SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
[LOGO]
PLANET ENTERTAINMENT CORPORATION
(Exact Name of Registrant as specified in its charter)
FLORIDA 33-0471728
-------------------------- -----------------------
(State of incorporation or (IRS Employer I.D. No.)
organization or Other Jurisdiction)
222 Highway 35
P.O. Box 4085
Middletown, New Jersey 07748
(Address of principal executive officers)
(732) 530-8819
(Registrant's telephone number)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
11,976,055 COMMON STOCK, PAR VALUE $0.001
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TABLE OF CONTENTS
Item 1. Description of Business .......................................... 1
Item 2. Management's Discussion &
Analysis ......................................................... 17
Item 3. Description of Property .......................................... 24
Item 4. Security Ownership of
Certain Beneficial Owners
and Management ................................................... 24
Item 5. Directors and Executive Officers ................................. 25
Item 6. Executive Compensation ........................................... 28
Item 7. Certain Relationships and
Related Transactions ............................................. 31
Item 8. Legal Proceedings ................................................ 32
Item 9. Market Price of and Dividends
on the Registrant's Common Equity
and Related Stockholder Matters .................................. 33
Item 10. Recent Sales of Unregistered Securities .......................... 34
Item 11. Description of Registrant's
Securities ....................................................... 36
Item 12. Indemnification of Directors and Officers ........................ 36
Item 13. Financial Statements and Supplementary Data ...................... 36
Item 14. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure.......................................... 37
Item 15. Financial Statements and Exhibits................................. 37
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ITEM 1. DESCRIPTION OF BUSINESS.
THIS FORM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Planet Entertainment Corporation ("Planet" or the "Company") was
incorporated under the laws of the State of Delaware in May 1996. On October 9,
1996, all of the outstanding capital stock of the Company was acquired by Ampro
International Golf Tour, Inc. ("Ampro"), a Florida corporation, which as the
surviving corporation, changed its name to Planet Entertainment Corporation.
BUSINESS SUMMARY
The Company is currently involved in various areas of the recorded
music industry. The Company's principal activities involve the acquisition,
licensing, production, marketing and distribution of high quality recorded music
in a variety of music formats: Compact Diskettes ("CDs"), video, CD-ROM and, to
a lesser extent, cassette tapes. The Company produces such types of music as
gospel, adult contemporary, reggae, top 40, blues, country, rap, rock,
instrumental, rock & roll, jazz, pop rock, classical, easy listening, big band,
rhythm & blues, and various ethnic folk music recordings.
The Company has acquired certain rights associated with
approximately 15,000 music master recordings from existing music catalogues of
recorded music. The Company also records new artists. These master recordings
are typically stored on Digital Audio Tape ("DAT"). The Company, through its
48-track recording studio and mastering facility in Chester, Pennsylvania, and
its 24-track studio in Jackson, New Jersey, re-digitizes existing master
recordings, enhances these master recordings by removing certain impure sounds
due to aging, and re-compiles these recordings along with its recordings of new
artists on "glass master" CDs for mass production and distribution to its
customers through traditional and non-traditional distribution channels.
The Company's strategy has been to produce compilation CDs
containing enhanced or re-digitized master recordings from its existing library,
to contribute these compilation CDs to joint ventures involving the Company, and
to license these compilation CDs to third parties for marketing and sale by
unaffiliated distributors. (See "RECENT DEVELOPMENT OF BUSINESS"). To date,
however, substantially all the Company's revenues have been derived from studio
rental sales and licensing royalties and not from the licensing and sale of the
Company's compilation CDs. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS"). In
September 1998, the Company entered into an agreement to purchase all of the
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issued and outstanding capital stock of Northeast One Stop, Inc. ("NEOS"). NEOS
is principally engaged in the distribution of records and compact diskettes
through "one-stops" and "rack-jobbers." "One-stops" are centralized order
fulfillment centers for small to medium sized retail stores, typically record
stores, that obtain a wide-variety of recorded music in a variety of formats
from several independent producers at a stated price, or mark-up.
"Rack-jobbers," typically purchase and distribute recorded music through racks
and kiosks in retail stores, and encompass a narrower range of selection,
typically from proprietary sources for a stated percentage of sales, and often
with the full right of return. The Company's agreement to purchase NEOS is
subject to the consent of NEOS' secured creditor. The Company is unable to make
any assurances that this transaction will be consummated, or will be consummated
on terms favorable to the Company, or that, if consummated, the combined
operations will be profitable (See "RECENT DEVELOPMENT OF BUSINESS"). The
Company's strategy is, however, pending completion of the acquisition of NEOS,
and the completion of its Website to permit the sale of the Company's products
and other "front line" titles over the Internet, to serve as its own fulfillment
center. In addition, the Company expects to distribute compilation CDs from the
Company's proprietary catalogue of existing master recordings through NEOS, at a
lower cost to NEOS, and thereby improve NEOS' gross profit margins while at the
same time generating increased revenues for the Company.
INDUSTRY OVERVIEW.
According to the International Federation of the Phonographic
Industry, worldwide sales of pre-recorded music and music videos in 1997 were
approximately $40 billion. It is estimated that the United States recording
industry had sales of approximately $15 billion in 1997, and that over the last
five years, the industry has been growing in excess of 20% per year. During this
period, it is estimated that total CD sales increased from $6.6 billion to $10.2
billion, or 55%, due in substantial part from the conversion of cassette tapes
to CDs. In 1996 and 1997, the sale of CDs, and to a lesser extent cassette
tapes, comprised more than 97% of total sales of recorded music. THE COMPANY
THE COMPANY
The Company markets and distributes recorded music, in a variety of
formats including CDs, Digital Video-Enhanced CDs ("DVDs"), and to a lesser
extent cassettes, from its existing catalog of approximately 15,000 master
recordings. The Company compiles, digitizes and repackages these master
recordings through its recording and production facilities, and distributes
these master recordings through joint ventures and licensing agreements. The
Company's current inventory of master recordings includes a broad range of
musical genres including adult contemporary, classical, gospel, blues, rap,
reggae, jazz, instrumental, easy listening, big band, swing, Christmas, country,
pop, rock and roll, and rhythm and blues
ACQUISITION OF MASTER RECORDINGS. In June 1996, as a result of the
Company's acquisition of Maestro Holding Corporation ("Maestro"), the Company
acquired certain rights associated with the exploitation of approximately 5,000
master recordings, and in November 1996, through its agreements with J. Jake,
Inc., Music Marketeers, Inc., and Gulf Coast Music, Inc., the Company acquired
certain rights associated with the exploitation of approximately 10,000
additional master recordings.
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The Company's current inventory of master recordings includes a
broad range of musical genres including adult contemporary, classical, gospel,
blues, rap, reggae, jazz, instrumental, easy listening, big band, swing,
Christmas, country, pop, rock and roll, and rhythm and blues, and a partial
listing of artists included in the Company's master catalogue include Louis
Armstrong, Tony Bennett, George Benson, Chuck Berry, Glen Campbell, Ray Charles,
Chicago, Nat King Cole, Alice Cooper, Bing Crosby, Sammy Davis, Jr., Fats
Domino, Donovan, Duke Ellington, Ella Fitzgerald, Aretha Franklin, Judy Garland,
Marvin Gaye, George Gershwin, Dizzy Gillespie, Bill Haley's Comets, Billie
Holliday, John Lee Hooker, Lena Horne, The Ink Spots, Jackson Five, Jefferson
Airplane, Al Jolson, Quincy Jones, BB King, Frankie Lane, Jerry Lee Lewis, Glenn
Miller, Willie Nelson, Charlie Parker, Dolly Parton, Luciano Pavarotti, Kenny
Rogers, Neil Sedaka, Pete Segar, Sisters Sledge, Steely Dan, Steppenwolf, and
Ike & Tina Turner.
PRODUCTION. The Company owns and operates a twenty-four track studio
in Jackson, New Jersey and a full service forty-eight track digital studio in
Chester, Pennsylvania. The Company currently has five new artists under contract
as well as several established groups recently acquired with the Higher Ground
Group including, GMWA Youth Mass Choir, Charles Fold, Philadelphia Mass Choir,
and others. Other artists presently under contract with the Company include Nino
Rossano (an Italian opera and classical singer), the Crystals, the Trammps, the
Tokens, and Dakota McLeod. The continued representation of these artists and the
production of their compositions are subject to popularity trends, and the
continued appeal of these artists and these compositions.
COMPOSITIONS AND ENHANCEMENTS. The Company markets either from its
existing catalog of recordings or repackages compilations of previously recorded
music by utilizing its library of master recordings. Through the Company's
studios in New Jersey and Pennsylvania, the Company composes musical CDs
containing the original and re-recorded music of various artists arranged
according to musical genre, and designed to be mass marketed by the Company
through its distribution channels. The Company has hired experienced engineers
and owns certain multi-media equipment that permits the Company to transform and
edit its previously published and unpublished master recordings from their
original state to a higher quality state using certain sound purification
techniques and by converting older recordings produced under the analogue format
into a digital format.
By combining these compositions with visual graphics and video
clips, the Company can produce an entirely new product by re-mastering the
Company's recordings in compositions expected to appeal to the public's tastes.
Moreover, by combining these compositions, with outstanding visual effects, the
Company has the technology to produce video enhanced Compact Diskettes. In
connection with the transformation, editing, re-composition, and republishing of
the Company's master recordings, the Company produces its own art work, posters,
CD inserts, informational materials and brochures. The Company's associated
labels include PNEC Records, Magnum Records, Century Records, Planet Records,
Black Tiger Records and Higher Ground Records.
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MANUFACTURING. The Company manufacturers "glass masters," and
prototype CDs for use as samples, together with all artwork and CD inserts, but
it employs and is dependent upon others to press and mass produce the Company's
compact diskette recordings for resale. Currently, the Company's products are
mass produced or pressed by Denon Active Media, a division of Denon Corporation,
USA.
DISTRIBUTION. At present, all of the Company's products are sold
through distributors. The Company's strategy is to produce digitally enhanced
and re-arranged master recordings, from its existing catalogue, and from its
catalogue of new artists, and to license these products to be mass produced and
marketed by others through traditional retail distribution channels, in exchange
for royalties. In addition, the Company has entered into joint ventures with
other record promoters, record labels, and distribution companies to sell and
market the Company's products, and the Company intends to develop the
distribution of its products through traditional and non-traditional
distribution channels including promotional and premium licensing, specialty
marketing, and through the use of the Internet.
The Company's products are distributed through Navarre Corporation,
as a result of its joint venture with Black Tiger Records, and certain of the
Company's products are also distributed in the Far East through Nippon Columbia
Co., Ltd. In November 1997, the Company entered into agreement with DRG
Associates, Inc. ("DRG"), and with Koch International Corporation for the
distribution of the Company's products. In February 1998, the Company entered
into an agreement with Monaco Records, and entered in a joint venture agreement
with New Millenium Communications concerning the distribution of the Company's
products in Europe. (See "RECENT DEVELOPMENT OF BUSINESS").
In September 1998, the Company executed an agreement to acquire, all
of the issued and outstanding capital stock of Northeast One Stop, Inc.
("NEOS"), a record and compact diskette distributor, in exchange for $3 million,
plus options to acquire 250,000 shares of the Company's common stock over a
period of two years at an exercise price of the lesser of $5.25 or the closing
bid price for the Company's securities on the date of closing. The Company
anticipates closing the transaction during September 1998. NEOS is principally
engaged in the distribution of records and compact diskettes through "one-stops"
and "rack-jobbers." "One-stops" are centralized order fulfillment centers for
small to medium sized retail stores, typically record stores, that obtain a
wide-variety of recorded music in a variety of formats from several independent
producers at a stated price, or mark-up. "Rack-jobbers," typically purchase and
distribute recorded music through racks and kiosks in retail stores, and
encompass a narrower range of selection, typically from proprietary sources for
a stated percentage of sales, and often with the full right of return. The
Company's agreement to purchase NEOS is subject to the consent of NEOS' secured
creditor. The Company is unable to make any assurances that this transaction
will be consummated, or will be consummated on terms favorable to the Company,
or even if consummated that the combined operations will be profitable. (See
"LACK OF SUFFICIENT CAPITAL RESOURCES.")
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RECENT DEVELOPMENT OF BUSINESS.
In June, 1996 the Company acquired, under the "pooling of interests
method" all of the outstanding capital stock of Maestro Holding Corporation
("Maestro") in consideration for the issuance of 3,060,000 shares of the
Company's Common Stock, valued at $5,850,860, the predecessor cost. Maestro
holds title to over 5,000 master recordings, publishing rights to over 300
songs, and all equipment and fixtures contained in a twenty-four track studio
located in Jackson, New Jersey. Prior to this transaction, Maestro was in
substantial part owned and controlled by the Company's principal stockholders,
Messrs. Joseph Venneri, Wallace Giakas, and John S. Arnone. (See "RECENT SALES
OF UNREGISTERED SECURITIES").
In September 1996, the Company entered into a production and
distribution agreement with Multimedia Industries Corporation ("MMIC"), under
the label Century Records concerning the production and distribution of enhanced
multi-media CDs, playable on computers with compact diskette drives. In
accordance with the terms of the agreement, since September 1996, the Company
has produced ten compilation CDs, including six visually enhanced CDs, and
through Koch International Corporation, the Company has shipped approximately
35,000 units. One of the Company's executive officers and directors, Joseph
Venerri, is a principal shareholder of MMIC, and Richard Bluestine, the
Company's Chief Financial Officer and a director of the Company, is a
shareholder of MMIC, and from June 1995 through May 1997, was an officer and
director of MMIC. (See "CERTAIN RELATIONSHIPS AND RELATED PARTIES").
On October 9, 1996, all the outstanding capital stock of the Company
was acquired by Ampro International Golf Tour, Inc. ("Ampro"), a Florida
corporation. In connection with this transaction, each share of Planet common
stock issued and outstanding was exchanged for one share of Ampro, with Ampro as
the surviving corporation, which changed its name to Planet Entertainment
Corporation. Prior to this transaction, Ampro effected a reverse stock split at
the rate of one share for every three hundred shares previously issued and
outstanding.
In November 1996, the Company agreed to acquire all of the
outstanding stock of Higher Ground Records ("HGR"), an unaffiliated Company, in
consideration for 25,000 shares of Planet common stock under the "pooling of
interests" method of accounting. HGR's assets principally consist of production
and publishing agreements with various artists and gospel catalogs. HGR is a
gospel production Company that produces new gospel artists such as GMWA Youth
Mass Choir, Carlton Burgess, and Charles Ford, as well as many prominent artists
in the gospel field. (See "RECENT SALES OF UNREGISTERED SECURITIES").
In November 1996, the Company agreed to acquire certain studio
assets and rights associated with 10,000 master recordings from Music
Marketeers, Inc. and J. Jake, Inc. in exchange for 2,000,000 shares of Planet
common stock, valued at $2,150,000, the predecessor cost, and the assumption of
three promissory notes totaling $1,250,000 payable over 5 years. (the
"Promissory Note"). J. Jake, Inc. and Music Marketeers, Inc. obtained all
rights, claims and interests in these master recordings purchased by the Company
from PEP Music, Inc., Hallelujah Music, Inc., and UpBeat Music Inc. pursuant to
a Plan of Reorganization by the United States Bankruptcy Court for the Eastern
District of Louisiana.
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In November 1996, a subsequent agreement was reached between the
Company and J. Jake, Inc. and Music Marketeers, Inc. to return 500,000 shares of
stock and to not transfer certain studio assets. As of September 1, 1998, the
Company is in compliance with all material terms of its Agreement with J. Jake,
Inc. and Music Marketeers, Inc., and Gulf Coast Music, Inc. However, as of June
1998, neither J. Jake, Inc., Music Marketeers, Inc. nor Gulf Coast Music had
completed their respective obligations under the agreement and had failed to
deliver proof of unencumbered title to approximately 2,000 of these master
recordings. In August 1998, Gulf Coast Music, L.L.C. and Music Marketeers, Inc.
granted the Company the right to reacquire 1,400,000 shares of its common stock
and to cancel the outstanding principal portion of the Promissory Note together
with accrued interest in exchange for approximately $175,000 in cash and short
term notes for approximately $2,850,000. The Company intends to obtain the
approval of the Bankruptcy Court of this agreement. (See "DISPUTED INTELLECTUAL
PROPERTY RIGHTS" and "LACK OF SUFFICIENT CAPITAL RESOURCES").
In February, 1997, the Company, through a joint venture with JAD
Records and Anansi Records, obtained a 50% interest in Black Tiger Records
consisting primarily of certain master recordings embodying the performances of,
among others, Bob Marley and the Wailers (the "Marley Masters"), Gene Chandler
("Tell It Like It Is"), Jocelyn Brown ("Diva"), and Johnny Nash ("The Very Best
Of"). Under the terms of the Joint Venture Agreement assigned to the Company by
Joseph Venerri, one of its principal shareholders, Black Tiger Records
contracted with Navarre Corporation for the sale and distribution of these
recordings to retail outlets, one stops, racks, wholesale clubs, and
sub-distributors (the "first agreement"). On April 23, 1998, the Company entered
into an additional agreement with JAD Records and Anansi Records regarding the
production of eight music recordings of Bob Marley and the Wailers (the "second
agreement"). In fiscal 1996, the Company recognized revenue of approximately
$105,000 as a result of the first agreement with JAD Records. In fiscal 1997,
these amounts were reserved by the Company as uncollectible. As of June 1998,
JAD Records and Anansi Records, Inc. have failed to provide the Company or Black
Tiger Records with an accounting of such sales in accordance with the terms of
the second agreement, and the Company has not recognized revenue or other income
in connection with the second agreement. In June 1998, the Company assigned the
collection of all producer and publisher royalties to an unaffiliated party but
has no assurance that it will be able to collect any revenues in the future.
In March, 1997, the Company acquired all the issued and outstanding
capital stock of Al Alberts On Stage, Ltd. in exchange for 100,000 shares of the
Company's common stock valued at $214,000, under the "purchase" method of
accounting. The assets of Al Alberts On Stage, Ltd. consisted primarily of
furniture, fixtures and equipment contained in a forty-eight track studio
located in Chester, Pennsylvania. The Company also entered into a lease with the
former shareholders of Al Alberts On Stage, Ltd. to lease a 13,400 square foot
building together with improvements in Chester, Pennsylvania where the Company's
studio is located. (See "RECENT SALES OF UNREGISTERED SECURITIES").
On April 22, 1997, the Company entered into a licensing agreement
with Sun Entertainment Corporation of Nashville, Tennessee pursuant to which the
Company obtained non-exclusive rights to all master recordings, including "Whole
Lotta Shakin Going On," by Jerry Lee
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Lewis, "I Walk The Line," by Johnny Cash, "Blue Suede Shoes," by Carl Perkins,
"Chapel of Love," by the Dixie Cups, "The Boy From New York City," by the Ad
Libs, and "Harper Valley PTA," by Jeannie C. Riley, in consideration for advance
payments against future royalties that will accrue on all tapes and CDs that are
sold by the Company. To date the Company has not attempted to exploit these
master recordings, has not received any royalties, and has not recognized any
revenue or income as a result of this agreement.
In July 1997, the Company entered into a joint venture agreement
with Multimedia Industries Corporation ("MMIC") regarding the production of 20
compilation CDs per year by the Company. According to the terms of the
agreement, all net income from the production, development and distribution of
the releases are to be divided equally on a 50%-50% basis between the Company
and MMIC. No revenues have been earned under this agreement. One of the
Company's executive officers and directors, Joseph Venerri, is a principal
shareholder of MMIC, and Richard Bluestine, the Company's Chief Financial
Officer and a director of the Company, is a shareholder of MMIC, and from June
1995 through May 1997, was an officer and director of MMIC. (See "CERTAIN
RELATIONSHIPS AND RELATED PARTIES").
In July 1997, the Company entered into an agreement with Nippon
Columbia Co. Ltd. ("NCC"). Pursuant to the terms of this agreement, the Company
granted the exclusive rights to NCC and its wholly owned subsidiary, Denon
Corporation, USA, to press, duplicate, distribute, sell and market music CDs and
video tapes in Japan, Hong Kong, Taiwan, Korea and Singapore. According to the
terms of the agreement, an advance payment was made to the Company of $150,000
and allocated towards the purchase price of finished products and the payment of
future license royalties due to the Company. The agreement is for a term of 16
months, and may be renewed by NCC provided NCC makes certain minimum payments
and purchases during the term of the agreement. In July, 1998, the Company
shipped 50 of the compilation CDs to NCC for distribution into the above markets
pursuant to the agreement.
In February, 1998, the Company entered into an agreement with Monaco
Records of Monaco to form a joint venture to distribute the Company's products
throughout Europe on a non-exclusive basis under the label Monaco/PNEC, and the
Company has the exclusive rights to market and distribute the recordings of any
new artists produced by the joint venture on an exclusive basis in North
America. According to the agreement, all revenue from catalogue sales, after
costs, will be divided on a fifty-fifty percent basis. To date the Company has
received no royalties, and has recognized no revenue or income as a result of
this joint venture.
On April 30, 1998, the Company entered into a multi-phase agreement
to expand and enhance the Company's website (www.planetentertainment.com) with
Atlantic Coast Digital Concepts, Inc. ("ACDC"). ACDC specializes in new media
technologies including content and process management, user interface design and
development, hosting, and VRML site configuration, for a large variety of
Internet applications. It is expected that this project will be substantially
completed by the second quarter of 1999.
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On May 18, 1998, the Company entered into an agreement with New
Millennium Communications, Ltd. to form a joint venture operating under the name
Planet Entertainment Europe, Ltd. concerning the licensing and distribution of
master recordings owned by the Company. According to the terms of the agreement,
Planet Entertainment Europe, Ltd. has the non-exclusive right to market,
reproduce and distribute all subject master recordings for a term of 99 years,
with each party to the joint venture to recover their respective costs and to
divide any resultant profits on a 50%-50%, equal basis. As of June 1998, the
Company has contributed 15 compilations of its master recordings to the joint
venture, and distribution is expected to begin in the last quarter of 1998. To
date, however, the Company has received no royalties, and has recognized no
revenue or income as a result of this agreement.
In June 1998, the Company authorized and issued 500 shares of 7%
Series A Convertible Preferred Stock to JNC Opportunity Fund Ltd. at a stated
value of $10,000 per share for a total of $5 million. Each share of the
Preferred Stock over a period of two years is convertible into the Company's
common stock at the lesser of (a) $8.885 per share, (b) or 78% multiplied by the
average of the five lowest per share market price of the Company's common stock
during ten trading days immediately preceding notice of conversion. In
connection with this transaction, the Company issued warrants to purchase 75,000
shares of the Company's common stock to JNC Opportunity Fund at a price of
$9.625 per share exercisable over a term of five years, and the Company also
issued warrants to purchase 150,000 shares of the Company's common stock to CDC
Consulting, Inc. at a price of $9.625 per share over an identical term of five
years from June 1998. As a result of this transaction, the Company received net
proceeds of approximately $4,475,000. Under the terms of the Preferred Stock
agreements, the Company was required to file a registration statement for 200%
of the common shares underlying the Preferred Shares at the conversion price of
$8.885 per share, or 78% multiplied by the average of the five lowest per share
market price of the Company's common stock during ten trading days immediately
preceding notice of conversion, along with an additional 225,000 shares of
common stock underlying the warrants within 30 days of the Closing Date, and if
such registration statement was not declared effective within 90 days from the
Closing Date or by September 4, 1998, according to the Preferred Stock
agreements, the conversion price will decrease by 2.5% of the lesser of (a)
$8.885 per share, (b) or 78% multiplied by the average of the five lowest per
share market price of the Company's common stock during ten trading days
immediately preceding notice of conversion. Each month thereafter the conversion
price shall decrease by 2.5%, and after the second month, the Preferred
shareholder may demand additional 2.5% cumulative discounts or the payment of
2.5% of the stated value of the preferred shares each month until such
registration statement becomes effective. During September 1998, the Company
intends to file a registration statement with the U.S. Securities and Exchange
Commission on SEC Form SB-2 with respect to 1,441,336 shares of its Common
Stock.
In September, 1998, the Company agreed to purchase all of the issued
and outstanding capital stock of NEOS, effective September 1, 1998, in
consideration for $2.25 million in cash, and a non-interest bearing Promissory
Note in the amount of $750,000, of which $375,0000 is payable on or about March
1999 and the remaining $375,000 is payable on or about September 1999, and
options to purchase 250,000 shares of the Company's common stock. If this
transaction is consummated it will be effective as of September 1, 1998. The
Company's agreement to purchase NEOS is subject to the consent of
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NEOS' secured creditor, and the Company is unable to give any assurances that it
will be able to secure the consent of NEOS' secured creditor, or that the
acquisition of NEOS will not consume a substantial amount of the Company's cash
and working capital. The Company anticipates closing the transaction during
September 1998. (See "DISTRIBUTION", "PENDING ACQUISITION" and "LACK OF
SUFFICIENT CAPITAL RESOURCES").
RISK FACTORS
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DEPENDENCE ON DISTRIBUTORS. The Company expects that a material
portion of its sales will continue to be made through unaffiliated distributors.
If the Company is not successful in signing distribution agreements with
distributors, its ability to sell its products may be materially adversely
affected. In addition, distributors generally offer products of several
different companies, including products that may compete with the Company's
products. Typically, agreements with distributors are terminable at will and at
the termination of any distributor's relationship with the Company may have a
material adverse effect on any future results of operations. In accordance with
industry practice, the Company's music products are sold on a 25% return basis.
The Company intends to establish reserves for returns of finished products in
accordance with industry standards. With the sale of finished products, and any
increase in returns, however, the Company's reserves could prove to be
inadequate and adversely affect the Company's results of operations as well as
profits. Moreover, there can be no assurance that the Company will be able to
generate sufficient revenues from successful releases to cover the costs of
unsuccessful releases.
POTENTIAL FOR INTERNET DISTRIBUTION OF THE COMPANY'S PRODUCTS. In
connection with securing the distribution of its products and the products of
others, the Company has expended, and will continue to expend, significant
capital resources to upgrade and enhance the Company's Internet website to
market and distribute its products over the Internet by making its enhanced
catalogue available for sale and downloading to consumers, in a variety of
compositions. The Company has completed the first stage of the development of
its Internet website, and through the final stage, is expected to complete the
design and development of its enhanced site within the second quarter of fiscal
1999. No assurances can be made however, that the Company will complete the
enhancement of its website or that such site will be functional in fiscal 1999.
The failure of the Company's website to be functional and permit the marketing,
ordering, and sale of the Company's products over the Internet may substantially
and adversely affect the Company's business prospects and its ability in the
future to expand and compete with other larger corporations, several of which
have significantly greater resources, such as N2K, Inc., CD Now, Inc. and K-Tel
Corporation, all of which currently sell, market and distribute their products
to consumers over the Internet. (See "COMPETITIVE BUSINESS CONDITIONS.")
The online commerce market is new, rapidly evolving and intensely
competitive, and the Company expects that competition will further intensify in
the future. Barriers to entry are minimal, and current and new competitors can
launch new sites at a relatively low cost. The Company competes and intends to
compete with a variety of companies, including (i) online vendors of music,
music videos and other related products, (ii) online vendors of movies, books
and other related products, (iii) online service providers which offer music
products directly to or in cooperation with other retailers, (iv) traditional
retailers of music products, including specialty music retailers, (v) other
retailers that offer music products, including mass merchandisers, superstores
and
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consumer electronic stores; and (vi) non-store retailers such as music clubs.
Many of these traditional retailers also support dedicated websites which would
compete directly with the Company.
