic Records (Electonica/Trance).
PDSE Digital Group
In January 2000, PDSE established the PDSE Digital Group to apply the Company's
expertise in various aspects of the traditional music and entertainment
industries towards the creation, production and delivery of Internet-related
content for the rapidly growing "digital world" of music and entertainment. PDSE
Digital Group established Paradise Digital Productions (January 2000) to create,
produce and deliver client-owned, Internet-related content and Matter (May 2000)
to provide design and consulting services for new media entertainment for
broadband and the Internet.
Financial & Administrative Systems
During the latter part of 1999, PDSE began implementing upgrades to its computer
and telecommunications systems that will, for the first time, permit the company
to easily share information, coordinate production schedules and transfer music
and video files between its New York, Nashville and Los Angeles locations. The
company is also in the process of upgrading its accounting and forecasting and
control systems to improve the accuracy and timeliness associated with capturing
and reporting divisional financial information. In February 2000, PDSE retained
Ernst & Young as its corporate auditor and switched to a calendar year financial
reporting structure.
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Financial Results - July 1, 1999 through March 31, 2000
Although the company's restructuring program had only been underway for a short
period its effects soon became evident. For the six-month stub period ended
December 31, 1999, PDSE's aggregate revenues increased $2,303,222 or 40% to
$8,082,353, up from $5,779,131 in the comparable year-earlier period, while the
net loss was reduced from $1,344,737 to $1,296,243. A major portion of the loss
during the period consisted of a non-cash expense associated with warrants
($701,459) and professional fees associated with changing the fiscal year end
($105,000). Because many of the restructuring activities referred to above
occurred in the latter half of 1999, they exerted a limited effect on the
company's operating performance for the period. For instance, the results of the
stub period do not reflect any operating results of our Straw Dogs acquisition
which closed in December of 1999.
The positive effects of the company's restructuring program became more apparent
in its most recent quarter. During the three-month period ended March 31, 2000,
PDSE's aggregate revenues increased 355% to $8,923,120; up from $1,961,242 in
the comparable year-earlier period, while the net loss was reduced from $874,008
to $785,880. A significant portion of the loss ($321,368) was associated with
the development of our digital initiative (PDSE Digital Group) and increased
depreciation and amortization expenses associated with the Straw Dogs
acquisition. Earnings before interest, taxes, depreciation and amortization,
non-cash consulting expense, and one time accounting charges associated with
changing our fiscal year end for the period was a loss of $454,986, compared to
a loss of $864,896 for the comparable year-earlier period.
In closing, on behalf of the PDSE Board of Directors and the entire senior
management team, I want to personally thank you, the shareholders, and all of
our talented and hard-working employees for your continued support and
commitment. I believe we have charted a course that will soon return the Company
to profitability and have positioned PDSE so that it will be able to take
advantage of the exciting array of business opportunities that are being created
on a daily basis in the film, music, television, digital media and web-based
entertainment industries.
I look forward to reporting to you in future letters about the continued
progress of our Company.
With best regards,
/s/ Jesse Dylan
Jesse Dylan
Chairman and Chief Executive Officer
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