LACK OF SUFFICIENT CAPITAL RESOURCES. In June 1998, the Company
realized approximately $4.475 million in proceeds from the sale of shares of its
Preferred Stock (See "RECENT SALES OF UNREGISTERED Securities"), and as of June
30, 1998, had current assets of approximately $4,758,013, current liabilities of
approximately $1,406,411, and working capital of approximately $3,351,602. In
September 1998, the Company entered into an Agreement to purchase all the issued
and outstanding common stock of a distributor of recorded music in consideration
for approximately $3 million and options to acquire 250,000 shares of the
Company's common stock over a period of two years from the date of closing, at a
price equal to the lessor of $5.25 or the closing bid price for the Company's
securities on the date of Closing. According to the terms of the Agreement, the
Company is required to pay $2,250,000 at the closing, and also issue two short
term interest free notes totaling $750,000, $375,000 of which is payable within
six months from the date of closing, and of which $375,000 is due one year from
the date of Closing. (See "POTENTIAL ACQUISITION.") In August 1998, the Company
acquired the right to the return of 1,400,000 shares of its common stock and the
outstanding principal portion of the Promissory Note together with accrued
interest from Gulf Coast Music, L.L.C. in exchange for approximately $175,000 in
cash and short term notes for approximately $2,850,000. (See "DISPUTED
INTELLECTUAL PROPERTY RIGHTS.") These transactions, if consummated, would result
in a significant depletion of the Company's capital resources. Together with the
Company's continued losses from operations, the Company may lack sufficient
capital resources to perform under these agreements, which may have a material
adverse impact on the Company, its business and business prospects if additional
capital or loans are not secured. (See "CONTINUED OPERATING Losses.")
DEPENDENCE ON SUPPLIERS, MANUFACTURERS, AND RAW MATERIALS.
Substantially all of the Company's products are manufactured by Denon
Interactive Media, a division of Nippon Columbia, Ltd. The Company has
identified several manufacturers located in the far east that are capable of
reproducing the Company's products at a reasonable cost but has not entered into
any other production contracts. The Company's business is, however, dependent on
certain raw materials in the form of blank compact diskettes, on which the
Company encodes its master recordings for sale to consumers and end users. Any
increase in the price of blank compact diskettes, or the unavailability of blank
compact diskettes in the marketplace may have a significant adverse impact on
the resale price of the Company's products, the Company's revenue, gross profit
margins, and the demand for the Company's products.
DEPENDENCE ON FEW MAJOR SOURCES AND CUSTOMERS. For the year ended
December 31, 1996, substantially all the Company's revenues were derived from
licensing royalties from one source, Black Tiger Records, a joint venture
between the Company and JAD/Anansi Records. In fiscal 1996, the Company
recognized revenue of approximately $105,000 as a result of the agreement with
JAD Records. In fiscal 1997, these amounts were reserved by the Company as
uncollectible and in June 1998, the Company assigned the collection of all
producer and publisher royalties collectible pursuant to the first agreement and
the second agreement to an unaffiliated third party. (See "RECENT
DEVELOPMENTS"). For the year ended December 31, 1997, approximately 50% of the
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Company's sales and royalty revenue were generated from one customer, Multimedia
Industries Corporation ("MMIC"). One of the Company's executive officers and
directors, Joseph Venerri, is a principal shareholder and officer of MMIC, and
Richard Bluestine, the Company's Chief Financial Officer and a director, from
June of 1995 through May of 1997, served as an officer and director of MMIC and
remains a stockholder of MMIC. (See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS"). For the six months ended June 30, 1998, approximately 46% the
Company's revenues were derived from studio rental sales and approximately 52%
of the Company's revenues were derived from sales by the Company's Higher Ground
Records subsidiary. No one customer accounted for more than 10% of these sales.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The Company is dependent
upon several of its management and key personnel, including sound engineers,
technicians, marketing and management personnel. The Company is particularly
dependent on the continued services of its officers and directors, including
Wallace M. Giakas, its Chairman and Secretary, John S. Arnone, its President and
Chief Executive Officer, Joseph Venneri, its Executive Vice President, Richard
Bluestine, its Executive Vice-President and Chief Financial Officer, and will be
dependent on Louis J. Del Signore, the Chairman of Northeast One Stop, Inc.
("NEOS"), William Castle, Executive Vice President of NEOS' Summit Entertainment
Division, and Ron Nicks, the President and Chief Executive Officer of NEOS when
the acquisition by the Company of NEOS is consummated and they are elected
officers. With the exception of Richard Bluestine, the Company's Executive Vice
President and Chief Financial Officer, the Company has obtained employment
agreements with respect to each of the individuals shown above. In the event
that the Company does not offer continued employment to Mr. Bluestine, or is
unable to obtain the services of Mr. Bluestine on terms favorable to the
Company, the Company intends to hire a new Chief Financial Officer. In
connection with the employment of Messrs. Giakas, Arnone and Venneri, the
Company has obtained "key man" life insurance with respect to these individuals,
which in the event of their death, the first $500,000 in benefits from any such
insurance policy to be paid to the Company. (See "EXECUTIVE COMPENSATION" and
"EMPLOYMENT AGREEMENTS").
COMPETITIVE BUSINESS CONDITIONS. The Company's ability to succeed in
the future and to meet future competition in the pursuit of satisfying the
public's tastes will depend on its ability to attract talented new artists or
persons or companies who control existing valuable libraries of master
recordings as well as the appeal of compositions in its existing library. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors. New technologies and the expansion of
existing technologies may increase the competitive pressures of the Company.
The creation and distribution of music compositions is highly
competitive and the Company has a substantial number of direct competitors,
including large companies with substantially greater financial and marketing
resources. Although the Company believes that its enhanced compositions are new
and unique, no assurance can be given that competitors possessing greater
financial resources and established distribution facilities, may be able to
develop products which directly compete with the Company's products and may be
offered at substantially lower prices than those available from the Company.
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<PAGE>
LIMITED OPERATING HISTORY. In 1996, the Company began selling music-related
products. Accordingly, the Company has only a very limited operating history on
which to base an evaluation of its business and prospects. For the year ended
December 31, 1997, approximately 80% of the Company's net revenues were derived
from studio revenues, and approximately 20% from the sales or licensing of the
Company's products. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets such as online commerce. Such risks include, but are not limited to,
possible inability to respond promptly to changes in a rapidly evolving and
unpredictable business environment and the risk of inability to manage growth.
Development and sales of the Company's enhanced musical compositions must
compete with numerous artists and products. Future revenues and profits, are
highly dependent on various factors, including, but not limited to, the
successful enhancement and distribution of the Company's products and successful
implementation of its planned marketing strategies. Although certain of the
Company's management are experienced in the field of identifying potentially
successful artists, producing their works and enhancing musical compilations,
the Company and its management, as such, are not experienced. In addition,
continued representation of artists and production of their compositions is
subject to public popularity trends and the continued appeal of the artists and
these compositions. To address these risks, the Company must, among other
things, expand its customer base, successfully implement its business and
marketing strategies, continue to develop its website and transaction-processing
systems, provide superior customer service, respond to competitive developments,
and attract and retain qualified personnel. If the Company is not successful in
addressing such risks, its profitability could be adversely affected.
CONTINUED OPERATING LOSSES. Since inception, the Company has
incurred significant losses, and as of December 31, 1997 had an accumulated
deficit of $862,359. For the six months ended June 30, 1998, the Company's net
loss was $414,998. The Company intends to invest heavily in Web site development
and technology, acquisitions, and the development of traditional methods of
distributing its products. There can be no assurance that the Company will be
able to generate sufficient revenues to achieve or sustain profitability in the
future. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.")
SEASONALITY. The Company's results of operations are subject to
seasonal variations by the timing of new releases. In accordance with industry
practice, the Company records revenues for music products, except those related
to telemarketing C.O.D. sales, when such products are shipped to retailers.
Companies in this field usually experience a decline in revenues and net income
in December, January and February, due in significant part to retailers having
purchased products prior to December in anticipation of holiday sales. If
planned releases are delayed beyond the peak holiday season, the Company's
operating results could be materially adversely affected.
The Company believes that period-to-period comparisons of the
Company's historical results are not necessarily meaningful and should not be
relied upon as an indication of future results.
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<PAGE>
The Company's results of operations in future periods may not meet the
expectations of securities analysts and investors, in which case the price of
the Company's Common Stock would likely be materially adversely affected.
COPYRIGHT AND TRADEMARK PROTECTION. The Company's success will
depend in substantial part on its ability to obtain and maintain copyright or
trademark protection for its compositions in order to preserve the value of its
master recordings library; and to generate revenues from operations without
infringing on the proprietary rights of third parties. The Company is currently
not the subject of any action regarding the ownership and the Company's right to
market, reproduce and distribute its master recordings. In certain instances,
the Company's rights to its master recordings are not exclusive, and the Company
is engaged in licensing activities involving both the acquisition of rights to
certain master recordings and compositions for its own projects, and the
granting of sub-licenses or rights to third parties concerning the use of the
Company's master recordings. The availability on acceptable terms of such
cross-licensing arrangements is generally made possible by existing industry
practice based on reciprocity. Should such industry practices change, there is
no assurance that the Company will be able to obtain licenses from third parties
on terms satisfactory to the Company or at all, and the Company's business,
particularly with respect to compilation products, could be materially adversely
affected.
The Company has not applied for patent protection and does not
intend to do so because it believes that patents would not offer significant
protection. Although the Company holds or has the use of various trademarks and
copyrights associated with its works, even with such protection there is no
assurance that unauthorized use will not occur. The Company will be operating in
an industry in which revenues are often adversely affected by the unauthorized
reproduction of recordings for commercial sale, commonly referred to as
"piracy", and by home taping for personal use. In addition, in the event that
another party infringes on any copyright or trademark covering the Company's
products, the enforcement of such rights is at the option of the Company. Also,
other parties may be issued copyrights or trademarks that may prevent the sale
of the Company's products or require licenses and the payment of royalties by
the Company. To date certain claims have been brought against the Company and
its predecessors alleging that certain of a limited number of its compositions
infringe on the intellectual property rights of others, and there can be no
assurance that additional claims will not be brought against the Company in the
future, or that any such claims will not be successful. If such a claim were
successful, the Company's business could be materially adversely affected. In
addition to any potential monetary liability for damages, the Company would be
required to obtain a license in order to continue to market the compositions in
question or could be enjoined from enhancing or selling such compositions if
such a license were not made available on acceptable terms. If the Company
should become involved in such litigation, it could require significant Company
resources. There can be no assurance that the Company will consummate such
acquisitions, the absence of which may have a materially adverse effect on the
Company. However, of those master recordings not subject to dispute, possession
of the master recordings permits the Company to reproduce and distribute these
master recordings under the Company's own label, or sub-license these rights to
others in exchange for royalties. (See "DISPUTED INTELLECTUAL PROPERTY RIGHTS").
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<PAGE>
DISPUTED INTELLECTUAL PROPERTY RIGHTS. Documents supporting the
chain of title to each master recording owned by the Company are maintained by
the Company, but no assurances can be made that the Company, and the Company's
right to use any and or all of its master recordings, will not be subject to
dispute which may result in delay or the inability to use or exploit the
Company's master recordings and require that the Company pay royalties which may
not be available or affordable by the Company. The value of these master
recordings is reflected in the Company's financial statements at predecessor
cost, less amortization over the useful life of each master recording. However,
the Company as of this date has not recorded any amortization nor has it created
any reserve should any master recording purchased by the Company be determined
to be the property of others.
From time to time, the Company has received notice from various
third parties claiming an ownership interest in certain master recordings
published by the Company, and sold through its distributors demanding, among
other things, that the Company immediately cease distributing these master
recordings, or in the alternative, demanding that the Company pay royalties to
these third parties. Should the Company not prevail in any dispute concerning
the right to publish and distribute any master recording that may be subject to
dispute, the Company, its business and business prospects may be adversely and
materially affected, and in certain cases, the Company may not be able to
license, nor be able to afford to license these master recordings. In addition
to these potential claims, the Company may be subject to claims for
indemnification or contribution from its distributors. The Company has
established a policy of creating a reserve and placing certain funds in escrow
pending the resolution of any dispute concerning the ownership of any master
recording published by the Company. To date, in the opinion of the Company's
management, no disputes are pending in which the Company is not expected to
prevail and the Company has therefore created no reserve with respect to any
disputed property. Should the Company not prevail in any such action, or be
forced to pay a royalty to any of these third parties, any reserves established
by the Company in the future may prove to be wholly insufficient, and the
Company, its business and business prospects may be materially and adversely
affected.
In November 1996, the Company agreed to acquire certain studio
assets and rights associated with 10,000 master recordings from Music
Marketeers, Inc. and J. Jake, Inc. in exchange for 2,000,000 shares of Planet
common stock, valued at approximately $2,150,000, and the assumption of three
promissory notes totaling $1,250,000 payable over 5 years. (the "Promissory
Note"). J. Jake, Inc. and Music Marketeers, Inc. obtained all rights, claims and
interests in these master recordings purchased by the Company from PEP Music,
Inc., Hallelujah Music, Inc., and UpBeat Music Inc. pursuant to a Plan of
Reorganization approved by the United States Bankruptcy Court for the Eastern
District of Louisiana.
In November 1996, an amended agreement was subsequently entered into
between the Company and J. Jake, Inc. and Music Marketeers, Inc. whereby 500,000
shares of stock were returned to the Company and the Company was not required to
purchase the certain studio assets. As of June 1998, neither J. Jake, Inc.,
Music Marketeers, Inc. nor Gulf Coast Music had completed their respective
obligations under the agreement and all have failed to deliver proof of
unencumbered title to approximately 2,000 of these master recordings. As of
September 1, 1998, the Company is
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<PAGE>
in compliance with all material terms of its Agreement with J. Jake, Inc. and
Music Marketeers, Inc., and Gulf Coast Music, Inc. (See "RECENT BUSINESS
DEVELOPMENTS.")
The Company has received assurances from its contract partners,
however, that disputes related to title to these master recordings are in the
process of being resolved through the Bankruptcy Court proceedings and will be
resolved satisfactorily to the Company or the vendors will deliver acceptable
substitutes to the Company. The Company is not a party to these Court
proceedings. As of July 1998, Gulf Coast Music, Inc. has, through the Bankruptcy
Court, successfully resolved claims with 13 entities claiming title to certain
master recordings, and has filed counter-claims against 34 additional entities
claiming title to approximately 2,000 master recordings of the 3,400 that were
initially subject to dispute. No assurances can be given that the Company will
obtain clear and undisputed title to these master recordings, but has received
assurances from Gulf Coast Music, Inc., J. Jake, Inc. and Music Marketeers, Inc.
that all master recordings delivered without clean and undisputed title will be
replaced with clear and undisputed title to recordings of substantially the same
quality, appeal and commercial value acceptable to the Company, or that the
Bankruptcy Court will approve the amended agreement.
DEPENDENCE ON TECHNOLOGY. The market for the Company's products and
services is characterized by rapidly changing technology, changing customer
needs, frequent new product introductions and evolving industry standards that
may render existing products and services obsolete. The life cycles of the
Company's products are difficult to estimate. The Company's growth and future
financial performance will depend upon its ability to enhance its existing
products and to introduce new products on a timely and cost-effective basis and
that meet dynamic customer requirements. There can be no assurance that the
Company will be successful in developing new products or enhancing its existing
products or that such new or enhanced products will receive market acceptance or
be delivered timely to the market. The Company has experienced product
development delays in the past and may experience delays in the future.
YEAR 2000 ISSUES. Many existing computer programs use only two
digits to identify a year in the date field, with the result that data referring
to year 2000 and subsequent years may be misinterpreted by these programs. The
Company is not significantly dependent on customized or highly sophisticated
computer systems and software. Presently and for the foreseeable future the
Company utilizes and will utilize commercially available, "small office"
computers and commercially available "off-the-shelf" software. The Company is
not part of and is not interfaced or otherwise electronically connected to any
large or sophisticated industrial, financial or banking computer networks or
systems. Accordingly, the Company does not expect to be faced with a "Year 2000
Problem," which refers to a design flaw in many computer systems (and,
particularly, in large, highly sophisticated or custom-designed systems) whereby
the system cannot distinguish between the year (or numbers) 1900 and 2000. The
Company believes that appropriate "off-the-shelf" hardware and software
up-grades will be readily available, at reasonable cost, in time for the Company
to purchase, install and test them prior to the year 2000. If such a problem
were to persist in the computer applications of the Company, its suppliers, or
its customers, and not corrected, such problem could cause a disruption in
operations and have a short term adverse effect on the Company's business and
results of operations.
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<PAGE>
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is
subject, both directly and indirectly, to various laws and regulations relating
to its business, although there are few laws or regulations directly applicable
to access to the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet. Such laws and regulations may cover issues
such as user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The enactment of any additional laws or
regulations may impede the growth of the Internet which could, in turn, decrease
the demand for the Company's products and services and increase the Company's
cost of doing business, or otherwise have an adverse effect on the Company. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and could expose the Company to substantial
liability. The laws of certain foreign countries provide the owner of
copyrighted products with the exclusive right to expose, through sound and video
samples, copyrighted items for sale to the public and the right to distribute
such products. Any new legislation or regulation, or the application of existing
laws and regulations to the Internet could have a material adverse affect on the
Company.
POSSIBLE VOLATILITY OF STOCK PRICE. There may be significant
volatility in the market price of the Company's Common Stock. Quarterly
operating results of the Company, deviations in results of operations from
estimates of securities analysts, changes in general conditions in the economy
or the Internet services industry or other developments affecting the Company or
its competitors could cause the market price of the Company's Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have often been unrelated to the
operating performance of these companies. Any such fluctuations that occur may
adversely affect the market price of the Company's Common Stock. The market
price of the Company's common stock could also be adversely affected by critical
or negative statements or reports by brokerage firms, industry and/or financial
analysts and/or industry periodicals concerning the Company, its products, or by
the advertising or marketing efforts of competitors, or other factors that could
affect consumer perception.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS: A number of
statements contained herein are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the applicable statements. These risks and uncertainties
include but are not limited to: the Company's vulnerability to rapid industry
change, technical obsolescence, limited customer base and reliance on a
relatively small number of customers, the possible impact of competitive
products and pricing, uncertainties in the duration of the life cycle of its
products, manufacturing difficulties, dependence on key personnel, market
acceptance, reliance on a limited number of outside vendors, potential
difficulties managing growth, the ability to perform on existing and future
agreements, the availability of financing, and other risks
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<PAGE>
all, or any one of which may have a material adverse effect on the Company, its
business, business prospects, and financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and notes thereto
appearing elsewhere herein. The selected statement of operations data for the
periods ended December 31, 1996 and 1997 and the selected balance sheet data as
of December 31, 1996 and 1997 have been derived from the Financial Statements,
which have been audited by the Company's independent public accountants, and are
included elsewhere in this Registration Statement. The selected statement of
operations data for the six months ended June 30, 1997 and 1998, and the
selected balance sheet data as of June 30, 1997 and 1998 have been derived from
the unaudited financial statements of the Company which, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operation for these interim periods.
The results for the six months ended June 30, 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the entire year. The Company expects that it will experience
seasonality in its business, reflecting a combination of seasonal fluctuations
in Internet usage and traditional retail seasonality patterns affecting sales of
recorded music. Sales in the traditional retail music industry are significantly
higher in the fourth calendar quarter of each year than in the preceding three
quarters.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Six Months Ended
(Inception) June 30,
May 17, 1996 through Year Ended --------------------
December 31, 1996 December 31, 1997 1997 1998
-------------------- ----------------- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 105,000 $ 293,428 $ 23,326 $ 63,464
Costs & Expenses
Cost of Sales -- $ 19,052 -- $ 11,413
Selling, General and
Administrative Expenses $ 104,342 $ 794,314 $ 375,617 $ 378,848
Depreciation and Amortization $ 10,005 $ 40,592 $ 17,833 $ 22,002
Interest Expense $ 43,100 $ 144,382 $ 71,777 $ 77,991
Bad Debt Expense -- $ 105,000 $ 105,000 -
Other Income -- -- -- $ 11,792
Net (loss) $ (52,447) $ (809,912) $ (546,901) $ (414,998)
Net (loss) per share $ (.02) $ (.08) $ (.05) $ (.04)
Weighted Average Number of
Common Shares Outstanding 3,377,255 10,211,250 10,035,917 11,776,635
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
(Inception) June 30,
May 17, 1996 through Year Ended --------------------
December 31, 1996 December 31, 1997 1997 1998
-------------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets $14,057,688 $14,447,835 $14,170,991 $18,856,393
Total Liabilities $ 6,104,110 $ 6,656,202 $ 6,431,315 $ 6,756,411
Current Assets $ 141,808 $ 327,453 $ 37,941 $ 4,758,013
Current liabilities $ 504,110 $ 1,306,202 $ 831,315 $ 1,406,411
Working capital (deficiency) $ (362,302) $ (978,749) $ (793,374) $ 3,351,602
Stockholders' equity $ 7,953,578 $ 7,791,633 $ 7,739,676 $12,099,982
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's strategy is to acquire new music catalogs of master
recordings, to record new artists, and to enhance digitally its existing music
catalogues of master recordings, and to package and compile these recordings on
to a CD format for licensing and sale through distributors and others, through
traditional and non-traditional distribution channels, including the Internet.
Since its inception, the Company has incurred significant net losses and, as of
June 30, 1998, had accumulated losses of $1,277,357. For the year ended December
31, 1997 and the six months ended June 30, 1998, 82% and 46% of the Company's
revenue was from studio rental sales, and 17% and 52% of the Company's revenue
was derived from the sale and licensing of the Company products for these same
periods, respectively. In July 1998, the Company released 50 compilation CDs in
the Far East, pursuant to the terms of its agreement with Nippon Columbia Co.,
Ltd., and the Company expects to release an additional 50 compilation CDs in the
Fall of 1998 to this market. Also the Company expects to commence the
distribution of its products in Europe in the last quarter of 1998 pursuant to
the terms of its Planet Entertainment Europe joint venture with New Millenium
Communications, Ltd. and its joint venture with Monaco Records.
In accordance with industry practice, the Company records revenue
from the sale of CDs when such products are shipped to its customers. Studio
rental revenue is recognized when the services are performed, and royalty
revenue is recognized upon notification of retail sales by the Company's
distributors. Advances to the Company are recorded as deferred revenue, and are
recognized when earned by the Company pursuant to the terms of any agreement.
The Company's results of operation are subject to seasonal
variations. The industry has historically experienced a decline in revenues and
net income during December, January and February. This decline is primarily due
to the fact that retailers purchase products from the Company prior to November
30 in anticipation of holiday sales followed by heavier than normal returns
after the holidays.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items derived from the Company's statements of operations as a percentage of
gross revenues.
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<TABLE>
<CAPTION>
Six Months ended
June 30
May 17, 1996 (inception) Year End ------------------
Through December 31, 1996 December 31, 1997 1997 1998
------------------------- ----------------- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
---- ------ ------ ------
Total net revenues 100% 100% 100%
100%
Cost of Sales -- 6% -- 18%
---- ------ ------ ------
Gross Profit 100% 94% 100% 82%
---- ------ ------ ------
Expenses:
Depreciation and amortization 10% 14% 76% 35%
Selling general and
administrative expenses 100% 271% 1,610% 597%
Bad Debt Expense -- 36% 450% --
---- ------ ------ ------
110% 321% 2,136% 632%
Operation Income (loss) (10%) (227%) (2,036%) (550%)
Interest Expense 41% 49% 301% 123%
Other Income -- -- -- 19%
---- ------ ------ ------
-- -- -- --
---- ------ ------ ------
Pre-tax Income (loss) (51%) (276%) (2,345%) (654%)
Income Tax Expense -- -- -- --
---- ------ ------ ------
Net Income (loss) (51%) (276%) (2,345%) (654%)
---- ------ ------ ------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997.
NET REVENUE. Net revenue primarily reflects the sales of CDs and
related merchandise, net of estimated returns, and studio rental revenue. Net
sales increased by $40,138 or 172%, to $63,464 for the six months ended June 30,
1998 compared to $23,326 for the six months ended June 30, 1997. This increase
is primarily attributable to an increase in studio revenues and an increase in
sales of compact disks through the Company's Higher Ground Records subsidiary.
For the six months ended June 30, 1998, the Company did not record
any material revenue from international sales. In July 1998, the Company shipped
50 of the 100 compilation CDs to Nippon Columbia, Ltd. for distribution in the
Far East, and the Company expects that net sales from international markets will
start to grow in the future and could or will become significant in the future.
COST OF SALES. Cost of sales consists primarily of the cost of
merchandise sold to customers, including product fulfillment and outbound
shipping and handling, and studio production costs. Cost of sales also includes
royalties paid by the Company on CD sales. For the six months ended June 30,
1997, the Company's revenues were almost exclusively derived from studio rental
sales, and the Company did not incur any significant additional cost of sales.
Cost of sales for the six months ended June 30, 1998 was $11,413, and the
Company's gross profit margin on these sales was 82% for this period.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. General and
administrative expense consists of payroll, consulting fees, legal and
accounting fees, costs of marketing, travel expenses and other general corporate
expenses. General and administrative expense increased by $3,231 to $378,848 for
the six months ended June 30, 1998 compared to $375,617 for the six months ended
June 30, 1997. This increase was primarily due to the recruitment and hiring of
additional personnel and increases in professional fees and travel expenses. As
a percentage of net sales, these expenses decreased by 597% for the six months
ended June 30, 1998 compared to 1610% for the six months ended June 30, 1997.
NET LOSS. The Company incurred a net loss of $414,998 for the six
months ended June 30, 1998 compared to a net loss of $546,901 for the six months
ended June 30, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED
TO THE PERIOD MAY 17, 1996 (INCEPTION) THROUGH
ENDED DECEMBER 31, 1996
NET REVENUE. Net revenue primarily reflects the sales of CDs and
related merchandise, net of estimated returns and studio rental revenues. Net
revenues increased by $188,428 or 179%, to $293,428 for the year ended December
31, 1997 compared to $105,000 for the period May 17, 1996 (inception) through
December 31, 1996. In fiscal 1996, revenue consisted of producer's and
publisher's royalties with respect to the Bob Marley Album, "Soul Almighty." In
fiscal 1997, that amount was reserved in its entirety. (See "RECENT BUSINESS
DEVELOPMENTS"). This increase is primarily attributable to studio fees
associated with the Century Records releases and the rental of studio time and
services. At December 31, 1997, one customer accounted for more than 10% of the
Company's sales, and should the Company lose this customer or fail to attract
new customers, its business and operating results may be materially and
adversely affected.
COST OF SALES. Cost of sales consists primarily of the cost of
merchandise sold to customers, including product fulfillment and outbound
shipping and handling. Cost of sales also includes royalties paid by the Company
on CD sales in return for licensing of ratings, reviews and other information,
as well as production costs. There were no costs of sales for the period May 17,
1996 (inception) through December 31, 1996. Cost of sales for the year ended
December 31, 1997 was $19,052, consisting primarily of studio production costs.
The Company's gross profit margin was 94% for the year ended December 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense which consists primarily of payroll, consulting fees,
legal and accounting fees, sales, marketing, professional fees, travel and other
corporate expenses, increased by $689,972 to $794,314 for the year ended
December 31, 1997 compared to $104,342 for the period May 17, 1996 (inception)
through December 31, 1996. As a percentage of net sales, these expenses were
271% for the year ended December 31, 1997 and 100% for the period May 17, 1996
(inception) through December 31, 1996. This increase was due to increased costs
related to corporate expansion.
20
<PAGE>
INTEREST EXPENSE. Interest expense consists primarily of accruals on
related party debt. Interest expense increased by $101,282 to $144,382 for the
year ended December 31, 1997 compared to $43,100 for the period May 17, 1996
(inception) through December 31, 1996. As a percentage of net sales, these
expenses increased to 49% for the year ended December 31, 1997 from 41% for the
period May 17, 1996 through December 31, 1996. This increase was due primarily
to increased debt incurred in 1996 and interest accrued thereon in 1997.
NET LOSS. The Company incurred a net loss of $809,912 for the year
ended December 31, 1997 compared to a net loss of $52,447 for the period May 17,
1996 through December 31, 1996. This increase was primarily due to an increase
in administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through advances and loans from its principal shareholders, as well as through
the private sales of capital stock totaling approximately $5,547,773, which
included approximately $4.475 million raised in June of 1998.
Net cash used in operating activities totaled $295,791 for the year
ended December 31, 1997 compared to net cash used in operating activities of
$63,245 for the period May 17, 1996 through December 31, 1996. Net cash used in
operating activities for the year ended December 31, 1997 was attributable to a
net loss of $809,912 and increases in accounts receivable of $204,710 and
prepaid expenses of $89,264, partially offset by increases of $131,926 in
accounts payable and accrued expenses, $144,384 in accrued interest on related
party debt, $146,226 in deferred revenues, and $40,592 in depreciation and
amortization.
Net cash used in operating activities was $118,519 for the six
months ended June 30, 1998 compared to net cash used by operating activities of
$209,084 for the six months ended June 30, 1997. For the six months ended June
30, 1998, net cash used in operating activities was attributable to a $414,998
net loss, $248,347 from the issuance of common stock for services, and a
$146,655 increase in prepaid expenses, partially offset by a $98,171 increase in
accounts payable and accrued expenses, a $77,991 increase in accrued interest,
and $23,002 in depreciation and amortization.
Net cash used in investing activities totaled $10,094 for the year
ended December 31, 1997 for the purchase of equipment. No cash was used for
investing activities for the period May 17, 1996 (inception) through December
31, 1996.
Net cash from financing activities totaled $302,557 for the year
ended December 31, 1997 compared to $70,243 for the period May 17, 1996 through
December 31, 1996. The increase was principally attributable to $118,557 in
proceeds from advances from stockholders and proceeds from the issuance of notes
payable, and $84,000 from the issuance of common stock.
Cash flows from financing activities was $4,399,973 for the six
months ended June 30, 1998 compared to $209,414 provided by financing activities
for the six months ended June 30, 1997. This increase was primarily the result
of $4.475 million in net proceeds received from the private placement of shares
of 7% Series A convertible Preferred Stock, net of issuance costs of
approximately $525,000 and the proceeds from issuance of notes of $150,000. The
Company also repaid $250,000 in obligations to related parties.
21
<PAGE>
As of June 30, 1998, the Company had $4,285,124 of cash and cash
equivalents. As of that date, the Company's principal current commitments
consisted of obligations to J.Jake, Inc., Music Marketeers, Inc. in the amount
of $1,000,000 of which $250,000 is currently due and remains unpaid. As of June
1998, neither J. Jake, Inc., Music Marketeers, Inc. nor Gulf Coast Music had
completed their respective obligations to deliver unencumbered title to 10,000
master recordings under the agreement. As of September 1, 1998, the Company has
made all principal payments due under the Promissory Note, and has released a
certain portion of these funds into an escrow account pending the final
resolution of this matter. In August 1998, Gulf Coast Music, L.L.C. and Music
Marketeers, Inc. granted the Company the right to reacquire 1,400,000 shares of
its common stock and the outstanding portion of the $1,250,000 Promissory Note
in exchange for approximately $3.025 million in cash and short term notes, and
the Company intends to obtain the approval of the Bankruptcy Court of this
agreement.
Accounts receivable as of June 30, 1998 totaled $207,161, net of
reserves of $105,000. These amounts are due from two customers, and are an
average of 180 days old. Of this amount, $184,684 is owed by MMIC, a related
party, whose principal shareholder, Joseph Venerri, is also the former
President, a principal shareholder, and a director of the Company, and whose
former officer, and current stockholder, Richard Bluestine, is also officer and
director of the Company. (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
These reserves may be insufficient to cover actual losses, and the inability to
collect any of these amounts may adversely affect the Company's results of
operations.
There can be no assurance that the Company will be able to obtain
additional capital on favorable terms, if at all, if needed. Any additional
equity financing will be dilutive to the Company's shareholders, and if
available, may involve restrictive covenants with respect to dividends, raising
future capital and other financial and operational matters which could restrict
its operations or finances. If the Company is unable to obtain additional
financing as needed and on favorable terms, the Company may be required to
reduce the scope of its operations or slow its anticipated expansion, which
could have a material adverse effect on the financial results of the Company.
At June 30, 1998, the Company had a net operating loss ("NOL")
carryforward of approximately $915,000, which will begin to expire in 2012. The
utilization of the NOL carryforward may be limited as there is no assurance as
to future taxable income.
In 1997 and during the first half of 1998, the Company generated
$5,155,240 from investing and borrowing activities. During 1996 and 1997, the
Company borrowed $100,000 and $166,234, respectively in the form of a series of
Promissory Notes, payable upon demand and bearing an interest rate of 9% from
Walextin, Inc. ("Walextin"), a corporation owned and controlled by two principal
shareholders and directors of the Company, Messrs. Arnone and Giakas. In
addition, in May, 1997, the Company issued 28,000 shares of common stock to two
individuals residing in the Municipality of Monaco in consideration for $84,000.
In January 1997, the Company borrowed $100,000 from Briollette Investments, Ltd.
in the form of a 10% Promissory Note due, together with interest, in January
1998. In December, 1997, the Company renegotiated the note whereby Briollette
22
<PAGE>
Investments, Ltd. canceled the note due January 1998 in exchange for 1,100,000
shares of the Company's common stock, and in January 1998, lent the Company an
additional $150,000 in exchange for a 10% promissory note due January 1999. In
January 1998, the Company borrowed an additional $16,150 from Walextin, and
another Company controlled by Messrs. Arnone and Giakas on demand and paying 9%
interest per annum. (See "Certain Relationships and Related Transactions").
Between December 1997 and April 1998, the Company, through its Board
of Directors, authorized the issuance of approximately 1,843,000 shares of
common stock in a private offering to related and unrelated parties for the
purposes of performing on certain contractual obligations and compromising or
paying in full certain accounts payable and trade liabilities totaling
approximately $501,314, a portion of which was attributable to expenses incurred
by the Company in 1997, and the six months ended June 30, 1998. To the extent
that the Company has issued common stock in performance on certain contracts to
be performed after 1997, the Company has recorded these amounts as pre-paid
expenses over the term of any such contract or agreement relating to the
provision of services to the Company.
In June 1998, the Company authorized and issued 500 shares of 7%
Series A Convertible Preferred Stock to JNC Opportunity Fund Ltd. at a stated
value of $10,000 per share for a total of $5 million. Each share of the
Preferred Stock for a period of two years is convertible into the Company's
common stock at the lesser of (a) $8.885 per share, (b) or 78% multiplied by the
average of the five lowest per share market price of the Company's common stock
during ten trading days immediately preceding notice of conversion unless
adjusted as per the terms of the Preferred Stock. In connection with this
transaction, the Company issued warrants to purchase 75,000 shares of the
Company's common stock to JNC Opportunity Fund at a price of $9.625 per share
exercisable for a term of five years, and the Company also issued warrants to
purchase 150,000 shares of the Company's common stock to CDC Consulting, Inc. at
a price of $9.625 per share over an identical term of five years from June 1998.
As a result of this transaction, the Company received net proceeds of
approximately $4,475,000. Under the terms of the Preferred Stock agreements, the
Company is required to file a registration statement for 200% of the common
shares underlying the Preferred Shares at the conversion price of the lesser of
$8.885 per share, or 78% multiplied by the average of the five lowest per share
market price of the Company's common stock during ten trading days immediately
preceding notice of conversion, along with an additional 225,000 shares of
common stock underlying the warrants, within 30 days of the Closing Date, and if
such registration statement was not declared effective within 90 days from the
Closing Date or by September 4, 1998. According to the Preferred Stock
agreements, the conversion price of the Preferred Stock is to be decreased by
2.5% of the lesser of (a) $8.885 per share, (b) or 78% multiplied by the average
of the five lowest per share market price of the Company's common stock during
ten trading days immediately preceding notice of conversion. If the applicable
dates are not complied with, the conversion price shall decrease by 2.5%, and
after the second month, the Preferred shareholder may demand additional 2.5%
cumulative discounts or the payment of 2.5% of the stated value of the preferred
shares each month until such registration statement becomes effective. The
Company did not comply with the required filing dates.
23
<PAGE>
The Company is highly dependent upon its ability to borrow money or
sell its capital stock until such time as other sources of capital are obtained
or cash flow from operations is adequate to fund the Company's continuing
operations and service existing debt. (See "LACK OF SUFFICIENT CAPITAL
RESOURCES").
ITEM 3. PROPERTIES.
The Company's principal office, located at 222 Route 35 South,
Middletown, New Jersey 07748, is leased from the brother-in-law of Wallace
Giakas, an officer, director, and one of the Company's principal shareholders in
consideration for the sum of $1,000 per month for a term of three years. The
Company also rents a 1,500 square foot facility in Jackson, New Jersey, for the
sum of one dollar per month for a term of five years from Joseph Venerri, an
officer, director, and principal shareholder of the Company, where the Company
operates a full service, 24-track recording studio. (See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS"). No assurances can be made that these shareholders or
their relatives may not in the future demand increased rent from the Company in
consideration for the use of these properties, or that the Company will not
relocate its operations at substantial cost to the Company, if necessary, which
may adversely effect the Company's financial condition and results of
operations.
Currently, the Company is also party to a five year lease agreement
relating to approximately a 13,400 sq. ft. facility located on 15 East 8th
Street, Chester, Pennsylvania from Albert N. Albertini, Albert V. Albertini,
Christopher M. Albertini, and Al Alberts On Stage, Ltd. These premises are
leased for a term of five years from March 1, 1997 through February 28, 2002,
and which may be renewed at the election of the Company for an additional five
years. Rent during the initial term is equal to debt service on the mortgage and
the real estate taxes imposed on the premises of approximately $24,000 per year.
At the end of the first term, the Company has the option to acquire the premises
for $10, with the assumption of certain liabilities principally consisting of an
outstanding mortgage in the approximate amount of $226,500. These studios are
utilized by the Company to produce enhanced musical compositions and new master
recordings to be distributed by the Company and others.
24
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of the date hereof, information
regarding ownership of the Company's Common Stock by each person known by the
Company to be the beneficial owner of more than 5% of the Company's outstanding
Common Stock, by each director, by certain related shareholders, and by all
executive officers and directors of the Company as a group. All persons named
below have sole voting and investment power over their shares except as
otherwise noted.
NAME OF
BENEFICIAL OWNER OR NUMBER OF PERCENT OF
IDENTITY OF GROUP(1) SHARES OWNED CLASS (2)
- -------------------- ------------ ---------
Wallace M. Giakas 3,439,000(1)(2)* 26.2%
4 Tall Oaks Court
Farmingdale, N.J. 07727
Joseph Venneri 3,127,000(1)(2)* 24.0%
336 East Pleasant Grove Rd.
Jackson, N.J. 08527
John S. Arnone 3,491,000(1)(2)* 26.6%
30 Penbrooke Court
Shrewsbury, N.J. 07702
Briollette Investments, Ltd. 605,334 5.0%
c/o Richard J. Fagen
Charles House
St. Helier, Jersey JE49NZ
William J. Valenziano 806,000(1) 6.7%
2500 Uranium Drive
Channel Islands, CA
Gulf Coast Music, Inc. 694,000 5.7%
757 St. Charles Ave.
New Orleans, LA 70130
Richard Bluestine 560,000(1)(2)* 4.6%
100 Merrick Road
Rockville, N.J. 11570
All executive officers, directors
and principal shareholders
as a Group (7 persons)(3) 9,442,934 100%
25
<PAGE>
- ----------------
* Officers and/or Directors of the Company.
(1) Includes shares beneficially owned by that person, including that person's
spouse, children, parents, siblings, mothers and fathers in law, sons and
daughter in laws, and brothers and sisters in law. See table under
"Management" for officer and directorships held by the persons listed
above.
(2) Also includes 100,000 warrants to purchase 10 shares of Common Stock issued
by the Company to Wallace M. Giakas, John S. Arnone, and Joseph Venneri,
and 16,000 warrants issued to Richard Bluestine, which are exercisable for
a period of ten years from the date of issuance, or until January 29, 2007,
at $20.00 per warrant, or the equivalent of $2.00 per share.
(3) Does not include 500 shares of non-voting 7% Series A Convertible Preferred
Stock Each share of the Preferred Stock for a period of two years is
convertible into the Company's common stock at the lesser of (a) $8.885 per
share, (b) or 78% multiplied by the average of the five lowest per share
market price of the Company's common stock during ten trading days
immediately preceding notice of conversion, and also does not include
warrants to purchase 125,000 shares of the Company's common stock a price
of $9.625 per share owned by the same Preferred Shareholder or entities
related to the Preferred Shareholder. Pursuant to the terms of the
Convertible Preferred Stock Purchase Agreement, the 500 shares of
non-voting 7% Series A Convertible Preferred Stock are not exercisable if
it would result in that Shareholder beneficially owning more than 4.99% of
the Company's issued and outstanding common stock, as determined under
Section 13(d) of the Exchange Act and the rules promulgated thereunder.
(4) Includes options to purchase 125,000 shares of the Company's common stock
exercisable at $5.25 per share over a period of five years granted to
Messrs. Arnone and Giakas as compensation in connection with the
acquisition of Northeast One Stop, Inc. At the time these options were
granted, the price of the Company's stock was $5.25 per share.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officer of the Company and their ages as
of this date are set forth below. None of the directors and executive officers
are related to one another:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Wallace M. Giakas 43 Chairman of the Board, Secretary
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
John S. Arnone 40 President, Chief Executive Officer, Director
Joseph Venneri 62 Executive Vice President, Director
Richard Bluestine 56 Executive Vice-President, Chief Financial Officer,
Director, and Chairman of Audit Committee
Louis J. Del Signore* 60 Director, Planet Entertainment Corporation,
Chairman, Northeast One Stop, Inc.
Ronald J. Nicks* 45 Director, Planet Entertainment Corporation,
President, Chief Executive Officer, Northeast One
Stop, Inc., One Stop Division
</TABLE>
*These persons will not serve as Directors unless and until the
acquisition of Northeast One Stop, Inc. is fully consummated.
The Bylaws of the Company currently provide for a minimum of two (2)
directors. All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
The Company's officers are appointed by the Board of Directors. A copy of the
Company's Bylaws is available upon request.
The Company does not reimburse its directors for out-of-pocket
expenses incurred in connection with their rendering of services as directors,
but may do so in the future. The Company currently does not intend to pay cash
fees to directors for attendance at meetings.
WALLACE M. GIAKAS, age 43, is the Chairman of the Board and
Secretary. From October 1992 until June 1995, Mr. Giakas was president of
Chapman, Spira & Carson, Inc., an investment and merchant banking firm located
in New York, New York. From April 1994 through March 1996, Mr. Giakas, served as
executive vice president of Emerald City Capital Corp., and from June 1995
through the present, Mr. Giakas serves as president of Hamilton Wallace Group,
Inc., a private investment and venture capital firm located in Middletown, New
Jersey.
JOHN S. ARNONE, age 40 is President, Chief Executive Officer and a
Director of the Company. From October 1996 through June 1997, Mr. Arnone was
Secretary and Director of the Company. From July 1992 through August, 1993, Mr.
Arnone was president of Lancaster Leeds & Co., a private investment and merchant
banking firm located in New York, New York. From August 1993 through April,
1994, Mr. Arnone was a managing director of Chapman, Spira & Carson,
27
<PAGE>
Inc., a private investment and merchant banking firm located in New York, New
York. From April 1994 through March, 1996, Mr. Arnone was president of J.W.
Cabott & Co., Inc., a private investment firm, and from April 1994 through March
1996, Mr. Arnone also served as president of Emerald City Capital Corp., a
private investment firm.
JOSEPH VENNERI, age 62, Executive Vice President and Director. Prior
to June 1998, Mr. Venneri was President and Chief Executive Officer of the
Company. Mr. Venneri has 38 years experience in the entertainment industry,
beginning as an artist and has been the President and owner of several recording
studios and was an original member of the "Tokens." Mr. Venneri also has
experience in production, where he produced more than 100 gold records over the
last 25 years. Mr. Venneri has worked for EMI, RCA, MGM, Atlantic Records,
Warner Brothers Records, Mercury Records, Plantation Records, and Sun Records.
He is highly regarded by producers, engineers and restoration experts in the
music industry, and has recorded and re-recorded such stars as Bob Marley, Sammy
Davis, Jr., Jethro Tull, Grateful Dead, REM, Cher, Michael Bolton, Kenny Rogers,
Willie Nelson, Luciano Pavarotti, and hundreds more.
RICHARD C. BLUESTINE, C.P.A., age 56, Executive Vice-President and
Chief Financial Officer, is a Certified Public Accountant with experience in the
record and film industry. Mr. Bluestine is presently a partner at the accounting
firm of Brinster & Bergman, L.L.P., and since January 1990, Mr. Bluestine has
been Vice President of SBR Industries, Inc., a manufacturer and distributor in
the apparel industry. From June 1995 through May 1997, Mr. Bluestine was an
officer, director, and stockholder of Multi-Media Industries Corporation MMIC.
(See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"). From 1971 through 1990,
Mr. Bluestine served as a Certified Public Accountant with various firms
including KMG Main Hurdman. He has served as a pension trustee for the New York
City Fire Department, as a member of the Mayor's Investment Fiscal Policy
Committee for the City of New York. He received his accounting degree from New
York University and has served on various AICPA and NYSSCPA committees. As of
September 15, 1998, the Company has not offered, nor has it secured, an
employment agreement relating to the continued services of Mr. Bluestine, and
the Company may seek to hire a new chief financial officer. (See "DEPENDENCE ON
MANAGEMENT AND KEY PERSONNEL").
LOUIS J. DELSIGNORE, 60, Director, Chairman, Northeast One Stop,
Inc. From 1983 through September 1998, Mr. Del Signore served as president of
Northeast One Stop, Inc. From August 1973 through January 1983, Mr. DelSignore
was vice president of finance and a member of the Board of Directors of Trans
World Music Corporation. Mr. DelSignore has substantial experience in the
wholesale distribution of recorded music and other entertainment related
products. Mr. DelSignore has a Bachelor of Science degree from the State
University of New York at Albany.
RONALD J. NICKS, 45, Director, Planet Entertainment Corporation,
President, Chief Executive Officer, Northeast One Stop, Inc., One Stop Division.
From July 1996 through September 1998, Mr. Nicks was Senior Vice President of
Alliance Entertainment Corporation ("Alliance"), and from January 1994 through
July 1996 was Chief Executive Officer of Alliance's One Stop Group. From
November 1990 through January 1994, Mr. Nicks was Vice President and
28
<PAGE>
General Manager of CD One Stop, where he oversaw all operations including sales
and purchasing. From November 1988 through November 1990, Mr. Nicks was director
of purchasing for CD One Stop, and from April 1987 through November 1988, was
associated with Western Merchandisers, Inc. Mr. Nicks has significant experience
in the wholesale distribution of recorded music.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the cash and accrued compensation,
and warrants issued by the Company to each executive officer of the Company for
the year ended December 31, 1997. No compensation was accrued during the period
May 17, 1996 (inception) through December 31, 1996 or the six months ended June
30, 1998, nor has any compensation been paid to any officer or director of the
Company with the exception of Joseph Venerri. In 1997, Mr. Venneri received cash
compensation of approximately $36,200.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OTHER LONG TERM TOTAL
COMPENSATION PRINCIPAL POSITION YEAR SALARY COMPENSATION COMPENSATION COMPENSATION
- ------------ ------------------ ---- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John S. Arnone President, Chief Executive 1996 - 0 - - 0 - - 0 - - 0 -
Officer, Director 1997 $ 31,250 $3,359,493 - 0 - $3,390,743
1998 $125,000 $ 573,875(1) - 0 - $ 698,875
Wallace M. Giakas Chairman of the Board, 1996 - 0 - - 0 - - 0 - - 0 -
Secretary 1997 $ 31,250 $3,359,493 - 0 - $3,390,743
1998 $125,000 $ 573,875(1) - 0 - $ 698,875
Joseph Venneri Executive Vice President 1996 - 0 - - 0 - - 0 - - 0 -
Director 1997 $ 36,200 $3,359,493 - 0 - $3,395,693
1998 $125,000 - 0 - - 0 - $ 125,000
Richard Bluestine Executive Vice- 1996 - 0 - - 0 - - 0 - - 0 -
President, Finance 1997 $ 18,750 $ 537,519 - 0 - $ 556,269
Director, Chairman of 1998 - 0 - - 0 - (2) - 0 - - 0 -
Audit Committee
Louis J. DelSignore *Vice President, 1998 $145,000 - 0 - (3) - 0 - $ 145,000
Director
William Castle *Vice President, 1998 $125,000 - 0 - (4) - 0 - $ 125,000
Director
Ron Nicks *Vice President, 1998 $125,000 - 0- (4) - 0 - $ 125,000
Director
</TABLE>
29
<PAGE>
- ------------------
* These persons will not be officers until the acquisition by the
Company of Northeast One Stop, Inc. is fully consummated and
therefore their positions and these terms are subject to change.
(1) Includes options to purchase 125,000 shares of the Company's
common stock exercisable at $5.25 per share over a period of five
years granted to Messrs. Arnone and Giakas as compensation in
connection with the acquisition of Northeast One Stop, Inc. At
the time these options were granted, the price of the Company's
stock was $5.25 per share.
(2) The Company has not entered into an executive compensation
agreement with Mr. Bluestine as of September 15, 1998. In the
event that the Company does not offer or is unable to secure an
executive compensation agreement with Mr. Bluestine, the Company
intends on hiring a new chief financial officer.
(3) Does not include options to purchase 250,000 shares of the
Company's common stock exercisable at the lesser of $5.25 per
share or the closing bid price for the Company's securities at
the time of Closing over a period of two years as granted to Mr.
Del Signore in connection with the acquisition of Northeast One
Stop, Inc. At the time these options were granted, the price of
the Company's stock was $5.25 per share. (See "PENDING
ACQUISITION").
(4) Does not include options to purchase 100,000 shares of the
Company's common stock exercisable at $5.25 per share over a
period of three years from September 17, 1998 granted to Messrs.
Castle and Nicks, 25,000 of which vested upon execution of their
executive compensation agreements with the Company on September
17, 1998, with the remaining options to vest over the term of the
agreement. At the time these options were granted, the price of
the Company's stock was $5.25 per share.
EMPLOYMENT AGREEMENTS
As of even date, with the exception of Joseph Venneri, none of the
officers and directors have received any cash compensation from the Company. As
set forth above, the amounts due to officers and directors have been accrued and
expensed for the year ended December 31, 1997.
On January 29, 1997, the Board of Directors approved the employment
agreements, effective January 1, 1997, for Wallace Giakas, Joseph Venneri, John
Arnone and Richard Bluestine. However, on March 24, 1998, the individual
officers and directors of the Company, agreed to waive, except with respect to
the accrued amounts shown above, all other amounts due or owing pursuant to
these employment agreements effective March 31, 1998. The Board did however
retain certain incentive based compensation for the Board of Directors of the
Company in the form of warrants which are convertible into 10 shares of
Company's common stock at the price of $2.00 over a term of ten years.
On August 14, 1998 the Company entered into an employment agreement
with Mr. Giakas. This agreement is for the term of ten years, and provides for
compensation in the amount $125,000 to Mr. Giakas together with annual incentive
based bonuses in the form of 2.5% of all pre-tax profits recorded by the Company
in accordance with Generally Accepted Accounting Principles ("GAAP"), and the
greater of 2% of the value of any acquisition made by the Company, as computed
by the purchase price plus the value of any additional consideration paid by the
Company in connection with any such acquisition, or 2% of the revenue reported
by any such acquisition in the preceding fiscal year by the acquiree. In the
case that any portion of such consideration shall consist of publicly held
securities, the market price of these securities shall be used to determine
value, and the value related to any option, warrant or right to purchase these
securities shall be determined by Black-Scholes Model. In addition, Mr. Giakas
is entitled to 2.5% of any capital raised for the Company.
30
<PAGE>
At the option of Mr. Giakas, any compensation due under this provision may be
converted into the Company's common stock at a conversion price equal to the
average closing bid price for the Company's securities 30 days prior to any such
acquisition or capital funding. In connection with the acquisition of Northeast
One Stop, Inc., Mr. Giakas has waived all incentive based compensation due under
the terms of his agreement and to accept options to acquire 125,000 shares of
the Company's common stock at a price of $5.25 exercisable over a period of five
years from the date of Closing. This agreement also provides that in the event
of a change control, Mr. Giakas may resign and all amounts due and owing for the
term of his agreement shall become due and payable.
On August 14, 1998 the Company entered into an employment agreement
with Mr. Arnone. This agreement is for the term of ten years, and provides for
compensation in the amount $125,000 to Mr. Arnone together with annual incentive
based bonuses in the form of 2.5% of all pre-tax profits recorded by the Company
in accordance with Generally Accepted Accounting Principles ("GAAP"), and the
greater of 2% of the value of any acquisition made by the Company, as computed
by the purchase price plus the value of any additional consideration paid by the
Company in connection with any such acquisition, or 2% of the revenue reported
by any such acquisition in the preceding fiscal year by the acquiree. In the
case that any portion of such consideration shall consist of publicly held
securities, the market price of these securities shall be used to determine
value, and the value related to any option, warrant or right to purchase these
securities shall be determined by the Black-Scholes Model. In addition, Mr.
Arnone is entitled to 2.5% of any capital raised for the Company. At the option
of Mr. Arnone, any compensation due under this provision may be converted into
the Company's common stock at a conversion price equal to the average closing
bid price for the Company's securities 30 days prior to any such acquisition or
capital funding. In connection with the acquisition of Northeast One Stop, Inc.,
Mr. Arnone has waived all incentive based compensation due under the terms of
his agreement and to accept options to acquire 125,000 shares of the Company's
common stock at a price of $5.25 exercisable over a period of five years from
the date of Closing. This agreement also provides that in the event of a change
control, Mr. Arnone may resign and all amounts due and owing for the term of his
agreement shall become due and payable.
On August 14, 1998 the Company entered into an employment agreement
with Mr. Venneri. This agreement is for the term of ten years, and provides for
compensation in the amount $125,000 to Mr. Venneri together with annual
incentive based bonuses in the form of 2.5% of all pre-tax profits recorded by
the Company in accordance with Generally Accepted Accounting Principles ("GAAP")
from the Company's Entertainment Division.
As of September 15, 1998, the Company has no employment or executive
compensation agreement with Mr. Bluestine. In the event that the Company does
not secure an agreement with Mr. Bluestine, the Company intends to hire a new
chief financial officer. (See "DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL").
31
<PAGE>
In connection with the Company's acquisition of Northeast One Stop,
Inc., the Company intends to secure the continued employment of Louis J.
DelSignore, the former sole shareholder of Northeast One Stop, Inc., for a term
of one year at the rate of $145,000 per year. In addition, the Company intends
to secure employment or executive compensation agreements with Mr. Nicks for a
term of three years at the rate of $125,000 per year and options to acquire
100,000 shares of the Company's common stock at a price of $5.25 per share.
These options would vest over a period of three years with 25,000 options
vesting on September 18, 1998, and with the remaining 75,000 options to vest in
equal installments of 25,000, each year for the remaining three years.
As of September 15, 1998, the Company and its subsidiaries had a
total of six employees, all of whom were full-time employees. Of these, the
Company has no collective bargaining agreement with its employees and no union
represents them. There have been no interruptions or curtailments of operations
due to labor disputes and the Company believes that relations with its employees
are good.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since the June 1996, the Company has obtained the use of certain
office and production space located in Jackson, New Jersey from Joseph Venerri,
one of its directors and principal shareholders for a term of five years for the
sum of one dollar per month. In addition, the Company has entered into a lease
agreement with the brother-in-law of Wallace Giakas, one of the Company's
principal shareholders and directors, for the rent of office space in
Middletown, New Jersey for rent in the amount of $1,000 per month for a term of
three years.
Since the Company's inception, the Company has been highly dependent
on loans from its principal shareholders, Messrs. Arnone and Giakas, and from
others. As of December 31, 1997, there was approximately $266,234 due and owing
Messrs. Arnone and Giakas. During 1996 and 1997, the Company borrowed $100,000
and $166,234, respectively, in the form of a series of Promissory Notes, payable
upon demand and bearing an interest rate of 9% from Walextin, Inc. ("Walextin"),
a corporation owned and controlled by Messrs. Arnone and Giakas. In January
1998, the Company borrowed an additional $16,150 from Walextin, and another
Company also owned and controlled by two of its principal shareholders, Messrs.
Arnone and Giakas, payable on demand bearing interest at 9% per annum.
In September 1996, the Company entered into a production and
distribution agreement with Multi-Media Industries Corporation ("MMIC"), to
distribute the recordings and compilations under the label Century Records, and
pursuant to which the Company was to receive compensation in the form of 10% of
the cash receipts, net of returns, of the production and distribution of ten
compact diskettes, including six enhanced multi-media compact diskettes.
Pursuant to the terms of the agreement, MMIC was required to pay directly or
reimburse the Company for all production costs. For the six month period ended
June 30, 1998, the Company recorded income of approximately $3,775 under this
agreement. One of the Company's Vice Presidents, directors and principal
shareholders, Joseph Venerri, is also a principal shareholder of MMIC, and
Richard
32
<PAGE>
Bluestine, the Company's Chief Financial Officer and a director of the Company,
is also a shareholder of MMIC, and from June 1995 through May 1997, was an
officer and director of MMIC.
In 1997, the Company entered into a joint venture agreement with
MMIC. The agreement provides for the production of a minimum of 20 new releases
per year, contingent upon attaining a specified level of funding. All net
revenue from the production, development and distribution of releases under the
agreement will be split 50% to the Company and 50% to MMIC. Under the agreement,
the Company is entitled to a distribution royalty for foreign and domestic
distribution of the produced compact disks. No revenues have been earned under
this agreement, and in 1998, the Company expects that revenues pursuant to this
agreement will be not exceed 3% of the Company's total revenues.
There are no other material agreements and/or arrangements between
the Company, its officers, directors or shareholders, and the Company believes
that the terms of its agreements with related parties are no less favorable to
the Company than those that would be available from unrelated third parties.
ITEM 8. LEGAL PROCEEDINGS.
There are currently no threatened or pending legal proceedings
against the Company. From time to time, the Company receives claims from third
parties challenging the Company's right to exploit certain master recordings.
The Company, in the opinion of its management, believes that it has a valid and
enforceable chain of title to these recordings and is expected to prevail in any
such action if brought against the Company. The Company is aware that
approximately 2,000 of the master recordings purchased from J. Jake, Inc., Music
Marketeers, Inc., or their successor, Gulf Coast Music, Inc. may be subject to
dispute, and it is the Company's policy not to release or exploit any master
recording that is subject to dispute. If the Company does, however, become the
subject of any such action, and were not to prevail in such an action, the
Company does not believe its business, financial condition or business prospects
would be materially adversely affected as the above named vendors have agreed to
replace the disputed items with 2,000 recordings acceptable to the Company.
Also, the Company intends to obtain the approval of the Bankruptcy Court as to
the amended agreement but there is no assurance that such approval will be
obtained.
33
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's common stock is currently traded on the National
Association of Securities Dealers, Inc. Automated Quotation System's Bulletin
Board (OTC:BB), and only a limited public trading market exists for the
Company's outstanding stock. There can be no assurance that an active public
market will develop for this outstanding Common Stock. Further, no assurance can
be given that, in the event that such a public market does develop, the price
will be equal to or higher than the price established by the Company upon the
issuance of such equity. Prices for the Company's securities are as follows:
HIGH LOW CLOSE
---- --- -----
1996
- ----
December 31, 1996* $ 3.75 $1.00 $ 3.75
1997
- ----
March 31, 1997 $10.00 $3.62 $8.875
June 30, 1997 $8.875 $7.62 $7.875
September 30, 1997 $ 8.00 $3.50 $4.750
December 31, 1997 $ 6.00 $2.75 $2.875
1998
- ----
March 31, 1998 $ 4.87 $1.87 $3.000
June 30, 1998 $11.43 $2.75 $6.000
September 30,1998
*Source: National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ"), OTC Bulletin Board.
DIVIDEND POLICY. The Company has not paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition,
operating results, capital requirements, applicable contractual restrictions and
such other factors as the Board of Directors deems relevant.
VOLATILITY AND LIMITED MARKET. The market price of the Company's
Common Stock has in the past been highly volatile and is expected to continue to
be subject to significant price and volume fluctuations in the future based on a
number of factors, including market uncertainty about the Company's financial
condition or business prospects; shortfalls in the revenues or results of
operations expected by securities analysts; announcements of new products by the
Company or its competitors; quarterly fluctuations in the Company's financial
results or in the results of other
34
<PAGE>
entertainment companies, including those of direct competitors of the Company;
changes in analysts' estimates of the Company's financial performance, the
financial performance of competitors, or the financial performance of
entertainment companies in general; the introduction of new products or product
enhancements by the Company or its competitors; general conditions in the
industry; changes in prices for the Company's products or competitors' products;
changes in revenue growth rates for the Company, and its competitors in general;
changes in the mix of revenues attributable to domestic and international sales;
and seasonal trends in purchases and other general economic conditions.
In addition, the stock market may from time to time experience
extreme price and volume fluctuations, which particularly affect the market for
the securities of many entertainment companies and which have often been
unrelated to the operating performance of the specific companies. There can be
no assurance that the market price of the Company's Common Stock will not
experience significant fluctuations in the future. To date, the Company has
neither declared nor paid any cash dividends on shares of its Common Stock. The
Company presently intends to retain all profits for its business and it does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1996, the Company issued 75,000 shares of common stock to its
founding shareholders, Messrs. Arnone, Giakas and Venneri, and in June 1996,
issued 3,060,000 shares of common stock to Messrs. Arnone, Giakas and Venneri,
in exchange for all the issued and outstanding capital stock of Maestro Holding
Corporation valued at $5,847,800.
In October 1996, the Company issued 5,065,000 shares of its common
stock to Messrs. Arnone, Giakas and Venneri, and others in consideration for
services rendered in the approximate amount of $5,065, and also in October 1996,
the Company also issued 101,000 shares of its common stock to the shareholders
of Ampro International Golf Co. ("Ampro") valued at $101, par value, to effect
the recapitalization of the Company following its acquisition by Ampro.
In November 1996, the Company issued 25,000 shares of its common
stock at $.0001 par value, in exchange for all the issued and outstanding
capital stock of Higher Ground Records, Inc., and in November 1996, also issued
1,500,000 shares to J. Jake, Inc. and Music Marketeers, Inc. in exchange for
certain rights associated with 10,000 master recordings purchased by the
Company, valued at $2,148,500.
In March 1997, the Company issued 100,000 shares of its common stock
to the shareholders Al Alberts On Stage, Ltd. ("Al Alberts"), an unrelated
company, in exchange for all the issued and outstanding capital stock of Al
Alberts valued at $214,000, and also in 1997 issued 367,911 shares of common
stock to unrelated third parties in consideration for services rendered in the
amount of approximately $239,967. In February 1998, the Company issued 554,089
shares of common stock to unrelated parties for the purposes of performing on
certain contractual obligations
35
<PAGE>
and compromising or paying in full certain accounts payable or trade liabilities
totaling approximately $248,347.
In June 1998, the Company authorized and issued 500 shares of 7%
Series A Convertible Preferred Stock to JNC Opportunity Fund Ltd. at a stated
value of $10,000 per share for a total of $5 million. Each share of the
Preferred Stock for a period of two years is convertible into the Company's
common stock at the lesser of (a) $8.885 per share, (b) or 78% multiplied by the
average of the five lowest per share market price of the Company's common stock
during ten trading days immediately preceding notice of conversion unless
adjusted as per terms of the Preferred Stock. In connection with this
transaction, the Company issued warrants to purchase 75,000 shares of the
Company's common stock to JNC Opportunity Fund at a price of $9.625 per share
exercisable over a term of five years, and the Company also issued warrants to
purchase 150,000 shares of the Company's common stock to CDC Consulting, Inc. at
a price of $9.625 per share for an identical term of five years from June 1998.
As a result of this transaction, the Company received net proceeds of
approximately $4,475,000. Under the terms of the Preferred Stock agreements, the
Company is required to file a registration statement for 200% of the common
shares underlying the Preferred Shares at the conversion price the lesser of
$8.885 per share, or 78% multiplied by the average of the five lowest per share
market price of the Company's common stock during ten trading days immediately
preceding notice of conversion, along with an additional 225,000 shares of
common stock underlying the warrants, within 30 days of the Closing Date, and if
such registration statement was not declared effective within 90 days from the
Closing Date or by September 4, 1998. According to the Preferred Stock
agreements, the conversion price of the Preferred Stock is to be decreased by
2.5% of the lesser of (a) $8.885 per share, (b) or 78% multiplied by the average
of the five lowest per share market price of the Company's common stock during
ten trading days immediately preceding notice of conversion. If the applicable
dates are not complied with, the conversion price shall decrease by 2.5%, and
after the second month, the Preferred shareholder may demand additional 2.5%
cumulative discounts or the payment of 2.5% of the stated value of the preferred
shares each month until such registration statement becomes effective. On
September 21, 1998, the Company filed a registration statement on SEC Form SB-2
with respect to 1,441,336 of these shares.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Rule 506 of Regulation D
promulgated under Section 3(a)(9) Section 4(2) of the Securities Act of 1933 as
transactions by an issuer not involving a public offering of securities. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and warrants issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Registrant.
36
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
COMMON STOCK
The authorized voting Common Stock of the Company consists of
50,000,000 shares of Common Stock, with a par value of $0.001. As of June 30,
1998, the Company had 11,976,055 shares of Common Stock outstanding and
approximately 260 shareholders. (See "MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS").
PREFERRED STOCK
The Company authorized and issued 500 shares of non-voting 7% Series
A Convertible Preferred Stock with a stated value of $5 million. Each share of
the Preferred Stock over a period of two years is convertible into the Company's
common stock at the lesser of (a) $8.885 per share, (b) or 78% multiplied by the
average of the five lowest per share market price of the Company's common stock
during ten trading days immediately preceding notice of conversion. No public
market exists, or is expected to exist, for these securities. These securities
are not the subject of this Registration statement.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and the Bylaws provide that the
Company shall indemnify and hold harmless each officer and director of the
Company (and each officer and director of another entity serving at the request
of the Company) who is a party to, or is threatened to be made a party to, any
threatened, pending or contemplated action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, against expenses (including
attorney's fees), judgment, fines, and amounts paid in settlement, actually and
reasonably incurred in connection with such action, suit or proceeding. They
further provide that the Company shall indemnify each such officer and director
in any derivative action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Company or its shareholders; except that no indemnification shall be made
with respect to any such derivative action, suit or proceeding as to which he
shall have been adjudged to be liable for gross negligence or misconduct in the
performance of his duties to the Company (unless and only to the extent that the
court in which such action or suit was brought shall determine, upon
application, that, despite the adjudication or liability, but in view of all of
the circumstances of the case, he is fairly and reasonably entitled to indemnity
for such expenses which such court shall deem proper).
The Articles of Incorporation and the Bylaws also provide that costs
in defending any action, suit or proceeding referred to above may be paid by the
Company in advance of the final disposition thereof under certain circumstances.
ITEM 13. FINANCIAL STATEMENTS
The Financial Statements filed herewith are set forth in the Index
to Financial Statements which Financial Statements are incorporated herein by
reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
AJ. Robbins, PC of Denver, Colorado was retained by the Company on
August 6, 1996, replacing Fung T. Yen, C.P.A, of San Gabriel California.
37
<PAGE>
The Board of Directors retained AJ. Robbins, PC voluntarily and
without any disagreement with the Company's prior accountant.
ITEM 15. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Financial Statements:
Proforma Explanatory Headnote F-2
For the Year Ended December 31, 1997 (Unaudited)
Unaudited Proforma Consolidated Statement of Operations and
Comprehensive Loss F-3
For the Six Months Ended and as of June 30, 1998 (Unaudited)
Unaudited Proforma Consolidated Balance Sheet F-4
Unaudited Proforma Consolidated Statement of Operations and
Comprehensive Loss F-6
Notes to Proforma Consolidated Financial Statements F-7
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-14
Financial Statements:
Consolidated Balance Sheets F-15
Consolidated Statements of Operations F-16
Consolidated Statement of Stockholders' Equity F-17
Consolidated Statements of Cash Flows F-19
Notes to Consolidated Financial Statements F-20
</TABLE>
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PROFORMA EXPLANATORY HEADNOTE
The following unaudited proforma consolidated financial statements give effect
to the proposed acquisition by Planet Entertainment Corporation (the "Company")
of Northeast One Stop, Inc. ("NEOS") and are based on the estimates and
assumptions set forth herein and in the notes to such statements. This proforma
information has been prepared utilizing the historical financial statements of
the Company and notes thereto, which are included in this registration
statement. The historical financial statements of NEOS are unaudited and the
notes thereto are included in Note 6 to the proforma financial statements. The
proforma financial data does not purport to be indicative of the results which
actually would have been obtained had the acquisitions been effected on the
dates indicated or the results which may be obtained in the future.
The proforma consolidated balance sheet assumes the acquisition was consummated
at June 30, 1998. The proforma consolidated statements of operations for the
year ended December 31, 1997 and the six months ended June 30, 1998 includes the
operating results of the Company and NEOS for such periods.
Effective September 1, 1998, (the proposed effective date of the acquisition)
the Company will have acquired all of the issued and outstanding common stock of
NEOS. The purchase price for NEOS was $3,000,000 comprised of $2,250,000 in cash
and $750,000 in notes, of which $375,000 is to be paid by February 28, 1999 and
$375,000 is to be paid by August 31, 1999. Additionally, the Company granted
options to the stockholder of NEOS to purchase 250,000 shares of the Company's
common stock, exercisable at a price equal to the lesser of $5.25 per share or
the closing bid price of the Company's stock on the closing date of the
transaction, exercisable for a term of two years from the date of closing. The
cash paid at closing was obtained by the Company through its sale of 500 shares
of the Company's 7% non-voting, convertible preferred stock (for net proceeds of
$4,475,000) on May 31, 1998.
The purchase price for NEOS is estimated to be allocated as follows:
<TABLE>
<S> <C>
Inventory $ 8,000,000
Accounts receivable 4,500,000
Property and equipment 700,000
Other assets 100,000
Accounts payable (7,000,000)
Notes payable (4,700,000)
Capitalized lease obligations (200,000)
Other liabilities (400,000)
Goodwill 2,333,750
Options granted, NEOS stockholder - additional paid-in capital 814,000
-----------
Total purchase price (including acquisition costs of $1,147,750) 4,147,750
Less:
Notes payable (750,000)
Options granted, acquisition costs - additional paid-in capital (1,147,750)
-----------
Cash paid at closing $ 2,250,000
===========
</TABLE>
F-2
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Planet
Entertainment
Corporation and Northeast Proforma Consolidated
Subsidiaries One Stop, Inc. Adjustments Proforma
------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 49,883 $ 27,023,573 $ -- $ 27,073,456
Royalty 3,775 -- -- 3,775
Studio 239,770 -- -- 239,770
------------ ------------ ------------ ------------
Total Revenues 293,428 27,023,573 -- 27,317,001
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 19,052 22,776,854 -- 22,795,906
Selling, general and 794,314 3,195,389 -- 3,989,703
administrative
Depreciation and 40,592 263,587 58,000(3) 362,179
amortization
Interest expense -- 346,326 -- 346,326
Interest expense - related party 144,382 -- 74,000(4) 218,382
Bad debt expense 105,000 76,491 -- 181,491
------------ ------------ ------------ ------------
Total Costs and Expenses 1,103,340 26,658,647 132,000 27,893,987
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES (809,912) 364,926 (132,000) (576,986)
------------ ------------ ------------ ------------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Current -- 138,000 (138,000) --
Deferred -- 8,000 -- 8,000
------------ ------------ ------------ ------------
-- 146,000 (138,000) 8,000
------------ ------------ ------------ ------------
NET INCOME
(LOSS)/COMPREHENSIVE
INCOME (LOSS) $ (809,912) $ 218,926 $ 6,000 $ (584,986)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (.06)
============
Weighted average number of
common shares outstanding 10,211,250
============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO UNAUDITED PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
Planet
Entertainment
Corporation and Northeast Proforma Consolidated
Subsidiaries One Stop, Inc. Adjustments Proforma
------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 4,285,124 $ 49,428 $ (2,250,000) $ 2,084,552
Trade accounts receivable, net 12,315 4,188,105 -- 4,200,420
Accounts and notes receivable-
related parties 194,846 21,468 -- 216,314
Inventories -- 8,100,543 -- 8,100,543
Prepaid expenses and other
current assets 265,728 34,057 -- 299,785
Deferred income taxes -- 12,000 -- 12,000
Current maturities of notes
receivable -- 10,694 -- 10,694
------------ ------------ ------------ ------------
Total Current Assets 4,758,013 12,416,295 (2,250,000) 14,924,308
------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, net 178,833 778,383 -- 957,216
------------ ------------ ------------ ------------
OTHER ASSETS, net
Record masters 13,800,000 -- -- 13,800,000
Goodwill 73,667 -- 2,737,969 2,811,636
Publishing rights 880 -- -- 880
Organization costs 45,000 -- -- 45,000
Security deposits -- 12,147 -- 12,147
Notes receivable less current
maturities -- 31,332 -- 31,332
------------ ------------ ------------ ------------
13,919,547 43,479 2,737,969 16,700,995
------------ ------------ ------------ ------------
$ 18,856,393 $ 13,238,157 $ 487,969 $ 32,582,519
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO UNAUDITED PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Planet
Entertainment
Corporation and Northeast Proforma Consolidated
Subsidiaries One Stop, Inc. Adjustments Proforma
------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Deferred revenue $ 145,292 $ 237,455 $ -- $ 382,747
Note payable - line of credit -- 3,531,774 -- 3,531,774
Notes payable - related party 150,000 -- -- 150,000
Accounts payable and accrued
expenses 316,871 7,659,636 -- 7,976,507
Accrued interest - related party 255,475 -- -- 255,475
Due to stockholder 288,773 374,000 -- 662,773
Current portion of long-term debt-
related parties 250,000 -- -- 250,000
Current portion of obligation under
capital lease -- 212,371 -- 212,371
Purchase obligation, current portion -- -- 375,000(4) 375,000
Due to customers -- 511,806 -- 511,806
------------ ------------ ---------- ------------
Total Current Liabilities 1,406,411 12,527,042 375,000 14,308,453
------------ ------------ ---------- ------------
LONG-TERM LIABILITIES:
Deferred taxes 4,600,000 -- -- 4,600,000
Long-term debt - related parties,
net of current portion 750,000 -- -- 750,000
Obligation under capital lease, net
of current portion -- 40,334 -- 40,334
Due to employee -- 75,000 -- 75,000
Purchase obligation, net of current
portion -- -- 375,000(4) 375,000
------------ ------------ ---------- ------------
Total Long-Term Debt 5,350,000 115,334 375,000 5,840,334
------------ ------------ ---------- ------------
Total Liabilities 6,756,411 12,642,376 750,000 20,148,787
------------ ------------ ---------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock 5,000,000 -- -- 5,000,000
Common stock 11,976 10,000 (10,000) 11,976
Additional paid-in capital 8,365,363 -- 333,750 8,699,113
Retained earnings (deficit) (1,277,357) 585,781 (585,781) (1,277,357)
------------ ------------ ---------- ------------
Total Stockholders' Equity 12,099,982 595,781 (262,031) 12,433,732
------------ ------------ ---------- ------------
$ 18,856,393 $ 13,238,157 $ 487,969 $ 32,582,519
============ ============ ========== ============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO UNAUDITED PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Planet
Entertainment
Corporation and Northeast Proforma Consolidated
Subsidiaries One Stop, Inc. Adjustments Proforma
------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 33,172 $ 14,535,664 $ -- $ 14,568,836
Royalty 1,274 -- -- 1,274
Studio 29,018 -- -- 29,018
---------- ------------ --------- ------------
Total Revenues 63,464 14,535,664 -- 14,599,128
---------- ------------ --------- ------------
COSTS AND EXPENSES:
Cost of sales 11,413 12,368,913 -- 12,380,326
Selling, general and
administrative 378,848 2,012,163 -- 2,391,011
Depreciation and
amortization 22,002 130,300 29,000(3) 181,302
Interest expense -- 220,516 -- 220,516
Interest expense - related party 77,991 -- 37,000(4) 114,991
---------- ------------ --------- ------------
Total Costs and Expenses 490,254 14,731,892 66,000 15,288,146
---------- ------------ --------- ------------
INCOME (LOSS) FROM
OPERATIONS (426,790) (196,228) (66,000) (689,018)
---------- ------------ --------- ------------
OTHER INCOME (EXPENSE):
Dividend income 11,792 -- -- 11,792
---------- ------------ --------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (414,998) (196,228) (66,000) (677,226)
---------- ------------ --------- ------------
BENEFIT FOR INCOME TAXES:
Current -- -- -- --
Deferred -- (7,000) -- (7,000)
---------- ------------ --------- ------------
-- (7,000) -- (7,000)
---------- ------------ --------- ------------
NET (LOSS)/COMPREHENSIVE
(LOSS) $ (414,998) $ (189,228) $ (66,000) $ (670,226)
========== ============ ========= ============
NET (LOSS) $ (414,998) $ (189,228) $ (66,000) $ (670,226)
LESS PASSED PREFERRED STOCK
DIVIDENDS (20,317) -- -- (20,317)
---------- ------------ --------- ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDER $ (435,315) $ (189,228) $ (66,000) $ (690,543)
========== ============ ========= ============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (.06)
============
Weighted average number of
common shares outstanding 11,776,635
============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO UNAUDITED PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PROFORMA ADJUSTMENTS
The adjustments relating to the proforma consolidated statements of operations
are computed assuming the acquisition of Northeast One Stop, Inc. ("NEOS") was
consummated at the beginning of the applicable periods presented.
NOTE 2 - ACQUISITION OF SUBSIDIARY
The proforma consolidated balance sheet as of June 30, 1998 reflects the
acquisition of the net assets of NEOS for debt and cash. The acquisition is
recorded using the purchase method.
NOTE 3 - ADDITIONAL AMORTIZATION
The proforma consolidated statement of operations for the year ended December
31, 1997 and six months ended June 30, 1998 reflect amortization of goodwill
using the straight-line method over 40 years.
NOTE 4 - PURCHASE OBLIGATION
In connection with the purchase of NEOS, the Company is obligated to pay the
NEOS stockholder $750,000 of which $375,000 is to be repaid by February 28, 1999
and $375,000 is to be repaid by August 31, 1999. Interest at 9% has been imputed
on the outstanding balance, and is reflected as a proforma adjustment.
NOTE 5 - ACQUISITION COSTS
Two stockholders of the Company were issued options to purchase 250,000 shares
of the Company's common stock valued at $1,147,750, in consideration for
advisory services rendered in connection with the acquisition.
NOTE 6 - NEOS NOTES TO PROFORMA FINANCIAL STATEMENTS
The following represents the footnotes to the proforma financial statements of
NEOS:
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
--------------------
NEOS was incorporated under the laws of New York on January 25, 1983.
NEOS distributes recorded music to the retail industry from its warehouse
located in Latham, New York. NEOS's products are sold through its sales
offices in Michigan, Vermont, Maryland, Pennsylvania and Brooklyn, New
York. NEOS grants credit to customers in the retail industry throughout
the nation. Consequently, NEOS's ability to collect the amounts due from
customers is affected by economic fluctuations in retailing.
CASH
----
NEOS maintains its cash accounts in commercial banks located in New York
and Rhode Island. The balance in each bank is insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000.
F-7
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
INVENTORY
---------
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment including equipment, vehicles, leasehold
improvements and furniture and fixtures are stated at cost. Depreciation
is computed over the estimated useful lives of the assets using
straight-line and accelerated methods. Maintenance and repairs are charged
to operations in the period incurred.
FISCAL YEAR END
---------------
NEOS's fiscal year ends on the Saturday closest to August 31, which
results in a 52 or 53 week year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------
The preparation of 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 at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
INCOME TAXES
------------
Deferred income taxes are recorded to reflect the tax consequences in
future years of temporary differences between the tax basis of the assets
and liabilities and their financial statement amounts at the end of each
reporting period. Valuation allowances will be established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the current period and the
change during the period in deferred tax assets and liabilities.
The deferred tax assets and liabilities have been netted to reflect the
tax impact of temporary differences.
EARNINGS PER COMMON SHARE
-------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) was issued in February 1997 (effective for financial
statements issued for periods ending after December 15, 1997). This
Statement simplifies the standards for computing earnings per share (EPS)
previously found in Accounting Principles Board Opinion No. 15, "Earnings
Per Share", and makes them more comparable to international EPS standards.
SFAS No. 128 replaces the presentation of primary EPS with a presentation
of basic EPS. In addition, the Statement requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation.
F-8
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
ALLOWANCE FOR BAD DEBTS
-----------------------
Management provides for an allowance based on a review of specific
accounts and determination of collectibility.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, "Reporting Comprehensive Income", Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", and Statement
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits". These pronouncements, effective for fiscal years beginning
after December 15, 1997, have been adopted, and are reflected in the
financial statements and notes thereto, as applicable.
YEAR 2000 ISSUES
----------------
Many existing computer programs use only two digits to identify a year in
the date field, with the result that data referring to year 2000 and
subsequent years may be misinterpreted by these programs. If present in
the computer applications of the Company, or its suppliers and customers,
and not corrected, this problem could cause computer applications to fail
or to create erroneous results and could cause a disruption in operations
and have a short-term adverse effect on the Company's business and results
of operations. The Company will evaluate its principal computer system to
determine if they are substantially Year 2000 compliant.
NOTE B - NOTES RECEIVABLE
Notes receivable at June 27, 1998 consist of the following:
Installment note receivable due from an unrelated party.
Monthly payments of $850 including interest through
February 1999 at 8% per annum. $ 7,129
Installment note receivable due from an unrelated party.
Monthly payments of $500 include interest at 10% per annum
through November 2006. 34,897
----------
42,026
Less current portion 10,694
----------
$ 31,332
==========
F-9
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE B - NOTES RECEIVABLE (Continued)
Future maturities of notes receivable are as follows:
Year ending June 26, 1999 $ 10,694
Year ending June 24, 2000 3,001
Year ending June 30, 2001 3,316
Year ending June 29, 2002 3,662
Year ending June 28, 2003 4,046
Thereafter 17,307
--------
$ 42,026
========
NOTE C - NOTES RECEIVABLE - RELATED PARTIES
Notes receivable-related parties, consist of amounts due from various
corporations related through common ownership and management.
NOTE D - FINANCING
NEOS has a $6,000,000 line of credit with Congress Financial Corporation,
collateralized principally by all of NEOS's assets and a $1,000,000 life
insurance policy on the stockholder. The line of credit is guaranteed by
the stockholder and certain related parties. Advances under the line of
credit are made on the basis of eligible accounts receivable and inventory
as defined in the line of credit agreement. Interest is charged at prime
plus 2%.
The provisions of the line of credit agreement contain various covenants.
NEOS is required to maintain a certain working capital and adjusted net
worth.
NOTE E - DUE TO STOCKHOLDER
Amounts due to the stockholder bear interest at 9%, and are due on or
before April 21, 1999. Interest expense for the year ended December 27,
1997 and six months ended June 27, 1998 $30,960 and $15,480, respectively.
NOTE F - PROVISION FOR INCOME TAXES
The composition of deferred tax assets and liabilities as of June 27, 1998
are as follows:
Total deferred tax assets $ 52,000
Total valuation allowance --
-------
Net total deferred tax assets 52,000
Total deferred tax liabilities (40,000)
-------
Net deferred tax assets $ 12,000
========
F-10
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE F - PROVISION FOR INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and (liabilities) is as follows:
Property and equipment $ (40,000)
Inventory capitalization 28,000
Allowance for doubtful accounts 24,000
---------
$ 12,000
=========
The provision for income taxes consist of the following:
For the Six
For the Year Months
Ended Ended
December 27, June 27,
1997 1998
------------ --------
CURRENT:
Federal $116,000 $ --
State 22,000 --
-------- --------
Total Current Provision 138,000 --
-------- --------
DEFERRED:
Federal 7,360 (6,440)
State 640 (560)
-------- --------
Total deferred income taxes (benefit) 8,000 (7,000)
-------- --------
Total provision for income taxes $146,000 $ (7,000)
======== ========
Deferred income tax expense (benefit) for the year ended December 27, 1997
and June 27, 1998 relates to inventory capitalization.
The following is a reconciliation of the amount of income tax expense that
would result from applying the statutory federal income tax rates to
pre-tax income and the reported amount of income tax expense for the year
end:
Expected tax provision at federal statutory rates $ 124,000
Inventory capitalization 20,000
Excess of tax over back depreciation (54,000)
Bad debt expense 26,000
---------
$ 116,000
=========
F-11
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE G - CAPITALIZED LEASE OBLIGATIONS
CAPITALIZED LEASE OBLIGATIONS
-----------------------------
NEOS leases various equipment under capitalized leases expiring through
2000. The assets have been recorded at the lower of the present value of
the minimum lease payments or their fair value and are generally
depreciated over the assets' estimated useful lives.
Minimum future lease payments under the capital leases are as follows:
<TABLE>
<S> <C>
Year ending June 29, 1999 $ 247,434
Year ending June 24, 2000 42,988
---------
Total minimum lease payments 290,422
Less amount representing interest 37,717
Present value of net minimum lease payments with interest at approximately
8% - 26% 252,705
Less current portion 212,371
---------
$ 40,334
=========
</TABLE>
The noncurrent portion of capitalized lease obligations are due during the
year ending June 24, 2000. As of June 27, 1998, machinery and equipment
includes $777,348 acquired through capital leases. Accumulated
depreciation related to these assets was $270,528.
NOTE H - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
---------------
NEOS leases its Latham office and warehouse from an affiliated company.
Rent paid to this Company was $128,000 and $72,000 for the year ended
December 27, 1997 and the six months ended June 27, 1998.
Future minimum rental payments required under operating leases are as
follows:
Year ending June 26, 1999 $ 120,000
Year ending June 24, 2000 180,000
Year ending June 30, 2001 180,000
Year ending June 29, 2002 180,000
Year ending June 28, 2003 180,000
Thereafter 2,340,000
-----------
Total $ 3,180,000
===========
F-12
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NEOS FOOTNOTE TO PROFORMA FINANCIAL STATEMENTS (Continued)
NOTE I - CONCENTRATION OF CREDIT RISK
MAJOR CUSTOMERS
---------------
During the year ended December 27, 1997, one customer accounted for
approximately 43% of sales. At December 27, 1997, the amounts due from
this customer included in accounts receivable, was approximately
$4,336,000. During the six months ended June 27, 1998, one customer
accounted for approximately 33% of sales. At June 27, 1998, the amount due
from this customer was approximately $1,695,000.
NOTE J - COMMON STOCK
Common stock consists of no par value, six shares issued and outstanding,
200 shares authorized.
NOTE K - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at June 27, 1998:
Leasehold improvements $ 25,357
Computer equipment 578,249
Computer software 158,900
Equipment 1,056,873
Furniture and fixtures 166,931
Rack jobbing fixtures 491,910
-----------
2,478,220
Accumulated depreciation and amortization (1,699,837)
-----------
$ 778,383
===========
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Planet Entertainment Corporation
Middletown, New Jersey
We have audited the accompanying consolidated balance sheet of Planet
Entertainment Corporation and subsidiaries, as of December 31, 1997 and 1996,
and the related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows for the year ended December 31, 1997 and
for the period from inception, May 17, 1996 to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Planet Entertainment
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of its operations and comprehensive loss and its cash flows for the year ended
December 31, 1997 and for the period from inception, May 17, 1996 to December
31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, on December 17, 1996, the
Company entered into an agreement of terms to amend and restate certain
agreements relating to the acquisition of masters and copyrights. The conditions
of the restated agreement are contingent on the approval by the bankruptcy
court. Should the bankruptcy court approval not be obtained, the original
agreements will remain in full force and effect. The effects are more fully
explained in the proforma balance sheet at Note 10.
Denver, Colorado
August 12, 1998
F-14
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,998 $ 3,670 $ 4,285,124
Accounts receivable, net 105,000 21,026 12,315
Accounts receivable, net - related party -- 183,684 194,846
Prepaid expenses and other current assets 29,810 119,073 265,728
------------ ------------ ------------
Total Current Assets 141,808 327,453 4,758,013
------------ ------------ ------------
EQUIPMENT, at cost, net 47,500 189,085 178,833
------------ ------------ ------------
OTHER ASSETS:
Record masters 13,800,000 13,800,000 13,800,000
Goodwill, net -- 77,917 73,667
Publishing rights, net 880 880 880
Organization costs, net 67,500 52,500 45,000
------------ ------------ ------------
Total Other Assets 13,868,380 13,931,297 13,919,547
------------ ------------ ------------
$ 14,057,688 $ 14,447,835 $ 18,856,393
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 65,767 $ 218,693 $ 316,871
Accrued interest expense, related party 43,100 177,484 255,475
Deferred revenue -- 146,225 145,292
Due to stockholders 145,243 263,800 288,773
Note payable, related party -- -- 150,000
Current portion of long-term debt, related party 250,000 500,000 250,000
------------ ------------ ------------
Total Current Liabilities 504,110 1,306,202 1,406,411
LONG-TERM DEBT, less current portion, related party 1,000,000 750,000 750,000
DEFERRED INCOME TAXES 4,600,000 4,600,000 4,600,000
------------ ------------ ------------
Total Liabilities 6,104,110 6,656,202 6,756,411
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, authorized,
10,000,000, $.0001 par value, 500 shares
issued and outstanding -- -- 5,000,000
Common stock, $.001 par value; 50,000,000
shares authorized; 9,826,055, 11,421,966 and
11,976,055 shares issued and outstanding 9,826 11,422 11,976
Additional paid-in capital 7,996,199 8,642,570 8,365,363
Accumulated deficit (52,447) (862,359) (1,277,357)
------------ ------------ ------------
Total Stockholders' Equity 7,953,578 7,791,633 12,099,982
------------ ------------ ------------
$ 14,057,688 $ 14,447,835 $ 18,856,393
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-15
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Period
May 17, 1996 For the Year For the Six For the Six
(Inception) to Ended Months Ended Months Ended
December 31, December 31, June 30, June 30,
1996 1997 1997 1998
--------------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Royalty $ 105,000 $ 3,775 $ -- $ 1,274
Sales -- 49,883 -- 33,172
Studio -- 239,770 23,326 29,018
------------ ------------ ------------ ------------
Total Revenues 105,000 293,428 23,326 63,464
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- 19,052 -- 11,413
Selling, general and
administrative 104,342 794,314 375,617 378,848
Depreciation and amortization 10,005 40,592 17,833 22,002
Interest expense, related
party 43,100 144,382 71,777 77,991
Bad debt expense -- 105,000 105,000 --
------------ ------------ ------------ ------------
Total Costs and Expenses 157,447 1,103,340 570,227 490,254
------------ ------------ ------------ ------------
OTHER INCOME:
Dividend income -- -- -- 11,792
------------ ------------ ------------ ------------
NET LOSS (52,447) (809,912) (546,901) (414,998)
OTHER COMPREHENSIVE INCOME -- -- -- --
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (52,447) $ (809,912) $ (546,901) $ (414,998)
============ ============ ============ ============
NET LOSS $ (52,447) $ (809,912) $ (546,901) $ (414,998)
Less passed preferred stock
dividend -- -- -- (20,317)
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (52,447) $ (809,912) $ (546,901) $ (435,315)
============ ============ ============ ============
NET LOSS PER COMMON SHARES
BASIC AND DILUTED (.02) $ (.08) $ (.05) $ (.04)
============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 3,377,255 10,211,250 10,035,917 11,776,635
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-16
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS MAY 17, 1996 (INCEPTION) TO DECEMBER 31, 1996,
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK REFERRED STOCK ADDITIONAL
------------------ ---------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL
------ -------- ------ ------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
organizers of the Company as
founders shares 75,000 $ 75 -- $ -- $ -- $ -- $ -- $ 75
Issuance of common stock for
services rendered 5,065,000 5,065 -- -- -- -- -- 5,065
Issuance of common stock to
acquire Higher Ground
Records 25,000 25 -- -- -- -- -- 25
Effect of RECAPITALIZATION:
issuance of common stock to
Ampro International Golf Tour,
Inc. shareholders in reverse
merger 101,055 101 -- -- (101) -- -- --
Issuance of common stock
to acquire music masters 1,500,000 1,500 -- -- 2,148,500 -- -- 2,150,000
Issuance of common stock to
acquire Maestro Holding
Corporation 3,060,000 3,060 -- -- 5,847,800 -- -- 5,850,860
Net loss for the period -- -- -- -- -- (52,447) (52,447) (52,447)
----------- -------- ------ ------ ----------- -------- -------- ----------
BALANCES, DECEMBER 31, 1996 9,826,055 9,826 -- -- 7,996,199 (52,447) (52,447) 7,953,578
========
Issuance of common stock to
acquire Al Alberts On Stage,
Ltd. 100,000 100 -- -- 213,900 -- -- 214,000
Issuance of common stock for
services rendered 367,911 368 -- -- 239,599 -- -- 239,967
Issuance of common stock in
satisfaction of note payable,
and accrued interest 1,100,000 1,100 -- -- 108,900 -- -- 110,000
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-17
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS MAY 17, 1996 (INCEPTION) TO DECEMBER 31, 1996,
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK REFERRED STOCK ADDITIONAL
------------------ ---------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL
------ -------- ------ ------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash 28,000 28 -- -- 83,972 -- -- 84,000
Net loss for the year -- -- -- -- -- (809,912) (809,912) (809,912)
----------- -------- ----- ---------- ---------- ---------- ----------- -----------
BALANCES, DECEMBER 31, 1997 11,421,966 11,422 -- -- 8,642,570 (809,912) (862,359) 7,791,633
==========
Issuance of common stock for
services rendered (unaudited) 554,089 554 -- -- 247,793 -- -- 248,347
Offering costs from sale of
convertible stock for
cash (unaudited) -- -- -- -- (525,000) -- -- (525,000)
Issuance of preferred stock -- -- 500 5,000,000 -- -- -- 5,000,000
Net loss for the period
(unaudited) -- -- -- -- -- (414,998) (414,998) (414,998)
----------- -------- ----- ---------- ---------- ---------- ----------- -----------
BALANCES, JUNE 30, 1998
(UNAUDITED) 11,976,055 $ 11,976 500 $5,000,000 $8,365,363 $ (414,998) $(1,277,357) $12,099,982
=========== ======== ===== ========== ========== ========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-18
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
May 17, 1996 For the Year For the Six For the Six
(Inception) to Ended Months Ended Months Ended
December 31, December 31, June 30, June 30,
1996 1997 1997 1998
-------------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS USED BY OPERATING
ACTIVITIES:
Net loss $ (52,447) $ (809,912) $ (546,901) $ (414,998)
Adjustments to reconcile net loss to net
cash used by operations:
Bad debt expense -- 105,000 105,000 --
Depreciation and amortization 10,000 40,592 17,833 22,002
Stock issued for services 5,140 239,967 35,000 248,347
Changes in:
Accounts receivable (105,000) (21,026) -- 8,711
Accounts receivable, related party -- (183,684) (805) (11,162)
Prepaid expenses and other current
assets (29,810) (89,264) -- (146,655)
Accounts payable and accrued
expenses 65,772 131,927 109,013 98,178
Accrued interest expense, related
party 43,100 144,384 71,776 77,991
Deferred revenue -- 146,225 -- (933)
----------- ----------- ----------- -----------
Cash Flows Used by Operating
Activities (63,245) (295,791) (209,084) (118,519)
----------- ----------- ----------- -----------
CASH FLOWS USED BY INVESTING
ACTIVITIES:
Purchase of equipment -- (10,094) -- --
----------- ----------- ----------- -----------
Cash Flows Used by Investing
Activities -- (10,094) -- --
----------- ----------- ----------- -----------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Advances from stockholders 70,243 118,557 25,414 24,973
Proceeds from note payable -- 100,000 100,000 150,000
Proceeds from sale of common stock -- 84,000 84,000 --
Proceeds from issuance of preferred
stock -- -- -- 5,000,000
Preferred stock issuance costs -- -- -- (525,000)
Repayment of long-term debt -- -- -- (250,000)
----------- ----------- ----------- -----------
Cash Flows Provided by Financing
Activities 70,243 302,557 209,414 4,399,973
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 6,998 (3,328) 330 4,281,454
CASH AND CASH EQUIVALENTS, beginning of
period -- 6,998 6,998 3,670
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 6,998 $ 3,670 $ 7,328 $ 4,285,124
=========== =========== =========== ===========
</TABLE>
- -----------------
See Note 15
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-19
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY AND ACTIVITY
- --------------------
Planet Entertainment Corporation (the Company or Planet) was incorporated under
the laws of Delaware on May 17, 1996 and on October 1, 1996 was acquired by
Ampro International Golf Tour, Inc. (See Note 2). Planet was organized for the
purpose of acquiring existing libraries of master recordings of various types of
music and to enhance, market and produce new recordings to be licensed or
marketed domestically and internationally.
In November 1996, the Company acquired all the outstanding shares of common
stock of Higher Ground Records in exchange for 25,000 shares of Planet common
stock valued at a total of $25. Assets acquired include the rights to artists'
contracts, production agreements and publishing contracts.
The Company acquired over 10,000 master recordings from Gulf Coast Music, L.L.C.
(Gulf Coast) and J. Jake, Inc. (Jake) in exchange for 1,500,000 shares of Planet
common stock valued at $2,150,000 and the assumption of promissory notes
totaling $1,250,000 during 1996. (See Note 8.)
During the year ended December 31, 1996, the Company acquired all the
outstanding shares of common stock of Maestro Holding Corporation (Maestro) in
exchange for 3,060,000 shares of Planet common stock valued at $5,850,860.
Assets acquired include over 5,000 master recordings, publishing rights to 300
songs, royalty income and a recording studio located in New Jersey.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries; Higher Ground Records, Maestro Holding
Corporation and Al Alberts On Stage, Ltd. All significant intercompany accounts
and transactions have been eliminated.
UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------
In the opinion of management, the unaudited interim financial statements for the
six month periods ending June 30, 1997 and 1998 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period June 30, 1998 are not necessarily indicative of the results to be
expected for the year ended December 31, 1998.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of 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 at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions. The rate of
amortization of record masters is, in part, based upon anticipated total gross
revenues over the estimated life of the record masters. Although no amortization
has been recorded to date, actual gross revenues may differ from the amount
ultimately realized over the life of the record master.
F-20
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The difference may be material.
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of six months or less to be
cash equivalents.
EQUIPMENT
- ---------
Equipment is carried at cost and depreciated on a straight-line basis over the
estimated useful lives of five to ten years. Depreciation expense was $18,509
and $2,500 for the periods ended December 31, 1997 and 1996 and $10,252 and
$7,500 for the six months ended June 30, 1998 and 1997.
REVENUE RECOGNITION
- -------------------
Royalties derived from the licensing of recording masters are recognized upon
notification of retail sales by the distributor. Studio revenue is recognized
when the services are performed. Sales of compact disks are recognized when the
inventory has been shipped to the customer.
PUBLISHING RIGHTS
- -----------------
Publishing rights consist of rights to 300 songs acquired in the Maestro
acquisition and are stated at predecessor cost.
Amortization of publishing rights is computed based on the ratio that current
years' revenues will bear to anticipated total gross revenues over the estimated
life of the publishing right (generally 5-10 years). No amortization has been
recorded for the periods ended December 31, 1997 and 1996 and June 30, 1998 and
1997.
RECORD MASTERS
- --------------
Record masters consist of record titles acquired in the Maestro acquisition and
Gulf Coast and Jake record master purchases stated at predecessor cost.
Amortization of record masters will be computed based on the ratio that current
years' revenues will bear to anticipated total gross revenues over the estimated
life of the record master (generally 5-10 years). No amortization has been
recorded for the periods ended December 31, 1997 and 1996 and June 30, 1998 and
1997.
ORGANIZATION COSTS
- ------------------
Amortization of organization costs are calculated using the straight-line method
over five years. Amortization expense for the periods ended December 31, 1997
and 1996 was $15,000 and $7,500 and for the six months ended June 30, 1998 and
1997 was $7,500 and, $7,500.
GOODWILL
- --------
Goodwill, representing the excess of the cost over the net tangible assets of
acquired business, is stated at cost and is amortized, principally on a
straight-line basis, over the estimated future periods to be benefited
(primarily 10 years). Amortization expense for the periods ended
F-21
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
December 31, 1997 and 1996 was $7,083 and $-0- and for the six months ended June
30, 1998 and 1997 was $4,250 and $2,833.
INCOME TAXES
- ------------
Deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances will be established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the current period and the change during the period in
deferred tax assets and liabilities.
The deferred tax assets and liabilities have been netted to reflect the tax
impact of temporary differences.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying value of accounts receivable, accounts payable, accrued expenses
and due to stockholders approximate fair value because of the short maturity of
these items. The fair value of notes payable and long-term debt was based upon
current borrowing rates available for financings with similar terms and
maturities.
EARNINGS PER COMMON SHARE
- -------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) was issued in February 1997 (effective for financial statements issued
for periods ending after December 15, 1997). This Statement simplifies the
standards for computing earnings per share (EPS) previously found in Accounting
Principles Board Opinion No. 15, "Earnings Per Share", and makes them more
comparable to international EPS standards. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. In addition, the
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
ALLOWANCE FOR BAD DEBTS
- -----------------------
Management provides for an allowance based on a review of specific accounts and
determination of collectibility.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statements No.
130, "Reporting Comprehensive Income", and the Company's adoption of this
statement is reflected in the accompanying financial statements. The FASB has
also issued statements No. 131, "Disclosures about Segments of an Enterprise and
Related Information", and in February 1998 the FASB issued Statement No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits",
effective for fiscal years beginning after December 15, 1997. These
pronouncements are not applicable to the Company.
F-22
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
YEAR 2000 ISSUES
- ----------------
Many existing computer programs use only two digits to identify a year in the
date field, with the result that data referring to year 2000 and subsequent
years may be misinterpreted by these programs. If present in the computer
applications of the Company, or its suppliers and customers, and not corrected,
this problem could cause computer applications to fail or to create erroneous
results and could cause a disruption in operations and have a short-term adverse
effect on the Company's business and results of operations. The Company will
evaluate its principal computer system to determine if they are substantially
Year 2000 compliant.
NOTE 2 - BUSINESS RECAPITALIZATION AND RESTATEMENT
On October 1, 1996, the Company was acquired by Ampro International Golf Tour,
Inc. (Ampro) a public corporation.
The stock exchange transaction is treated as an acquisition by the Company of
the net tangible book value of the assets of Ampro at the date of acquisition,
which was minimal. Operating results of Ampro for all periods prior to the date
of its acquisition were immaterial and not included in the operating results of
the Company since such reverse merger is not treated as a pooling of interests
for accounting purposes.
NOTE 3 - PRODUCTION AND DISTRIBUTION AGREEMENTS
JAD RECORDS
- -----------
On April 23, 1998, the Company entered into an agreement with JAD Records
regarding the production of eight music records of Bob Marley and the Wailers.
During the year ended December 31, 1996, the Company recognized revenue of
approximately $105,000 as a result of a prior agreement with JAD Records. During
the year ended December 31, 1997, these amounts were reserved by the Company as
uncollectible, and to date, the Company has not received or recorded income or
revenue as a result of sales pursuant to the new agreement. In June 1998, the
Company assigned the collection of all producer and publisher royalties
collectible pursuant to the new agreement to a non-affiliated third party.
SUN ENTERTAINMENT
- -----------------
On April 22, 1997, the Company entered into a licensing agreement with Sun
Entertainment Corporation, pursuant to which the Company obtained non-exclusive
rights to various master recordings in consideration for advance payments
against future royalties that will accrue on all tapes and compact disks that
are sold by the Company. To date the Company has not attempted to exploit these
master recordings, and has not received royalties, recognized revenue or income
as a result of this agreement.
F-23
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PRODUCTION AND DISTRIBUTION AGREEMENTS (Continued)
BLACK TIGER RECORDS
- -------------------
In February 1997, the Company obtained a 50% interest in Black Tiger Records
consisting primarily of certain master recordings. Under the terms of the joint
venture agreement assigned to the Company, Black Tiger Records, through Anansi
Records, Inc., its agent, contracted with Navarre Corporation for the sale and
distribution of these recordings. To date, Anansi Records, Inc. has failed to
provide the Company or Black Tiger Records with an accounting of the sales in
accordance with the terms of the agreement, and the Company has recognized no
revenue or other income in connection with the Company's interest in the Black
Tiger Records joint venture.
MONACO RECORDS
- --------------
In February 1998, the Company entered into an agreement with Monaco Records to
form a joint venture under the label Monaco/PNEC to distribute the Company's
products throughout Europe. According to the agreement, all catalogue sales,
after costs, will be divided on a fifty-fifty percent basis, and the Company
acquired the right of first refusal to distribute these releases in the United
States and Canada. To date the Company has received no royalties, and has
recognized no revenue or income in connection with this agreement.
ATLANTIC COAST DIGITAL CONCEPTS, INC.
- -------------------------------------
On April 30, 1998, the Company entered into a multi-phase agreement with
Atlantic Coast Digital Concepts, Inc. to expand and enhance the Company's
website (www.planetentertainment.com) in consideration for 20,000 shares of the
Company's common stock for services rendered and to be rendered.
NEW MILLENNIUM COMMUNICATIONS, LTD.
- -----------------------------------
On May 18, 1998, the Company entered into an agreement with New Millennium
Communications, Ltd. to form a joint venture operating under the name Planet
Entertainment Europe, Ltd. concerning the licensing and distribution of master
recordings owned by the Company. According to the terms of the agreement, Planet
Entertainment Europe, Ltd. has the non-exclusive right to market, reproduce and
distribute all subject master recordings for a term of 99 years, with each party
to the joint venture to recover their respective costs and to distribute any
resultant profits on an equal basis. As of June 1998, the Company has
contributed 15 compilations of its master recordings to the joint venture, and
distribution is expected to begin in the fall of 1998. To date, however, the
Company has received no royalties, and has recorded no revenue or income as a
result of this agreement.
F-24
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - EQUIPMENT
Equipment consists of the following:
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ --------
(Unaudited)
Recording studio equipment $ 50,000 $ 200,000 $ 200,000
Computer equipment and other -- 10,094 10,094
Less accumulated depreciation and
amortization (2,500) (21,009) (31,261)
-------- --------- ---------
$ 47,500 $ 189,085 $ 178,833
======== ========= =========
NOTE 5 - MASTERS
The Company has entered into two agreements to secure rights to certain master
recordings and assets as follows:
A) The Company issued 3,060,000 shares of common stock to acquire 5,000
masters, publishing rights to 300 songs and a recording studio located
in New Jersey from a related party. The masters are valued at
predecessor cost of $9,200,000.
B) The Company issued 1,500,000 shares of common stock and assumed a
promissory note for $1,250,000 to acquire 10,000 masters from an
unrelated third party valued at predecessor cost of $4,600,000.
The Company has the non-exclusive right to manufacture, distribute, advertise,
sell, and promote in all configurations, the performances contained on the
masters.
NOTE 6 - DEFERRED REVENUE
On July 8, 1997, the Company entered into an agreement granting Nippon Columbia
Company, Ltd. (NCC) and its subsidiaries, the right to produce and distribute
music CD's and video tapes in Japan, Hong Kong, Taiwan and Singapore. The
agreement is for a term of one year and four months, commencing September 1,
1997, and may be extended by NCC provided NCC makes certain minimum payments and
purchases during the term of the agreement.
The Company received a $150,000 advance under the agreement which was recorded
as deferred revenue. For the period ended December 31, 1997 and June 30, 1998,
$3,775 and $933, respectively, were earned under the agreement.
F-25
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTE PAYABLE, RELATED PARTY
On January 27, 1997, the Company borrowed $100,000 at 10% interest due January
27, 1998 from an investment company. The Company converted the $100,000 note and
$10,000 in accrued interest to 1,100,000 shares of the Company's common stock.
On January 19, 1998, the Company borrowed an additional $150,000 from the
investment company. The note is due on demand, with interest payable on January
19, 1999 at 10% per annum.
NOTE 8 - LONG-TERM DEBT, RELATED PARTY
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ ---------
(Unaudited)
<S> <C> <C> <C>
Note payable to Gulf Coast Music, Inc.,
a stockholder of the Company, due
September 2001; interest at 9.75% per
annum. Payments of $250,000
principal plus interest are due annually
beginning September, 1997,
unsecured $ 1,250,000 $ 1,250,000 $ 1,000,000
Less current portion (250,000) (500,000) (250,000)
----------- ----------- -----------
$ 1,000,000 $ 750,000 $ 750,000
=========== =========== ===========
</TABLE>
The Company has not made all of the required payments due under the terms of the
note since Gulf Coast Music, Inc. has not completed its obligation to deliver
unencumbered title to certain of the master recordings. Gulf Coast claims there
have been certain adverse claims regarding certain of the master recordings
raised by various non-affiliated third parties. Management believes that all or
substantially all of the disputes will be resolved favorable to the Company.
Estimated maturities on long-term debt are as follows for the years ending
December 31,:
1998 $ 250,000
1999 250,000
2000 250,000
2001 250,000
-----------
$ 1,000,000
===========
Interest expense for the periods ended December 31, 1997 and 1996 was $144,382
and $43,100 and $77,991 and $71,777 for the six months ended June 30, 1998 and
1997.
F-26
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued interest $ -- $ 50,000 $ 28,000
Meals and entertainment -- 28,000 8,000
Net operating loss carryforwards 1,600 222,000 339,000
----------- ----------- -----------
Gross deferred tax assets 1,600 300,000 375,000
Valuation allowance (1,600) (300,000) (375,000)
----------- ----------- -----------
Total deferred tax assets -- -- --
Deferred tax liability:
Record masters 4,600,000 4,600,000 4,600,000
----------- ----------- -----------
Net deferred tax liability $ 4,600,000 $ 4,600,000 $ 4,600,000
=========== =========== ===========
</TABLE>
No provision for income taxes has been recorded for the periods ended December
31, 1997 and 1996 and for the six months ended June 30, 1998 and 1997 as the
Company has incurred losses during these periods. Net operating loss carryovers
of approximately $4,000 as of December 31, 1996, $600,000 as of December 31,
1997 and $915,000 as of June 30, 1998 expire in 2011, 2012 and 2013,
respectively. The Company is providing a valuation allowance in the full amount
of deferred tax assets as there is no assurance of future taxable income.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
RESTATED AGREEMENT
- ------------------
The financial statements have been prepared based on the assumption of the
formation of Gulf Coast. Gulf Coast is to be formed upon confirmation of a plan
of reorganization in the bankruptcy proceedings of an individual not related to
Planet. The terms and conditions of the formation and details of the transaction
are described below.
F-27
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
On December 17, 1996, Planet entered into an agreement of terms to amend and
restate certain agreements entered into by Planet on September 17, 1996 between
Music Marketeers, Incorporated (Music) and J. Jake, Incorporated (Jake). These
agreements were for the acquisition of 10,000 master recordings, an option to
acquire a mortgage note on a recording studio and a consulting services
agreement with an individual in exchange for 2,000,000 shares of common stock of
Planet and promissory notes for $1,350,000. The agreements have been amended and
restated as an Asset Purchase Agreement between Planet, Gulf Coast and Jake for
the purchase of 10,000 master recordings and an amended and restated consulting
agreement between Planet and an individual in exchange for 1,500,000 shares of
common stock of Planet and a promissory note for $1,250,000.
The conditions of the restated agreement are contingent on the approval of the
bankruptcy court. Should such bankruptcy court approval not be obtained, the
original agreements will remain in full force. The financial statements have
been presented to reflect the amended and restated agreement.
Following is a proforma balance sheet for June 30, 1998 which reflects the
original agreements to acquire Music and Jake, which will be recorded if the
bankruptcy court approval is not obtained for the restated agreement.
<TABLE>
<CAPTION>
Music Jake
Proforma Proforma Proforma
Planet Adjustment Adjustment Balances
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets $ 4,758,013 $ -- $ -- $ 4,758,013
Equipment 178,833 -- -- 178,833
Other assets 13,919,547 -- 570,000(2) 14,489,547
----------- ---------- --------- -----------
Total Assets $18,856,393 $ -- $ 570,000 $19,426,393
=========== ========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $ 1,406,411 $ 20,000(1) $ 570,000(2) $ 1,996,411
Long-Term debt 750,000 80,000(1) -- 830,000
Deferred income
taxes 4,600,000 -- -- 4,600,000
Stockholders' equity 12,099,982 (100,000)(1) -- 11,999,982
----------- ---------- --------- -----------
Total Liabilities and
Stockholders' Equity $18,856,393 $ -- $ 570,000 $19,426,393
=========== ========== ========= ===========
</TABLE>
F-28
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Proforma adjustments relating to the original agreements were recorded as
follows:
1. To record additional $100,000 note payable to stockholder of Music.
2. To record option to acquire mortgage note receivable and remaining debt owed
to acquire the recording studio located in New Orleans.
INSURANCE
- ---------
The Company does not maintain insurance to cover damages from fire, flood or
other casualty losses to its music master libraries. Costs resulting from
uninsured property losses will be charged against income upon occurrence. No
amounts for uninsured casualty property losses were charged to operations for
the periods ended December 31, 1997 and 1996 and June 30, 1998 and 1997.
RECORDING AGREEMENTS
- --------------------
Higher Ground Records has entered into several artist recording contracts. The
contracts are for an initial period of one year with options to renew for one to
two years. Recording costs are to be paid by Higher Ground Records and shall be
recouped from royalties due the artist. In accordance with the terms of the
contracts, all masters, records and reproductions are the property of Higher
Ground Records.
PRODUCTION AGREEMENT
- --------------------
Higher Ground Records has entered into an agreement with an unrelated individual
for production services. The agreement is for an initial period of one year with
two one year options. The contract calls for a commitment of at least $2,000 per
project advance and a royalty. The royalty is payable only after recoupment of
all recording costs under the applicable recording contract.
EMPLOYMENT AGREEMENTS
- ---------------------
Higher Ground Records has entered into two employment agreements with its former
stockholders for amounts and terms to be negotiated in the future.
CONSULTING AGREEMENTS
- ---------------------
Planet has entered into an agreement for consulting services with an unrelated
individual. The agreement is for a term of five years and requires a monthly
payment of $10,000 in consideration for services performed. Consulting services
include maintenance and administration of existing licenses; and negotiation and
acquisition of new licenses for master sound recordings.
On July 16, 1997, the Company entered into a consulting agreement with an
unrelated party. The agreement was for a term of one year, with payments of
$10,000 per month. The consultant was to assist the Company in conducting its
public relations activities with the financial community. On April 26, 1998, the
Company cancelled the agreement, and in consideration for settling a dispute
with the party, agreed to deliver $45,000 of the proceeds of the sale of 100,000
shares of the Company's stock to the party, within 30 days from the date that
the shares may become eligible for sale.
F-29
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
LEASE AGREEMENT
- ---------------
The Company entered into a lease agreement with the former shareholders of Al
Alberts On Stage, Ltd. (Note 17) to lease the land and building which house a
recording studio. The initial term is for a period of five years, with lease
payments of approximately $24,000 per year. Rent expense for the year ended
December 31, 1997 was $11,190.
LITIGATION
- ----------
The Company is a party to various claims, complaints, and other legal actions
that have arisen in the ordinary course of business. The Company believes that
the outcome of all pending legal proceedings, in the aggregate, will not have a
material adverse effect on the Company's financial condition or the results of
operations.
NOTE 11 - PLANET ENTERTAINMENT CORPORATION STOCK PLAN AND WARRANTS
On October 1, 1996, the Company adopted a plan known as Planet Entertainment
Corporation Stock Plan (the "Plan") pursuant to which the Board of Directors
shall issue awards, options and grants. Pursuant to the Plan 1,000,000 shares of
the Company's common stock have been reserved for issuance as awards. No options
have been issued to date.
NOTE 12 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to financial statements, the following related party transactions have occurred:
DUE TO STOCKHOLDERS
- -------------------
Due to stockholders represent 9% interest bearing, working capital advances,
made by two stockholders. The advances are due upon demand.
AGREEMENTS WITH MULTI-MEDIA INDUSTRIES CORPORATION (MMIC):
- ----------------------------------------------------------
JOINT VENTURE AGREEMENT
- -----------------------
On July 22, 1997, the Company entered into a joint venture agreement with MMIC,
an entity whose certain shareholders are also shareholders of the Company. The
agreement requires the production of a minimum of 20 new releases per year,
contingent upon attaining a specified level of funding. All net revenue from the
production, development and distribution of releases under the agreement will be
split 50% to the Company and 50% to MMIC. Under the agreement, the Company is
entitled to a distribution royalty for foreign and domestic distribution of the
produced compact disks. No revenues have been earned under this agreement.
PRODUCTION
- ----------
In September 1996, the Company entered into a production and distribution
agreement with MMIC under the label Century Records, which calls for Planet the
Company to receive compensation of 10% of the cash receipts, net of returns, of
the production and distribution of 10 enhanced multi-media compact disks. MMIC
is required to pay directly or reimburse the Company for all production costs
incurred by the Company.
F-30
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - LETTER OF AGREEMENT
In July 1998 the Company signed a letter of agreement to purchase a music label
distributor for $3,000,000 cash and 250,000 stock options in exchange for all of
the outstanding stock of the music label distributor.
NOTE 14 - PREFERRED STOCK
On May 31, 1998, the Company sold $5,000,000 (500 shares) of 7% non-voting,
convertible preferred stock to a private investment fund. The Company also
issued warrants to purchase 75,000 shares of common stock, exercisable at $9.625
for 5 years to the fund. The preferred stock pays a cumulative 7% annual
dividend on a quarterly basis in cash or shares of common stock and is
convertible to common stock at 78% of the prior 10 days trading price of the
common stock. The preferred stock automatically converts to common stock on the
same basis in two years. The Company has the right to redeem the preferred stock
on the same terms as the conversion. Passed preferred stock dividends as of June
30, 1998 were $20,317.
The agent for the transaction was paid a 10% ($500,000) fee and received
warrants to purchase 150,000 shares of common stock exercisable at $9.625 for 5
years. In addition, the Company paid $25,000 of direct expenses for the
transaction.
NOTE 15 - STOCK-BASED COMPENSATION
On January 29, 1997, warrants were issued to certain officers and directors to
purchase 3,160,000 shares of common stock. Each warrant is exercisable at $20
per warrant to purchase 10 shares. The warrants were issued at the fair value of
the stock on the date of the grant. The warrants are exercisable immediately and
for a period of 10 years beginning January 29, 1997. As of December 31, 1997 and
June 30, 1998, their effect on the weighted average number of shares outstanding
is anti-dilutive and no warrants have been exercised.
During 1997, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The new standard
requires the Company to adopt the "fair value" method with respect to
stock-based compensation of consultants and other non-employees.
The Company did not change its method of accounting with respect to employee
stock options; the Company continues to account for these under the "intrinsic
value" method. Had the Company adopted the fair value method with respect to
options issued to employees as well, an additional charge to income of
$10,616,000 would have been required in 1997; proforma net loss would have been
$11,425,912 and net loss per share would have been $1.12 on both a basic and
diluted basis.
In estimating the above expense, the Company used the Modified Black-Scholes
European Pricing Model. The average risk-free interest rate used was 5.89%,
volatility was estimated at 131%; the expected life was less than 3 years.
F-31
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
For the year ended December 31, 1997
Issued 100,000 shares of common stock for the acquisition of Al Alberts On
Stage, Ltd.
Issued 1,100,000 shares of common stock in satisfaction of note payable.
Issued 367,911 shares of common stock for services.
For the period ended December 31, 1996:
Issued 5,065,000 shares of common stock for services.
Issued 3,060,000 shares of common stock for the acquisition of the New
Jersey recording studio, publishing rights to 300 songs and the rights to
5,000 master recordings.
Issued 25,000 shares of common stock for the acquisition of the Higher
Ground Records.
Issued 1,500,000 shares of common stock assumed and $1,250,000 in
promissory notes for the rights to 10,000 master recordings.
Issued 101,055 shares of common stock in a reverse stock split.
Accrued organization costs of $75,000 as due to stockholders.
For the period ended June 30, 1998:
Issued 554,089 shares of common stock for services.
NOTE 17 - AL ALBERTS ON STAGE, LTD.
On March 1, 1997, the Company acquired substantially all of the assets of Al
Alberts On Stage, Ltd., ("On Stage"), a recording studio. For financial
statement purposes the acquisition was accounted for as a purchase. Accordingly,
the assets and liabilities of the acquired business are included in the
consolidated balance sheets at December 31, 1997 and June 30, 1998 (unaudited).
On Stage's results of operations are included in the consolidated statement of
operations since the date of acquisition. The consideration, which included
100,000 shares of common stock valued at $2.14 per share ($214,000) was
allocated as follows:
Equipment $ 150,000
Goodwill 85,000
Liabilities (21,000)
---------
$ 214,000
=========
F-32
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - AL ALBERTS ON STAGE, LTD. (Continued)
The results of On Stage's operations from January 1, 1997 through February 28,
1997 are not material.
F-33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 (g) of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 21, 1998 PLANET ENTERTAINMENT CORPORATION.
By: /s/ WALLACE GIAKAS
-----------------------------
Wallace Giakas, Chairman
<PAGE>
EXHIBITS
Acquisition Agreements Ex-1
a. Higher Ground Records Acquisition
b. Asset Purchase Agreement between Higher Ground Records and
Planet Entertainment, Inc.
c. Ampro International Golf Tour, Inc. Reverse Merger
d. Maestro Holding Corporation Acquisition
e. Gulf Coast Music, Inc. and J.Jake, Inc.
f. Acquisition Agreement between Music Marketers, Inc., Joseph
Valenziano and Planet Entertainment
Material Contracts Ex-2
a. Sun Entertainment Agreement
b. Monaco Agreement
c. Atlantic Coast Digital Concepts, Inc. Agreement
d. New Millennium Communications, Ltd. Agreement
e. Black Tiger Records Agreement
f. Nippon Columbia Agreement
g. Multi-Media Industries Corporation Production Agreement
h. JNC Opportunity Fund Ltd. Convertible Preferred Stock Agreement
i. Lease Agreement with Al Alberts On Stage, Ltd.
j. Executive Compensation Agreement with Wallace M. Giakas
k. Executive Compensation Agreement with John S. Arnone
l. Executive Compensation Agreement with Joseph Venerri
m. Purchase and Sale Agreement with Northeast One Stop, Inc.
n. Gulf Coast Music, L.L.C. Agreement
Articles of Incorporation Ex-3
a. Republic Gold & Silver, Incorporated
By-Laws of Incorporation
b. Planet Entertainment Corp.
c. Articles of Amendment to and Restatement of Articles
of Incorporation of Planet Entertainment Corporation
dated May 31, 1998
d. Articles of Amendment to and Restatement of Articles
of Incorporation of Planet Entertainment Corporation
dated September 21, 1998
Opinion Re: Legality Ex-5
Statement Regarding Earnings Per Share Ex-11
Computation of Loss Per Common Share Ex-17
Subsidiaries of the Registrant Ex-21
Consents of Experts and Counsel Ex-23
Financial Data Schedule Ex-27
HIGHER GROUND RECORDS
C/O Victor S. Waller
69 Rolling Hills Drive Willingboro, New Jersey 08046
Telephone: 609-877-0824
Fax: 609-835-4583
July 29, 1996
John Froehling, Esq.
101 Eisenhower Parkway
Roseland, NJ 07068
Dear Mr. Froehling:
Pursuant to our conversation I am writing this letter to delineate desired
tenets to be included in the agreement between Planet Entertainment and Higher
Ground Records to permit the following:
1. Purchase of Higher Grounds Records by Planet Entertainment
2. A initial receipt of $12,000 operational funding
3. Provisions for Stock Issuance
Purchase of Higher Ground Records
Higher Ground Records will be purchased by Planet Entertainment for an issuance
of stock in Planet Entertainment. I have enclosed a copy of the property to be
transferred, a balance sheet, an income statement and a statement on how the
$12,000 will be utilized. Employment agreements should be drafted for the
following personnel:
1. Victor S. Waller, President
2. Albert E. Jones, Vice-President
It is our hope that this transaction will be completed by August 5, 1996. If you
have any questions or concerns, please feel free to contact me at work at
609-261-1000, Ext. 424 or at my residence at 609-877-0824. If you are unable to
contact me, please feel free to contact Albert Jones at 609-261-1000, Ext. 400
or at his residence at 609-267-1748.
Thank you in advance for you prompt consideration of this matter.
<PAGE>
John Froehling, Esq.
Page 2
July 29, 1996
Sincerely,
/s/ Victor S. Waller
----------------
Victor S. Waller
President
Enclosures (4)
Cc: Joseph Venneri
William Giakas
/s/ Victor S. Waller
----------------
Victor S. Waller
/s/ Albert E. Jones
----------------
Albert E. Jones
/s/ Joseph Venneri
----------------
Joseph Venneri
/s/ Wallace Giakas
----------------
Wallace Giakas
ASSET PURCHASE AGREEMENT
THIS AGREEMENT executed this 1st of August, 1996 between and among
Planet Entertainment, a New Jersey corporation with its principal place of
business at 222 Rt. 35 Middletown, New Jersey ("the Buyer"); and Higher Ground
Records ("The Other Side") a New Jersey corporation with its principal place of
business at 69 Rolling Hills Drive Willingboro, New Jersey 08046 ("the Company")
and Victor S. Wailer, Albert E. Jones, Calvin Taylor, James Ford, Garland Miche'
Wailer, individuals who reside at ____________________________________
(collectively, "the Company and the Owners" or "the Sellers"). The Sellers and
Buyer are referred to collectively as the Parties.
RECITALS
A. WHEREAS, Sellers are the sole owners of the Company which operate a
gospel music production and talent agency (the "Business") under the name of
Higher Ground Records. The Company owns certain intellectual property and
contract rights to various master recordings and performers. The definition of
the term "Business" is specifically intended to include all the assets, tangible
and intangible, relating to that business.
B. WHEREAS, the Sellers desire to sell assets constituting
substantially all of the assets of the Business to Buyer.
C. WHEREAS, Buyer wishes to acquire certain specified assets and
continue to operate the business conducted by the Sellers.
THEREFORE, in consideration of the premises and the covenants
<PAGE>
herein contained, the Parties hereto agree as follows:
I. PURCHASE AND SALE OF ASSETS.
A. 1. Sellers agree to sell, assign, transfer and deliver to the Buyer,
and the Buyer shall purchase from Sellers, the specific assets of Sellers which
constitute the Business, as identified in Exhibit A on the Schedules attached
thereto (and all such appurtenant thereto, tangible or intangible) attached
hereto including certain inventory, equipment and fixtures, goodwill, trade
name, and telephone and Yellow Page listings (if any), and certain other assets
set forth therein (the "Assets").
2. The amounts allocated to each Asset in Exhibit A and Exhibit C,
Inventory, all of which are included in the Purchase Price, shall be used by all
of the Parties for reporting for federal tax purposes. The necessary tax filings
in order to comply with Internal Revenue Code Section 1060 is attached as
Exhibit [ ]. Buyer's accountant shall complete such form.
3. The Buyer shall not assume responsibility for any Liabilities of
any nature or type related to, or due by, Sellers, or the Business. The Buyer is
purchasing the Assets free and clear of all liens and encumbrances. The
transaction described in this section is referred to as the "Sale". Sellers
expressly acknowledge that Buyer has no responsibility for any Liabilities due
to any suppliers to the Business arising prior to the date of this Agreement.
B. The Sale shall include all the Sellers' interests in any accounts
receivable.
<PAGE>
C. The Parties have taken a physical inventory of all equipment,
appliances, utensils and fixtures used in the Business ("Equipment"), and have
attached same as Exhibit A, hereto. The Buyer shall purchase any such items as
part of the Purchase Price set forth herein. The Sellers shall not sell nor
remove from the Premises any such items prior to the Closing of the transactions
contemplated herein.
D. Seller shall evidence the transfer of the Assets by executing the
bill of sale in favor of Buyer in the form attached hereto as Exhibit D (the
"Bill of Sale").
II. PURCHASE PRICE.
A. 1. The purchase price for the Sale shall be [ ] Thousand Dollars and
00/100s ($00.00) payable by certified or bank check on the Closing of this
Agreement, inclusive of any amounts allocated for Inventory, if any, as provided
herein (the "Purchase Price"). The entire Purchase Price shall be allocated
among the creditors of the Sellers relating to the Business as required under
N.J.S.A. 12A:6-106. Buyer shall pay the entire purchase price into an escrow
held by Buyer's attorney who shall then make checks totaling the Purchase Price
payable to such creditors contained in Exhibit B, and any creditors providing
notice within Thirty (30) days as provided under N.J.S.A. 12A:6107. Copies of
all such payments shall be furnished to both Buyer and Sellers. The escrow shall
be governed by the terms of the Escrow Agreement attached hereto as Exhibit K.
III. LEASE.
Sellers hereby grant, assign, transfer, convey and relinquish any
<PAGE>
claim, rights or interests which Sellers may have in the Premises.
IV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES.
A. The Sellers represent, warrant and covenant to Buyer each of the
items listed below:
1. This Agreement constitutes, and each instrument to be executed
and delivered by each of the Sellers in accordance herewith shall constitute,
subject solely to the claims of creditors disclosed herein, the valid and
legally binding obligation of each of the Sellers, enforceable against each of
them in accordance with their respective terms. None of the Sellers are aware of
any circumstance which could affect the validity, legality or enforceability of
this Agreement.
2. The Company is a duly organized, unincorporated organization,
has all requisite authority to own, lease and operate the Assets and to carry on
the Business as presently conducted, and is duly qualified and authorized to do
business in the County of _____ State.
3. No statements have been made by Seller in this Agreement or in
the Exhibits or Schedules attached hereto, which are untrue statements of any
fact, or misstatements of any fact which would make the statements contained
herein or therein misleading.
4. The Sellers do not have any material liabilities or obligations,
whether accrued, absolute, contingent or otherwise, relating to the Assets, the
Business or the which were known except as reflected in or otherwise disclosed
in this Agreement or the
<PAGE>
Exhibits or Schedules.
5. All income, unemployment and other taxes, franchise and similar
returns and reports for the Sellers required by federal, state and local law,
including but not limited to federal income tax Form 1120, federal employment
tax Forms 904 and 941, and New Jersey Corporation reports have been duly and
timely filed and all taxes, assessments and other governmental charges upon
Sellers or upon the Premises, the Assets, the Business and the Store which
Sellers in good faith believe are due and payable have been paid.
6. Except as shall be set forth in this Agreement, or the Exhibits
and Schedules attached, to be best of Sellers' knowledge, there are no actions,
claims, proceedings or investigations pending, or threatened, against or
affecting the Sellers, specifically and directly, with respect to their
interests in the Business or the Assets, in any court or arbitration proceeding
or before any governmental agency or authority, which if adversely decided,
could have an adverse effect on the Business, or the Assets. To the best of
Sellers knowledge neither the Company or any of the Sellers are subject to any
order, judgment, injunction or decree which could adversely affect the Business,
the Assets. To the best of Sellers' knowledge, the Sellers are not subject to
any order, judgment, injunction, or decree which could prevent them from fully
performing their obligations hereunder. The Sellers have not received any actual
notice of any, action, claim, proceeding investigation. judgment, injunction. or
decree which is not disclosed in the Schedules or Exhibits attached hereto.
7. Sellers do not have any employee benefit plans, as
<PAGE>
that term is defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended. Purchasers shall not have any responsibility or
liability for the funding of any such plan or the payment of any benefits under
any such plan.
8. To the best of Sellers' knowledge no action or proceeding in
bankruptcy or insolvency has commenced or been threatened against the Company or
Sellers. Sellers' have no actual notice of any action or proceeding in
bankruptcy or insolvency.
10. The Company and Sellers have fully disclosed, to the best of
their knowledge and ability, each and every liability, whether contingent or
certain, in this Agreement, the Exhibits, and Schedules which relate to the
Business, the Assets.
B. The Purchaser represents, warrants and covenants to the Seller each
of the items listed below:
1. The Purchaser is duly organized, validly existing and in good
standing under the laws of the State of New Jersey, has all requisite authority
to carry out its obligations under this Agreement and each of the Exhibits and
Schedules attached.
2. To the best of the Purchaser's knowledge, it is not subject to
any claims, proceedings actions or judgements which could materially affect its
ability to perform as required under this Agreement and each of the Exhibits and
Schedules attached.
3. This Agreement and each and every Exhibit and Schedule
constitute, and each instrument to be executed and delivered by the Purchaser in
accordance with this Agreement constitute a valid and legally binding obligation
of Purchaser enforceable against it in accordance with their respective terms.
<PAGE>
The Purchaser is not aware of any circumstances which could affect the validity,
legality or enforceability of this Agreement.
5. All assets are purchased as is and are based on a physical
inspection by Purchaser.
V. FURTHER ASSURANCES.
The Parties hereto shall, subsequent to the Closing, execute and
deliver such further documentation and take such further actions, in each case
without cost to the other Parties hereto, as shall be reasonably requested by
any other Party hereto, to further evidence and perfect the completion of the
Sale and other transactions described in this Agreement and the Exhibits and
Schedules.
VI. TRADE NAME.
Purchaser is purchasing from Sellers, all of Sellers' right, title and
interest in the trade name: Higher Ground Records in accordance with the
provisions of the Assignment of Trade Name attached as Exhibit I, hereto.
VII. INDEMNIFICATION.
Sellers, jointly and severally, agree to indemnify and hold harmless
Purchaser, against any and all losses, damages or expenses including reasonable
attorney's fees arising out of or relating to any breach of any representation,
warranty or covenant contained in this Agreement and the Exhibits and Schedules,
or any failure to otherwise comply with the terms of this Agreement. This
<PAGE>
section shall not preclude any Party from raising any defense which it may have
in law or in equity in connection with any claim for indemnification.
VIII. BROKERS AND EXPENSES.
A. The Sellers and the Buyer represent and warrant to each other that
none of them has dealt with any broker in connection with this transaction. Each
Party agrees to indemnify and hold the other Parties hereto harmless against any
obligation or liability, contingent or otherwise, for brokers' commissions or
finders' fees.
B. The Sellers and the Buyer shall pay all their own expenses incurred
in connection with the transactions contemplated hereunder, including, but not
limited to, all fees and expenses of agents, representatives, counsel and
accountants.
IX. CONSTRUCTION.
A. This Agreement may not be modified, renewed, extended, or
discharged, except by an agreement in writing signed by the party against whom
enforcement of the modification, renewal, extension or discharge is sought, or
by such party s agent.
B. Any provision of this Agreement prohibited by law shall be
ineffective to the extent of such prohibition without invalidating the rest of
this Agreement which shall be interpreted to conform, to the extent permitted by
law, with the original intent of the parties.
C. This Agreement contains the entire understanding of the Parties,
and such understanding may not be modified or terminated
<PAGE>
except in writing signed by the Party to be charged.
D. This Agreement shall be governed by the laws of the State of New
Jersey (the "State").
E. The Parties consent to personal jurisdiction in the State, and in
any federal court situated therein.
F. In the event of any conflict between a provision of this Agreement
and any Exhibit or Schedule, the provisions of this Asset Purchase Agreement
shall control.
G. Waiver of any breach of this Agreement must be in writing and shall
not be deemed a waiver of- any preceding or succeeding breach of the same or any
other provision.
H. Captions, Section numbers and headings have been inserted for
convenience only and such shall not be construed to affect the interpretation of
any provision of this Agreement.
X. NOTICES.
Any notices provide herein or pursuant to this License shall be sent
via certified mail return receipt requested, registered mail, facsimile,
overnight courier, or by hand delivery. Notice sent via mail shall be effective
on the Third (3rd) business day after dispatch. Notice sent via facsimile or
hand delivery shall be effective upon receipt. Notice sent by overnight courier
shall be effective on the next business day. All Notices shall be given to the
party to be notified at the address first above written, unless notice in
accordance with the terms hereof is given of a change in such address. A copy of
any Notice to Buyer shall be sent to:
<PAGE>
XI. ASSIGNABILITY.
This Agreement shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have duly executed and
delivered this Agreement as of the date first above written:
Purchaser:
By:
--------------------------------------
Sellers:
-------------------------------------------
Victor S. Wailer, President
-------------------------------------------
Albert E. Jones, Vice President
-------------------------------------------
Calvin Taylor, Esq., Director of Operations
-------------------------------------------
James Ford, Director of Promotions
-------------------------------------------
Garland Miche' Wailer, Producer
PLAN OF MERGER
OF
AMPRO INTERNATIONAL GOLF TOUR, INC.
A FLORIDA CORPORATION
PURSUANT TO THE GENERAL CORPORATION LAWS OF THE
STATE OF FLORIDA
INTO
PLANET ENTERTAINMENT CORPORATION, A DELAWARE CORPORATION, AS THE
SURVIVING CORPORATION PURSUANT TO SECTION 252 ET SEQ. GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE.
PLAN OF MERGER. Dated this 30, day of September, 1996, by and between
Ampro International Golf Tour, Inc. A Florida Corporation and all of the
Directors thereof, the Planet Entertainment Corporation, A Delaware Corporation
and all of the Directors thereof, the two Corporations being hereinafter
sometimes called the Constituent Corporations.
WHEREAS. The board of Directors of each of the Constituent Corporations
deem it advisable for the welfare of the Constituent Corporations that these
corporations merge under the terms and conditions hereinafter set forth, such
merger to be effected pursuant to the statutes of the State of Florida, and they
have duly approved and authorized the terms of the plan of merger.
WHEREAS. The plan of merger is contained within the Articles of Merger.
WHEREAS. There are no amendments to the surviving corporation's
articles of incorporation, therefor, no stockholder approval is required, and
NOW THEREFORE, in consideration of the (Promises) and the mutual
agreements, warranties and covenants herein contained, it is agreed that Ampro
International Golf Tour, Inc. of Florida and Planet Entertainment Corporation of
Delaware shall be merged, and that Planet Entertainment Corporation Shall be the
Surviving Corporation and the terms and conditions of such merger and mode of
carrying it into effect are and shall be as follows:
1. NAME OF SURVIVING CORPORATION: The name of the Corporation, which is
sometimes hereinafter referred to as the Surviving Corporation, shall
and from and after the effective date of the Merger, be Planet
Entertainment Corporation the separate existence of Ampro International
Golf Tour, Inc. a Florida Corporation shall cease at the effective time
of the Merger, except insofar as it may be continued by Law in order to
carry out the purposes of this Agreement of Merger, and except as
continued in the Surviving corporation.
<PAGE>
2. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION: The articles of
incorporation of the surviving corporation shall be the articles of
incorporation of Planet Entertainment Corporation, a Delaware
Corporation, a copy of which is annexed as Exhibit (1), hereto.
3. BYLAWS OF THE SURVIVING CORPORATION: The Bylaws of Planet Entertainment
Corporation, a Delaware Corporation, at the effective time of the
merger, shall be the by-laws of the Surviving Corporation, until
altered or replaced as provided herein.
4. BOARD OF DIRECTORS AND OFFICERS: The members of the board of directors
and the officers of Planet shall be the directors and the officers of
the Surviving Corporation immediately after the effective time of the
merger and shall serve in their respective official capacities for the
terms provided by law or in the by-laws of Planet, or until their
respective successors are elected and qualified. All officers and
directors of Ampro International Golf Tour, Inc. will resign
immediately after the effective date of the merger.
5. AUTHORITY TO CONDUCT BUSINESS: Planet Entertainment Corporation of
Delaware represents that the Corporation has not filed an application
for authority to do business in any other state.
6. CONVERSION OF SHARES: The manner of converting shares of the
Constituent Corporations into the shares of the Surviving Corporation
shall be set forth in this paragraph, as follows, immediately upon the
effective date of the merger, each share of stock of Ampro
International Golf Tour, Inc. of Florida outstanding in the hands of
the existing shareholders, being all of the shares of Ampro
International Golf Tour, Inc. outstanding, without any action on the
part of the holder thereof, shall automatically become and be converted
into common stock of the Surviving Corporation at the rate of ONE (1)
share of the Surviving Corporation for every three hundred (300) share
of Common stock of Ampro International Golf Tour, Inc. of Florida and
each outstanding certificate representing share of common stock of
Ampro International Golf Tour, Inc. of Florida shall thereupon be
deemed, for all corporate purposes (other than the payment of
dividends) to evidence the ownership of the number of fully paid,
non-assessable shares of common stock of the surviving corporation into
which such shares of common stock of Ampro International Golf Tour,
Inc. of Florida shall have converted.
7. RIGHTS OF SHAREHOLDERS: After the effective time of merger, each holder
of a certificate which therefore represented shares of common stock of
Ampro International Golf Tour, Inc. of Florida shall cease to have any
rights as a shareholder of Ampro International Golf Tour, Inc. After
the effective time of the merger, any holder of a certificate or
certificates
<PAGE>
which therefore represented shares of the common stock of Ampro
International Golf Tour, Inc. shall be required to surrender the same
to the transfer agent of the Surviving Corporation, IDATA Incorporated
and shall thereupon be entitled to receive in exchange therefore, a
certificate or certificates representing the number of shares of common
stock of Ampro International Golf Tour, Inc. therefore represented by
each certificate or certificates, shall be converted.
8. EFFECTIVE DATE OF MERGER: (A) For all purposes of the laws of the State
of Delaware, this Agreement of Merger and the merger herein provided
for shall become effective and separate existence of Ampro
International Golf Tour, Inc. except insofar as it may be continued by
statue, shall cease as soon as this Agreement shall have been adopted,
signed and acknowledged in accordance with the laws of the State of
Delaware, and certificates of its adoption and approval shall have been
executed in accordance with such laws; and this certificate and
Agreement of Merger shall have been filed in the office of the
Secretary of the State of Delaware.
(B) For all purposes of the Laws of the state of Florida, this
Agreement and the Merger herein provided for shall become effective and
the separate existence of Ampro International Golf Tour, Inc. except
insofar as it may be continued by statute, shall cease as soon as this
Agreement shall have been adopted, approved, signed and acknowledged in
accordance with the laws of the State of Florida and certificates of
its adoption and approval shall have been executed in accordance with
such laws: and this certificate of merger shall have been filed in the
Secretary of State of the State of Florida.
(C) The corporate identity, existence, purposes, powers, objects,
franchises, rights and immunities of Planet Entertainment Corporation
shall continue unaffected and unimpaired by the merger hereby provided
for, and the corporate identities, existence, purposes, powers,
objects, franchises, rights and immunities of Ampro International Golf
Tour, Inc. shall be continued in and merged into Planet Entertainment
Corporation and Planet Entertainment Corporation shall be fully vested
therewith.
(D) The date upon which this Agreement is filed in the offices
mentioned above and upon which the constituent corporations shall so
become a single corporation is the effective date of Merger.
9. AUTHORIZATION: The parties hereto acknowledge and respectively
represent that this Merger Agreement is authorized by the laws of the
respective jurisdiction of the constituent corporations and that the
matter was approved at a special shareholders meeting of the respective
corporation at which the shareholders meeting of the respective
corporations at which the shareholders voted, as follows:
<PAGE>
AMPRO INTERNATIONAL GOLF TOUR1 INC. - 80% voted in favor of the
Merger; 0% voted "NO"; 0% voted against the Merger
PLANET ENTERTAINMENT CORPORATION - 100% voted in favor of the
Merger; 0% voted "NO"; 0% voted against the Merger.
10. FURTHER ASSURANCE OF TITLE: As when requested by the Surviving
Corporation, or by successors or assigns, the board of Ampro
International Golf Tour, Inc. will execute and deliver or cause to be
executed and delivered all such deeds and instruments and will take or
cause to be taken all such further action as the Surviving Corporation
may deem necessary or desirable in order to vest in and conform to the
Surviving Corporation, title and possession of any property of any of
the Constituent Corporation acquired by the Surviving Corporation by
reason, or as a result, of the merger herein provided for or otherwise
to carry out the intent and purposes hereof, and the officers and
directors of Ampro International Golf Tour, Inc. and the officers and
directors of the Surviving Corporation are fully authorized in the name
of the respective Constituent Corporations or otherwise, to take any
and all such action.
10.1 (a) COVENANTS, AND OBLIGATIONS PRIOR TO THE EFFECTIVE DATE. Except
as limited by this Paragraph 10.1 pending consummation of the merger,
each of the Constituent Corporations will carry on its business in
substantially the same manner as before and will use its best efforts
to maintain its business organization intact, to retain its present
employees and to maintain its present relationship with suppliers and
other business contacts, except with the prior consent in writing of
the other company pending consummation of the Merger. Ampro
International Golf Tour, Inc. shall not:
a) Declare or pay any dividend or make any other distribution on
its shares.
b) Create or issue any liabilities.
c) Enter into any transaction other than involved in carrying on
its ordinary course of business.
10.2 This Agreement was submitted to the shareholders of Ampro
International Golf Tour, Inc. and the Surviving Corporation for
approval in the manner provided by the laws of the State of
Florida.
10.3 REPRESENTATIONS AND WARRANTIES: Except as may be expressly waived
by Planet Entertainment Corporation.
A) The representations and warranties made by Ampro International Golf
Tour, Inc. to Planet Entertainment Corporation in 10.1 and 10.3 of this
Agreement and in any
<PAGE>
document delivered pursuant to this Agreement shall be deemed to have
been made again on the Effective Date and shall then be true and
correct in all material respects. If Ampro International Golf Tour,
Inc. has discovered any material error, misstatement, or omission in
the representations and warranties, shall report that discovery
immediately to Planet Entertainment Corporation and they shall correct
the Error, Misstatement, or Omission or obtain a written wavier from
Planet Entertainment Corporation.
B) Ampro International Golf Tour, Inc. shall have performed and
complied with all Representations prior to or on the effective date.
C) Ampro International Golf Tour, Inc.:
1) Ampro International Golf Tour, Inc. is a corporation duly
organized, validly existing, and in good standing under the laws
of the State of Florida, and the Securities Exchange Commission
with full corporate power to carry on the business in which it is
engaged:
1.1 Has no subsidiaries.
1.2 Has no liabilities, obligations, or judgements of any kind,
contingent or otherwise.
1.3 Has no litigation, or any pending and/or threatened
litigation.
1.4 Had a registration of its securities under the Securities Act
of 1933.
1.5 Is in full compliance with all federal and state laws and
regulations applicable to it and the Corporation is current in its
filings under the Securities Exchange Act of 1934.
1.6 Has nominal assets.
1.7 Has no options, warrants, bonds, notes, conversion or any
other rights, agreements or commitments of any kind obligating
Ampro International Golf Tour, Inc. contingent or otherwise, to
issue or sell any shares of its capital stock of any class or any
such shares, are outstanding, and no authorization thereof has
been given.
2) The execution, the delivery and the performance of this
agreement by Ampro International Golf Tour, Inc. has been duly
authorized and approved by requisite corporate action of Ampro
International Golf Tour, Inc., Board of Directors.
<PAGE>
3) This Agreement and the instruments delivered to Planet
Entertainment Corporation under this agreement have been duly and
validly executed and delivered by Ampro International Golf Tour,
Inc. and have been duly authorized and approved by requisite
corporate action of Ampro International Golf Tour, Inc. Board.
This Agreement and the instruments delivered under this agreement
constitute the valid and binding obligations of Ampro
International Golf Tour, Inc. and the Officers enforceable in
accordance with their terms.
11. SERVICE OF PROCESS OF SURVIVING CORPORATION: The Surviving Corporation
agrees that it may be served with process in the State of Delaware in
any proceedings for enforcement of obligation arising from the merger,
including any suit or other proceedings to enforce the right of any
shareholder as determined in appraisal proceedings pursuant to the
provisions of the General Corporation Law of the State of Delaware, and
hereby irrevocably appoints the Secretary of the State of Delaware, as
its agent to accept service of process in any suit or other
proceedings. Copies of such process shall be mailed to Planet
Entertainment Corporation at:
Harvard Business Service, Inc.
25 Greystone Manor
Lewes, Delaware 119958-9776
12. ABANDONMENT: This plan of merger may be abandoned (a) by either
Constituent Corporation, acting by its board of directors, at any time
prior to its adoption by the shareholders of both of the Constituent
Corporations, as provided by law, or, (b) by the mutual consent of the
Constituent Corporations, acting each by its board of directors, at any
time after such adoption by such shareholders and prior to the
effective time of the merger. In the event of the abandonment of this
Agreement of Merger pursuant to (a) above, notice thereof shall be
given by the board of directors of the Constituent Corporation and
thereupon, or abandonment pursuant to (b) above, this Agreement of
Merger shall become wholly void and of no effect and there be no
further liability of obligation on the part of either of the
Constituent Corporations or of its board of directors.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: The Representations and
warranties, contained in the Merger Agreement of Ampro International
Golf Tour, Inc. and Planet Entertainment Corporation shall survive for
a period of forty-eight (48) months after the effective date of the
merger.
<PAGE>
IN WITNESS WHEREOF each of the Constituent Corporations, pursuant to
authority granted by its board of directors, has caused this Agreement of Merger
to be executed y a majority of its board of directors and by its President or
CEO and its Secretary.
The respective directors and officers of the Constituent Corporation do
hereby certify that the above Reorganization Agreement was adopted as set forth
in the above Agreement and that said resolutions have not been revoked or
rescinded.
Ampro International Golf Tour, Inc.
Attest:
/s/ INY BALL /s/ DAVID RYAN
- ------------------------- -----------------------------------
Iny Ball David Ryan
Secretary President and CEO
Attest: Planet Entertainment Corporation
/s/ WALLACE GIAKAS /s/ JOSEPH VENNERI
- ------------------------- -----------------------------------
Wallace Giakas President
Secretary
AGREEMENT
THIS AGREEMENT, made as of this 1st day of July 1996, among MAESTRO
HOLDING CORP., a corporation organized under the Laws of Delaware (hereinafter
referred to as "Maestro") GERALD MASSELL, JOSEPH VENNERI, JOHN S. ARNONE,
WALLACE GIAKAS, individually and representative of the stockholders in
accordance with the issuance set forth on Schedule A attached hereto
(hereinafter referred to as "Sellers"); and PLANET ENTERTAINMENT, (hereinafter
referred to as "Purchaser").
WHEREAS, Purchaser wishes to acquire all of the assets of Maestro in
exchange for a commitment to issue 7,000,000 (SEVEN MILLION) shares of common
stock of Purchaser upon recapitalization of said company; and
WHEREAS the Sellers are the sole owners of all the outstanding stock of
Maestro in accordance with the issuance set forth on Schedule A attached hereto;
and
WHEREAS Maestro is the owner of certain rights to a library of master
recordings, copyrights, accounts receivable and the right to develop other
musical arrangements; and
WHEREAS Sellers are willing to sell all the assets of Maestro to
Purchaser subject to the assumption of certain defined liabilities;
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
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<PAGE>
SECTION 1. The closing for the purchase and sale of the Transferred
Assets shall take place at the offices of Frohling, Hudak & McCarthy, P.C. on
July 1, 1996 (the "Closing Date"). Said date may be extended upon the mutual
agreement of the parties but not later than July 15, 1996.
SECTION 2. Sellers and Maestro agree to transfer, assign and/or deliver
all rights and title to the following "Transferred Assets":
(a) master recording library as set forth on Schedule B attached hereto
and made a part hereof including any and all copyrights and trademarks including
but not limited to any pending applications for copyright or trademark.
(b) twenty-four track studio in Jackson, New Jersey including any and
all furniture and equipment.
SECTION 3. In consideration for the transfer of Assets, Purchaser shall
grant and deliver to Sellers and Maestro a commitment to issue 7,000,000 (SEVEN
MILLION) shares of common stock of Purchaser to be issued upon recapitalization
of said company on or before October 1, 1996;
SECTION 4. Sellers and Maestro hereby represent and warrant to
Purchaser that on the date hereof and as of the Closing Date:
(a) Maestro is a corporation duly organized and in good standing under
the laws of the State of Delaware and which has duly authorized capital stock of
1,000 (ONE THOUSAND) shares of Common Stock, $ .001 par value of which 1,000
(ONE THOUSAND) shares have been and will be validly issued, fully paid and
nonassessable as of
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<PAGE>
the date of closing.
(b) Sellers are the owner of all the outstanding Common Stock of
Maestro in accordance with the issuance set forth on Schedule A attached hereto;
(c) The Transferred Assets to be conveyed to Purchaser will be free
and clear of any and all security interests, pledges, claims, liens, equities or
encumbrances whatsoever and, upon the consummation of the transactions herein
contemplated, Purchaser will have acquired good and marketable title to the
Transferred Assets, free and clear of any and all claims, liens, security
interests, pledges, equities or encumbrances, except as provided for herein.
(d) There are no outstanding rights, options, warrants, contracts,
commitments or demands of any character which would require the transfer or
pledge by Maestro of any interest in the Transferred Assets.
(e) All tax returns, Federal, State and local, required to be filed by
Maestro will have been filed as of the closing date. Such returns will be true
and correct based on the information reasonably available to Purchaser and all
taxes (including penalties or interest) imposed by any government or other
taxing authority in respect to income or with respect to the operation or
ownership of property by Maestro up to and including the date hereof have been
paid in full by Maestro. No taxing agency or authority is engaged in any audit
or examination of Maestro and any
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<PAGE>
deficiencies which have been brought to the attention of Maestro resulting from
any audits of its tax returns have been paid in full prior to the date of this
Agreement.
(f) Other than this Agreement, Maestro is not a party to any lease or
agreement whatsoever or liabilities of any nature effecting the Transferred
Assets. At closing, the Sellers will cause Maestro to deliver to Purchaser true
and correct copies of the Articles of Incorporation, Minutes, Corporate Seal and
Corporate By-laws, and all amendments thereto, of Maestro and a Bill of Sale as
to the Transferred Assets.
(g) There are no lawsuits, proceedings, judgments or orders pending or
threatened against Maestro or any of its respective officers or directors in
their official capacities as officers or directors of Maestro before any court
or governmental agency or body, foreign or domestic, or before any arbitration
tribunal, and to the knowledge of counsel for Maestro there is no governmental
investigation relating to Maestro or any pending legislation or governmental
regulation which would materially adversely affect the title to as value of the
Transferred Assets.
(h) All corporate action required to be taken by Sellers or Maestro to
authorize Maestro and Sellers to sell, convey and transfer the Transferred
Assets to Purchaser has been taken or will be taken as of the date of closing.
Maestro and Sellers will have full power and authority to transfer and deliver
the Transferred Assets to Purchaser and to execute and perform this Agreement.
The
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<PAGE>
execution and performance of this Agreement, the sale and delivery of the
Transferred Assets of Maestro will not violate any provision of law or any
contract or agreement by which Maestro or Sellers are bound. This Agreement has
been duly executed and delivered by Maestro and Sellers and constitutes the
valid and legally binding obligation of Sellers and Maestro enforceable in
accordance with its terms. No approval or authorization of, or filing with any
Federal, State, municipal or other governmental commission, board or agency is
required in connection with the sale, conveyance, transfer and delivery of the
Stock.
(i) Maestro has 4 stockholders holding all of the outstanding shares
of Maestro's Common Stock in accordance with the issuance set forth on Schedule
A attached hereto.
(j) Maestro has delivered a true and complete list, as of the date of
this Agreement, certified by Maestro's Secretary, showing the names of Maestro's
directors and officers.
(k) Purchaser will receive at closing a Certificate verifying the
existence and title of Maestro's Transferred Assets.
(1) No action or proceeding has been instituted by or before any court
or other governmental body, nor has such action or proceeding been threatened,
to restrict, prohibit or invalidate the transactions contemplated by this
Agreement or otherwise affect the rights of any party to the Agreement.
(m) All actions, proceedings, instruments and documents required to
carry out this Agreement and all other related legal
-5-
<PAGE>
matters have been approved by counsel for Purchaser.
SECTION 5. Purchaser, knowing that Sellers and Maestro are relying on
the following, hereby represents and warrants that the execution and performance
of this Agreement will not violate any provision of law applicable to Purchaser
or any contract or agreement by which Purchaser is bound. This Agreement
constitutes a legally valid and binding obligation of Purchaser enforceable in
accordance with its terms.
SECTION 6. (a) From the date hereof, Sellers and Maestro agree to allow
Purchaser, its attorneys, employees, representatives, and accountants free
access at all reasonable times during customary business hours to the records,
files, and correspondence of Maestro as well as to all information relating or
otherwise pertaining to Maestro.
(b) Sellers and Maestro will use their respective best efforts to
assure that all of its representations and warranties contained herein are true
in all material respects as of the Closing as if repeated at and as of such
time, and that no material breach or default occurs with respect to any of its
covenants contained herein that have not been cured by the Closing Date.
SECTION 7. The obligation of Purchaser to complete the closing is
subject to the fulfillment, on the Closing Date or within seven (7) days of the
Closing Date, of each of the following conditions any one or more of which may
be waived by Purchaser:
(a) Maestro and Sellers' representations and warranties
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<PAGE>
contained in this Agreement shall be true and correct in all material respects
at the Closing Date as if made at the Closing as of the Closing Date.
(b) All covenants and agreements to be performed hereunder by Maestro
and Sellers and all matters contemplated herein to be performed by Maestro at or
prior to the closing shall have been performed in all material respects.
(c) Purchaser shall have received a certificate of Maestro dated as of
the Closing Date, signed by the President of Maestro annexed hereto as Exhibit
C, to the effect the matters set forth in Subsection 4 are true and correct.
(d) Sellers and Maestro shall have delivered to Purchaser, except as
otherwise requested in writing by Purchaser prior to or on the Closing Date, a
Bill of Sale as to all Transferred Assets free and clear.
(e) There shall have been obtained from the appropriate federal, state,
municipal, or other governmental or administrative bodies or courts all such
approvals, certificates, clearances, or consents, if any, as may be required to
permit the change of ownership of the shares herein provided for.
(f) Maestro shall deliver to Purchaser the favorable opinion of its
counsel in form, scope and substance satisfactory to Purchaser's counsel, dated
as of the Closing Date, that Maestro is a Corporation in good standing and the
stock certificates issued as stated in Subsection 4(b) are authorized acts of
the Company; that
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<PAGE>
the representations and warranties of Subsection 6 are true; and that such
counsel does not know or have any reasonable grounds to know of any litigation,
proceedings or governmental investigation pending or threatened against the
Transferred Assets or relating to Maestro, its property or business.
SECTION 8. The obligation of Sellers and Maestro to complete the
closing is subject to the fulfillment, prior to or on the Closing Date, of each
of the following conditions, any one or more of which may be waived by Sellers
and Maestro:
(a) Purchaser's representations and warranties contained in this
Agreement shall be true and correct in all material respects at the Closing Date
as if made at the Closing and Date;
(b) All covenants and agreements to be performed hereunder by Purchaser
at or prior to the Closing shall have been performed in all material respects;
(c) Sellers and Maestro shall have received a certificate of Purchaser
dated as of the Closing Date to the effect that the matters set forth in
Subsection 5 have been satisfied.
(d) No action or proceeding shall have been instituted or threatened
for the purpose or with the probable effect of enjoining or preventing the
consummation of this Agreement.
SECTION 9. Sellers and Maestro hereby agree to indemnify, save and
hold harmless Purchaser and its successors and assigns, of and from any damage,
liability, claim, loss or deficiency (including, without limitation reasonable
attorney's fees and
-8-
<PAGE>
expenses incident to a suit, action or proceeding), provided Sellers and Maestro
have been given notice and an opportunity to defend any matter arising out of or
resulting from any damage, liability, claim, loss or deficiency, in connection
with the terms of this Agreement and will pay to Purchaser and its successors
and assigns, on thirty (30) days notice, the full amount of any and all sums
which Purchaser or any successor or assign, may pay or become obligated to pay
on account of (i) any material inaccuracies in any representations or the breach
of any covenant or warranty made by Sellers or Maestro hereunder, (ii) any
material failure of Sellers or Maestro to duly perform or observe any term,
provision, covenant, agreement or condition hereunder on the part of Sellers to
be performed or observed.
SECTION 10. Purchaser hereby agrees to indemnify and hold harmless
Sellers and Maestro at all times after the date of this Agreement, provided
Purchaser has been given notice and an opportunity to defend any matter against
and in respect of: (a) any damage or deficiency resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of Purchaser under this Agreement, or from any misrepresentation of or
omission from any certificate or other instrument furnished or to be furnished
to Purchaser hereunder; and (b) all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
Purchaser shall reimburse Sellers and Maestro on thirty (30) days notice for any
payment made
-9-
<PAGE>
by Sellers or Maestro at any time after the Closing, in respect of any liability
or claim to which the foregoing indemnity relates.
SECTION 11. Maestro and Sellers hereby represent that it is acquiring
the Purchaser's Common Stock hereunder for investment purposes only with no
present intention of reselling or otherwise distributing the same, except in
compliance with the registration requirements under the Securities Act of 1933
or an exemption therefrom.
SECTION 12. At the Closing, Purchaser subject to the terms and
conditions hereof, shall deliver to Sellers, Purchaser's shares of Common Stock
constituting the purchase price.
SECTION 13. All notices hereunder shall be in writing and will be
deemed to have been given if delivered personally or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed as
respectively indicated below or by a notice hereunder:
(a) if addressed to Sellers:
Joseph Venneri
222 Highway 35 South
Middletown, New Jersey
(b) if addressed to Maestro:
Gerald Massell
MASSELL MASSELL & VINCENT
222 Highway 35 South
Box 4085
Middletown, New Jersey
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<PAGE>
(c) If addressed to Purchaser:
Joseph Venneri, President
222 Highway 35 South
Middletown, New Jersey
cc: Frohling, Hudak & McCarthy, P.C.
425 Eagle Rock Avenue
Suite 200
Roseland, New Jersey 07068
SECTION 14. Neither this Agreement nor any provisions hereof may be
modified, changed, discharged or terminated except by instrument in writing
signed by the parties hereto.
SECTION 15. All representations, warranties and agreements contained
herein shall survive the execution of this Agreement and the delivery of the
Transferred Assets to be purchased by Planet pursuant hereto. All statements
contained in any certificate or other instrument delivered by Sellers, Maestro
and Purchaser pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall constitute representations and warranties
by Sellers or Purchaser respectively under this Agreement.
SECTION 16. This Agreement may be executed in several counterparts, in
person or by facsimile and each executed copy will constitute an original
instrument but such counterparts shall together constitute but one and the same
instrument.
SECTION 17. This Agreement will be deemed to be a contract made under
the laws of the State of New Jersey and the parties agree to be subject to the
exclusive jurisdiction of the Courts of New Jersey.
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<PAGE>
SECTION 18. All the terms, warranties, representations and provisions
hereof will be binding upon and inure to the benefit of and be enforceable by
and against the respective legal representatives, successors and assigns of the
parties hereto.
SECTION 19. The parties reserve the right to amend this agreement to
include a subsidiary or affiliate of Purchaser formed specifically to affect the
Purchase of Common Stock contemplated by this Agreement.
IN WITNESS THEREOF, the parties have executed this Agreement
MAESTRO:
Attest:
/s/ WALLACE GIAKAS BY: /s/ JOSEPH VENNERI
- ----------------------------- -----------------------------
Wallace Giakas, Secretary Joseph Venneri, President
SELLERS:
/s/ DAVID RYAN /s/ JOSEPH VENNERI
- ----------------------------- -----------------------------
David Ryan Joseph Venneri
/s/ DAVID RYAN /s/ GERALD MASSELL
- ----------------------------- -----------------------------
David Ryan Gerald Massell
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<PAGE>
Attest:
/s/ WALLACE GIAKAS /s/ JOHN S. ARNONE
- ----------------------------- -----------------------------
Wallace Giakas John S. Arnone
Attest:
/s/ JOHN S. ARNONE /s/ WALLACE GIAKAS
- ----------------------------- -----------------------------
John S. Arnone Wallace Giakas
PURCHASER:
Attest:
/s/ WALLACE GIAKAS BY: /s/ JOSEPH VENNERI
- ----------------------------- -----------------------------
Wallace Giakas, Secretary Joseph Venneri, President
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<PAGE>
SCHEDULE A
Stockholder Shares
- ----------- ------
GERALD MASSELL 7
JOSEPH VENNERI 331
JOHN S. ARNONE 331
WALLACE GIAKAS 331
<PAGE>
SCHEDULE C
I, the undersigned, as President of Maestro Holding Corp. hereby
certify that as of the date set forth below, all representations and warranties
made by said company in the Purchase Agreement dated as of July 1, 1996, are
true and correct.
I certify that the foregoing statements made by me are true. I am aware
that if any of the foregoing statements made by me are willfully false, I am
subject to punishment.
Dated:
Attest:
/s/ WALLACE GIAKAS BY: /s/ JOSEPH VENNERI
- ----------------------------- -----------------------------
Wallace Giakas, Secretary Joseph Venneri, President
AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT, made this 17th day of September, 1996, among William J.
Valenziano (hereinafter referred to as "Seller"), J. Jake, Inc., a corporation
organized under the laws of the State of Louisiana (hereinafter "Jake" or "The
Company") and PLANET ENTERTAINMENT CORPORATION, or assigns, (hereinafter
referred to as "Purchaser" or "Planet").
WHEREAS, Purchaser wishes to acquire all of the shares of the Common
Stock of Jake from Seller in exchange for the issuance of TWO MILLION
(2,000,000) restricted Common Stock of Planet; and
WHEREAS the Seller is the sole owners of all the outstanding stock of
Jake; and
WHEREAS Jake is the owner of certain rights to a Catalogue of master
recordings and a recording studio; and
WHEREAS the parties hereby wish to adopt a plan of reorganization
pursuant to 368 (a)(1)(C) of the Internal Revenue Code of 1986 as amended
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
SECTION 1. (a) In consideration for the delivery of TWO MILLION
(2,000,000) restricted common stock of Planet, and tacit adoption of its
business plan, Seller hereby agrees to sell and deliver to Purchaser, and
Purchaser
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<PAGE>
hereby agrees to buy from Seller, at closing all of the common stock of
Jake (such shares hereinafter referred to as the "Stock").
(b) The closing for the purchase and sale of the Stock shall take place
at the offices of Frohling, Hudak & McCarthy, P.C., 425 Eagle Rock Avenue,
Roseland, New Jersey, on September 20, 1996 (the "Closing Date"). Said date may
be extended upon the mutual agreement of the parties but not later than
September 30, 1996.
(c) On the Closing Date, Seller shall deliver to the Purchaser
certificates for Stock, duly endorsed for transfer. Seller shall cause new
certificates of stock of Jake to be issued to the Purchaser for such shares of
Jake Common Stock in the name of the Purchaser, provided the Purchaser has
performed its obligations under Section 3 hereof.
SECTION 2. Seller and Jake hereby represent and warrant to Purchaser
that on the date hereof and as of the Closing Date:
(a) Jake is a corporation duly organized and in good standing under the
laws of the State of Louisiana, and which will have duly authorized all of the
capital stock which have been and will be validly issued, fully paid and
nonassessable as of the date of closing. The shares of Jake Stock to be sold to
the Purchaser, will be free and clear of any and all security interests,
pledges, claims, liens, equities or encumbrances whatsoever and, upon the
consummation of the transactions herein contemplated, Purchaser will have
acquired the Stock and good and marketable title thereto shall have been vested
in Purchaser, free and clear of any and all claims, liens, security interests,
pledges, equities or
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<PAGE>
encumbrances.
(b) There are no outstanding rights, options, warrants, contracts,
commitments or demands of any character which would require issuance (or
transfer out of the treasury) by Jake of any shares of Jake Common Stock.
(c) Other than as would be provided in this Agreement, no holder of the
outstanding shares of Common Stock of Jake or any creditor of Jake or any other
person has any present right to compel the issuance by Jake of any shares of
Common Stock or rights, warrants or options to purchase Common Stock or evidence
of indebtedness of Jake.
(d) All tax returns, Federal, State and local, required to be filed by
Jake will have been filed as of the closing date. Such returns will be true and
correct based on the information reasonably available to Planet and all taxes
(including penalties or interest) imposed by any government or other taxing
authority in respect to income or with respect to the operation or ownership of
property by Jake up to and including the date hereof have been paid in full by
Jake. No taxing agency or authority is engaged in any audit or examination of
Jake and any deficiencies which have been brought to the attention of Jake
resulting from any audits of its tax returns have been paid in full prior to the
date of this Agreement.
(e) Other than this Agreement, Jake is not a party to any lease or
agreement whatsoever or liabilities of any nature.
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<PAGE>
Promptly after the date hereof, Seller will cause Jake to deliver to Purchaser
true and correct copies of the Articles of Incorporation, Minutes, Corporate
Seal and Corporate By-laws, and all amendments thereto, of Jake.
(f) There are no lawsuits, proceedings, judgments or orders pending or
threatened against Jake or any of its respective officers or directors in their
official capacities as officers or directors of Jake before any court or
governmental agency or body, foreign or domestic, or before any arbitration
tribunal, and to the knowledge of counsel for Jake there is no governmental
investigation relating to Jake or pending legislation or governmental regulation
which would materially adversely affect the business of Jake.
(g) All corporate action required to be taken by Seller or Jake to
authorize it to sell, convey, transfer and deliver the Stock of Jake to
Purchaser has been taken or will be taken as of the date of closing. Seller has
full power and authority to sell and deliver the Stock and to execute and
perform this Agreement. The execution and performance of this Agreement and the
sale and delivery of the Stock of Jake will not violate any provision of law or
any contract or agreement by which Jake is bound. This Agreement has been duly
executed and delivered by Jake and constitutes the valid and legally binding
obligation of Seller enforceable in accordance with its terms. No approval or
authorization of, or filing with any Federal, State or municipal or other
governmental
-4-
<PAGE>
commission, board or agency is required in connection with the sale, conveyance,
transfer and delivery of the Stock.
(h) Jake has one stockholder holding approximately one hundred percent
of Jake's Common Stock.
(i) Jake has delivered to Purchaser a true and complete list, as of the
date of this Agreement, certified by Jake's Secretary, showing the names of
Jake's directors and officers.
(j) Purchasers will receive at closing a Certificate verifying that
Seller is the sole shareholder of Jake.
(k) No action or proceeding has been instituted by or before any court
or other governmental body, nor has such action or proceeding been threatened,
to restrict, prohibit or invalidate the transactions contemplated by this
Agreement or otherwise affect the rights of any party to the Agreement.
(l) All actions, proceedings, instruments and documents required to
carry out this Agreement and all other related legal matters have been approved
by counsel for Purchaser.
(m) All securities issued by Jake were issued pursuant to a
registration statement or applicable exemption issued in compliance with
applicable state and federal securities laws or pursuant to an applicable
exemption from registration.
(n) Jake and/or Seller have marketable title to all master recordings
owned by Jake and/or Seller, free and clear of all licenses, restrictions and
claims for same.
(o) All equipment, furniture and inventory of Jake is free
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<PAGE>
and clear of all liens and encumbrances.
SECTION 3. Purchaser, knowing that Seller is relying on the following,
hereby represents and warrants to Jake that:
(a) The execution and performance of this Agreement will not violate
any provision of law applicable to Purchaser or any contract or agreement by
which Purchaser is bound. This Agreement constitutes a legally valid and binding
obligation of Purchaser enforceable in accordance with its terms.
(b) The Purchaser has had access to all material documentation with
respect to Jake that it has requested, and that it has had the opportunity to
ask questions of and has received answers from the chief executive officer and
the attorneys for Jake respecting any such information, and that Purchaser is an
"accredited investor" as that term is defined under applicable securities laws,
rules and regulations.
(c) After closing, Purchaser will conduct the business of Jake in
accordance with its reasonably prudent business judgment so as to attempt to
make Jake a successful and profitable business.
SECTION 4. (a) From the date hereof, Seller shall cause Jake to allow
Purchaser, its attorneys, employees, representatives, and accountants free
access at all reasonable times during customary business hours to the records,
files, and correspondence of Jake as well as to all information relating or
otherwise pertaining to Jake.
(b) Seller and Jake will use their respective best efforts to
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<PAGE>
assure that all of its representations and warranties contained herein are true
in all material respects as of the date of Closing as if repeated at and as of
such time, and that no material breach or default occurs with respect to any of
its covenants contained herein that have not been cured by the Closing Date.
SECTION 5. The obligation of Purchaser to complete the closing is
subject to the fulfillment, on the Closing Date or within seven (7) days of the
Closing Date of each of the following conditions any one or more of which may be
waived by Purchaser:
(a) Jake's representations and warranties contained in this Agreement
shall be true and correct in all material respects at the Closing Date as if
made at the Closing and as of the Closing Date.
(b) All covenants and agreements to be performed hereunder by Jake and
all matters contemplated herein to be performed by Jake at or prior to the
closing shall have been performed in all material respects.
(c) Purchaser shall have received a certificate of Jake dated as of the
Closing Date, signed by the President of Jake annexed hereto as Exhibit C, to
the effect the matters set forth in Subsections 5(a), and 5(b), are true and
correct.
(d) There shall have been obtained from the appropriate federal, state,
municipal, or other governmental or administrative bodies or courts all such
approvals, certificates, clearances, or consents, if any, as may be required to
permit the change of ownership of the shares herein provided for.
-7-
<PAGE>
(e) Jake shall deliver to Purchaser the favorable opinion of PACKARD E.
PHILLIPS, Esq. in form, scope and substance satisfactory to Purchaser's counsel
dated as of the Closing or appropriate Date, that Jake is a Corporation in good
standing and the stock certificates issued as stated in Subsection 2(a) are
authorized acts of the Company; that the representations and warranties of
Subsections 2(a), (b), (c), (e), (f), and (g), are true; and that such counsel
does not know or have any reasonable grounds to know of any litigation
proceeding or governmental investigation pending or threatened against or
relating to Jake, its property or business.
(f) The receipt of an report from an independent recognized appraiser
establishing a value or not less than $750,000 on or before DECEMBER 31, 1996
for the recording studio.
(g) The receipt of an Opinion of Counsel for Jake, acceptable in form
and substance to counsel for the Company confirming that Jake has marketable
title to the subject master recordings, equipment, furnishings and inventory
free and clear of all liens, licenses and encumbrances on or before DECEMBER 31,
1996.
(h) All shares of Planet issuable to Jake under this agreement, shall
be held in escrow pursuant to an Escrow Agreement substantially in form of sale
agreements attached hereto as Exhibit "B" hereto. Said shares held in escrow
will be released to Jake, or its designee, only after all the conditions of this
Section 5 are satisfied and confirmed in writing by all parties to
-8-
<PAGE>
this agreement.
SECTION 6. The obligations of Sellers to complete the closing is
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions, any one or more of which may be waived by Seller:
(a) Purchaser's representations and warranties contained in this
Agreement shall be true and correct in all material respects at the Closing Date
as if made at the Closing and Date.
(b) All covenants and agreements to be performed hereunder by
Purchasers at or prior to the Closing shall have been performed in all material
respects.
(c) Seller shall have received a Certificate of Purchaser dated as of
the Closing Date _____ _____ affect that the matters set forth in Subsection 6
(and ____ have been satisfied).
(d) No action or proceeding shall have been instituted or threatened
for the purpose or with the probable effect of enjoining or preventing the
consummation of this Agreement.
SECTION 7. Seller and Jake hereby agree to indemnify, save and hold
harmless Purchaser and its successors and assigns, of and from any damage,
liability, claim, loss or deficiency (including, without limitation reasonable
attorney's fees and expenses incident to a suit, action or proceedings provided
Seller and Jake have been given notice and an opportunity to defend any matter
arising out of or resulting from any damage, liability, claim, loss or
deficiency, in connection with the terms of this Agreement and will
-9-
<PAGE>
pay to Purchaser and its successors and assigns, or thirty (30) days notice, the
full amount of any and all sums which Purchaser or any successor or assigns may
pay or become obligated to pay on account of (I) any material inaccuracies in
any representations or the breach of any covenant or warranty made by Seller or
Jake hereunder, (ii) any material failure of Seller or Jake to duly perform or
observe any ______covenant, agreement or condition hereunder as _____ ______
performed or observed.
SECTION 8. Purchaser hereby agrees to indemnify and hold harmless
Seller and Jake at all times after the date of this Agreement, provided
Purchaser has been given notice and an opportunity to defend any matter against
and in respect of (a) any damage or deficiency resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of Purchaser under this Agreement, or from any misrepresentation of or
omission from any certificate or other instrument furnished or to be furnished
to Purchaser hereunder and (b) all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
Purchaser shall reimburse Seller and Jake on thirty (30) days _______________
any payment made by Seller or Jake at any time after the closing in respect of
any liability or claim to which the foregoing indemnity relates.
SECTION 9. Purchaser hereby represents that it is acquiring the Jake
Common Stock hereunder for investment purposes
-10-
<PAGE>
only with no present intention of reselling or otherwise distributing same,
except in compliance with the registration requirements under the Act or an
exemption therefrom.
SECTION 10. At the Closing, Selling shall deliver to Purchaser, free
and clear of all encumbrances, certificates for the shares sold by Seller in
negotiable form, with all requisite stock transfer stamps attached, and
Purchaser, subject to the terms and conditions hereof, shall deliver to Seller,
shares of Common Stock of Purchaser constituting the purchase price.
SECTION 11. All notices hereunder shall be in writing and will be
deemed to have been given if delivered personally or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed as
respectively indicated below or by a notice hereunder.
(a) if addressed to Seller:
Joseph W. Valenziano
757 St. Charles, Suite 205
New Orleans, LA 70130
(b) if addressed to Jake:
same
(c) If addressed to Purchaser:
Joseph Venneri, President
222 Highway 35 South
Middletown, New Jersey
cc: Frohling, Hudak & McCarthy, P.C.
425 Eagle Rock Avenue
Suite 200
Roseland, New Jersey 07068
SECTION 12. Neither this Agreement nor any provisions,
-11-
<PAGE>
hereof may be modified, changed, discharged or terminated except by instrument
in writing signed by the parties hereto.
SECTION 13. All representations, warranties and agreement contained
herein shall survive the execution of this Agreement and the delivery of the
Common Stock to be purchased by Purchaser pursuant hereto. All statements
contained in any certificate or other instrument delivered by Jake or Purchaser
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement shall constitute representations and warranties by Seller or
Purchaser respectively under this Agreement.
SECTION 14. This Agreement may be executed in several counterparts in
person or by fax, and each executed copy will constitute an original instrument
but such counterparts shall together constitute but one and the same instrument.
SECTION 15. This Agreement will be deemed to be a contract made under
the laws of the State of New Jersey.
SECTION 16. All the terms, warranties, representations and provisions
hereof will be binding upon and inure to the benefit of and be enforceable by
and against the respective legal representatives, successors and assigns of the
parties hereto.
SECTION 17. The parties reserve the right to amend this agreement to
include a subsidiary or affiliate of Purchaser formed specifically to affect the
Purchase of Common Stock contemplated by this Agreement.
-12-
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement
SELLER:
ATTEST: JAKE CORPORATION
/s/ Joseph W. Valenziano
- ------------------------------- BY: -------------------------
, Secretary , President
/s/ Sue Walea
- -------------------------------
WITNESS
PURCHASER:
Attest: PLANET ENTERTAINMENT CORPORATION
/s/ Wallace Giakas BY: /s/ Joseph Venneri
- ------------------------------- -----------------------------
, Secretary , President
A G R E E M E N T
THIS AGREEMENT, made this 17th day of September 1996, among MUSIC
MARKETEERS, INC., a corporation organized under the Laws of Louisiana
(hereinafter referred to as "Music") JOSEPH VALENZIANO, individually and
representative of the stockholders (hereinafter referred to as "Sellers"); and
PLANET ENTERTAINMENT, (hereinafter referred to as "Planet").
WHEREAS, Purchaser wishes to acquire all of the assets of Music in
exchange for the issuance of a series of notes in the total amount of ONE
HUNDRED THOUSAND DOLLARS ($l00,000); and the assumption of certain debts and
obligations of Music; and
WHEREAS the Seller is the sole owner or representative of all owners of
all the outstanding stock of Music; and
WHEREAS Music is the owner of certain rights to a library of master
recordings, copyrights, accounts receivable and the right to develop other
musical arrangements; and
WHEREAS Seller is willing to sell all the assets of Music to Planet
subject to the assumption of certain defined liabilities
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
SECTION 1. The closing for the purchase and sale of the Transferred
Assets shall take place at the offices of Frohling, Hudak & McCarthy, P.C. on
September 20, 1996 (the "Closing Date").
-1-
<PAGE>
Said date may be extended upon the mutual agreement of the parties but not later
than September 30, 1996.
SECTION 2. Seller and Music agree to transfer, assign and/or deliver
all rights and title to the following "Transferred assets":
(a) master recording library as set forth on Schedule A attached hereto
and made a part hereof;
(b) any and all copyrights and trademarks including but not limited to
any pending applications for copyright or trademark.
(c) any tangible or intangible rights pertinent to or associated with
or owned by Music and the Sel1er, their accounts receivables, or contract
receivables as specifically set forth herein.
(d) any and all furniture, equipment, and accounts receivable of Music.
SECTION 3. In consideration for the transfer of Assets, Planet shall
pay and deliver to Seller and Music the following:
(a) Planet shall execute a series of promissory note in the total
amount of ONE HUNDRED THOUSAND DOLLARS ($100,000), bearing interest at the prime
rate, as quoted by Chase Bank, payable within five years.
(c) Planet will assume three promissory note obligations of Seller in
the total aggregate amount of 1.25 million dollars.
(d) Planet will assume the consulting agreement with Marshall Sehorn.
SECTION 4. Seller and Music hereby represent and warrant to Planet that
on the date hereof and as of the Closing Date:
-2-
<PAGE>
(a) Music is a corporation duly organized and in good standing under
the laws of the State of Louisiana, and which has duly authorized capital stock
of ________shares of Common Stock, ____ par value of which shares have been and
will be validly issued, fully paid and nonassessable as of the date of closing.
(b) Seller is the owner of all the outstanding Common Stock of Music.
(c) The Transferred Assets to be conveyed to Planet will be free and
clear of any and all security interests, pledges, claims, liens, equities or
encumbrances whatsoever and, upon the consummation of the transactions herein
contemplated, Planet will have acquired good and marketable title to the
Transferred Assets, free and clear of any and all claims, liens, security
interests, pledges, equities or encumbrances, except as provided for herein.
(d) There are no outstanding rights, options, warrants, contracts,
commitments or demands of any character which would require the transfer or
pledge by Music of any interest in the Transferred Assets.
(e) All tax returns, Federal, State and local, required to be filed by
Music will have been filed as of the closing date. Such returns will be true and
correct based on the information reasonably available to Planet and all taxes
(including penalties or interest) imposed by any government or other taxing
authority in respect to income or with respect to the operation or ownership of
-3-
<PAGE>
property by Music up to and including the date hereof have been paid in full by
Music. No taxing agency or authority is engaged in any audit or examination of
Music and any deficiencies which have been brought to the attention of Music
resulting from any audits of its tax returns have been paid in full prior to the
date of this Agreement.
(f) Other than this Agreement, Music is not a party to any lease or
agreement whatsoever or liabilities of any nature effecting the Transferred
Assets except as set forth in Section 3(b) and (c) hereof. At closing, the
Seller will cause Music to deliver to Planet true and correct copies of the
Articles of Incorporation, Minutes, Corporate Seal and Corporate By-laws, and
all amendments thereto, of Music and a Bill of Sale as to the Transferred
Assets.
(g) There are no lawsuits, proceedings, judgments or orders pending or
threatened against Music or any of its respective officers or directors in their
official capacities as officers or directors of Music before any court or
governmental agency or body, foreign or domestic, or before any arbitration
tribunal, and to the knowledge of counsel for Music there is no governmental
investigation relating to Music or any pending legislation or governmental
regulation which would materially adversely affect the title to as value of the
Transferred Assets.
(h) All corporate action required to be taken by Seller or Music to
authorize Music and Seller to sell, convey and transfer
-4-
<PAGE>
the Transferred Assets to Planet has been taken or will be taken as of the date
of closing. Music and Seller will have full power and authority to transfer and
deliver the Transferred Assets to Planet and to execute and perform this
Agreement. The execution and performance of this Agreement, the sale and
delivery of the Transferred Assets of Music will not violate any provision of
law or any contract or agreement by which Music or Seller are bound. This
Agreement has been duly executed and delivered by Music and Seller and
constitutes the valid and legally binding obligation of Seller and Music
enforceable in accordance with its terms. No approval or authorization of, or
filing with any Federal, State, municipal or other governmental commission,
board or agency is required in connection with the sale, conveyance, transfer
and delivery of the Stock.
(i) Music has stockholders holding ______ Hundred shares of Music's
Common Stock.
(j) Music has delivered a true and complete list, as of the date of
this Agreement, certified by Music's Secretary, showing the names of Music's
directors and officers.
(k) Planet will receive at closing a Certificate verifying the
existence and title of Music's Transferred Assets.
(1) No action or proceeding has been instituted by or before any court
or other governmental body, nor has such action or proceeding been threatened,
to restrict, prohibit or invalidate the transactions contemplated by this
Agreement or otherwise affect
-5-
<PAGE>
the rights of any party to the Agreement.
(m) All actions, proceedings, instruments and documents required to
carry out this Agreement and all other related legal matters have been approved
by counsel for Planet.
SECTION 5. Planet, knowing that Seller and Music are relying on the
following, hereby represents and warrants that the execution and performance of
this Agreement will not violate any provision of law applicable to Planet or any
contract or agreement by which Planet is bound. This Agreement constitutes a
legally valid and binding obligation of Purchaser enforceable in accordance with
its terms.
SECTION 6. (a) From the date hereof, Seller and Music agree to allow
Planet, its attorneys, employees, representatives, and accountants free access
at all reasonable times during customary business hours to the records, files,
and correspondence of Music as well as to all information relating or otherwise
pertaining to Music.
(b) Seller and Music will use their respective best efforts to assure
that all of its representations and warranties contained herein are true in all
material respects as of the Closing as if repeated at and as of such time, and
that no material breach or default occurs with respect to any of its covenants
contained herein that have not been cured by the Closing Date.
SECTION 7. The obligation of Planet to complete the closing is subject
to the fulfillment, on the Closing Date or
-6-
<PAGE>
within seven (7) days of the Closing Date, of each of the following conditions
any one or more of which may be waived by Purchaser:
(a) Music's and Sellers representations and warranties contained in
this Agreement shall be true and correct in all material respects at the Closing
Date as if made at the Closing and as of the Closing Date.
(b) All covenants and agreements to be performed hereunder by Music and
Seller and all matters contemplated herein to be performed by Music at or prior
to the closing shall have been performed in all material respects.
(c) Planet shall have received a certificate of Music dated as of the
Closing Date, signed by the President of Music annexed hereto as Exhibit C, to
the effect the matters set forth in Subsections 5(a), and 5(b), are true and
correct.
(d) Seller and Music shall have delivered to Purchaser, except as
otherwise requested in writing by Purchaser prior to or on the Closing Date, a
Bill of Sale as to all Transferred Assets free and clear.
(e) There shall have been obtained from the appropriate federal,
state, municipal, or other governmental or administrative bodies or courts all
such approvals, certificates, clearances, or consents, if any, as may be
required to permit the change of ownership of the shares herein provided for.
(f) Music shall deliver to Planet the favorable opinion of ______, Esq.
in form, scope and substance satisfactory to
-7-
<PAGE>
Planet's counsel, dated as of the Closing Date, that Music is a Corporation in
good standing and the stock certificates issued as stated in Subsection 2(a) are
authorized acts of the Company; that the representations and warranties of
Subsections 2(a), (b), (c), (e), (f), and (g), are true; and that such counsel
does not know or have any reasonable grounds to know of any litigation,
proceedings or governmental investigation pending or threatened against the
Transferred Assets or relating to Music, its property or business.
SECTION 8. The obligation of Seller and Music to complete the closing
is subject to the fulfillment, prior to or on the Closing Date of each of the
following conditions, any one or more of which may be waived by Seller and
Music:
(a) Planet's representations and warranties contained in this Agreement
shall be true and correct in all material respects at the Closing Date as if
made at the Closing and Date;
(b) All covenants and agreements to be performed hereunder by Planet at
or prior to the Closing shall have been performed in all material respects;
(c) Seller and Music shall have received a certificate of Planet dated
as of the Closing Date to the effect that the matters set forth in Subsections 6
(a) and (b) have been satisfied.
(d) No action or proceeding shall have been instituted or threatened
for the purpose or with the probable effect of enjoining or preventing the
consummation of this Agreement.
-8-
<PAGE>
SECTION 9. Seller and Music hereby agree to indemnify, save and hold
harmless Planet and its successors and assigns, of and from any damage,
liability, claim, loss or deficiency (including, without limitation reasonable
attorney's fees and expenses incident to a suit, action or proceeding), provided
Seller and Music have been given notice and an opportunity to defend any matter
arising out of or resulting from any damage, liability, claim, loss or
deficiency, in connection with the terms of this Agreement and will pay to
Planet and its successors and assigns, on thirty (30) days notice, the full
amount of any and all sums which Planet or any successor or assign, may pay or
become obligated to pay on account of (i) any material inaccuracies in any
representations or the breach of any covenant or warranty made by Seller or
Music hereunder, (ii) any material failure of Seller or Music to duly perform or
observe any term, provision, covenant, agreement or condition hereunder on the
part of Seller to be performed or observed.
SECTION 10. Planet hereby agrees to indemnify and hold harmless Seller
and Music at all times after the date of this Agreement, provided Planet has
been given notice and an opportunity to defend any matter against and in respect
of: (a) any damage or deficiency resulting from any misrepresentation, breach of
warranty, or nonfulfillment of any agreement on the part of Planet under this
Agreement, or from any misrepresentation of or omission from any certificate or
other instrument furnished or to be
-9-
<PAGE>
furnished to Planet hereunder; and (b) all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
Planet shall reimburse Seller and Music on thirty (30) days notice for any
payment made by Seller or Music at any time after the Closing, in respect of any
liability or claim to which the foregoing indemnity relates.
SECTION 11. Music and Seller hereby represent that it is acquiring the
Planet Common Stock hereunder for investment purposes only with no present
intention of reselling or otherwise distributing the same, except in compliance
with the registration requirements under the Act or an exemption therefrom.
SECTION 12. At the Closing, Seller shall deliver to Planet, free and
clear of all encumbrances, certificates for the Music shares exchanged by Seller
in negotiable form, with all requisite stock transfer stamps attached, and
Planet, subject to the terms and conditions hereof, shall deliver to Seller,
Planet's note and shares of Common Stock of Planet constituting the purchase
price.
SECTION 13. All notices hereunder shall be in writing and will be
deemed to have been given if delivered personally or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed as
respectively indicated below or by a notice hereunder:
(a) if addressed to Seller:
-10-
<PAGE>
(b) if addressed to Music:
(c) If addressed to Planet:
Joseph Venneri, President
222 Highway 35 South
Middletown, New Jersey
cc: Frohling, Hudak & Mccarthy P.C.
425 Eagle Rock Avenue
Suite 200
Roseland, New Jersey 07068
SECTION 14. Neither this Agreement nor any provisions hereof may be
modified, changed, discharged or terminated except by instrument in writing
signed by the parties hereto.
SECTION 15. All representations, warranties and agreements contained
herein shall survive the execution of this Agreement and the delivery of the
Common Stock to be purchased by Planet pursuant hereto. All statements contained
in any certificate or other instrument delivered by Seller, Music and Planet
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement shall constitute representations and warranties by Seller or
Purchaser respectively under this Agreement.
SECTION 16. This Agreement may be executed in several counterparts, in
person or by facsimile and each executed copy will constitute an original
instrument but such counterparts shall together constitute but one and the same
instrument.
SECTION 17. This Agreement will be deemed to be a contract made under
the laws of the State of New Jersey and the parties
-11-
<PAGE>
agree to be subject to the exclusive jurisdiction of the Courts of New Jersey.
SECTION 18. All the terms, warranties, representations and provisions
hereof will be binding upon and inure to the benefit of and be enforceable by
and against the respective legal representatives, successors and assigns of the
parties hereto.
SECTION 19. The parties reserve the right to amend this agreement to
include a subsidiary or affiliate of Purchaser formed specifically to affect the
Purchase of Common Stock contemplated by this Agreement.
-12-
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement
SELLER:
Attest: MUSIC MARKETEERS, INC.
BY: /s/ JOSEPH N. VALENZIANO
- ----------------------------- -----------------------------------
, Secretary Joseph N. Valenziano, President
Witness:
/s/ SUE WALEA BY:
- ----------------------------- -----------------------------------
Sue Walea, Secretary , President
PURCHASER:
Attest:
/s/ WALLACE GIAKAS BY: /s/ JOSEPH VENNERI
- ----------------------------- -----------------------------------
Wallace Giakas, Secretary Joseph Venneri, President
-13-
SUN ENTERTAINMENT CORPORATION
3106 BELMONT BLVD.
NASHVILLE, TENNESSEE 37212
PHONE 615-385-1960 FAX 615-385-1964
World-wide web http://www.sunrecco.co e-mail [email protected]
April 22, 1997
Mr. Joseph Venneri
President and CEO
Planet Entertainment Corporation
222 Highway 35
Middletown, NJ 07748
Dear Joe:
The Sun Entertainment Corporation master catalog contains many timeless hit
recordings from the 50's and 60's as "Whole Lotta Shakin' Going On"/ Jerry Lee
Lewis, "I walk The Line" Johnny Cash, "Blue Suede Shoes"/ Carl Perkins, "Chapel
Of Love"/ The Dixie Cups, "The Boy From New York City"/ The Ad Libs and "Harper
Valley P.T.A."/ Jeannie C. Riley. We license these recordings to many companies
for use in movies, TV shows, commercials and special compilations.
We will agree to license master recordings from our catalog to Planet on a
non-exclusive basis under terms and conditions that we normally license to other
companies, i.e., a reasonable advance against royalties that will accrue on all
tapes and CDs that are sold by Planet.
When you are ready to commence your operations and have a need for masters from
our catalog, please submit in writing your requests from the masters you wish to
license and we will promptly respond as to the terms we require.
We look forward to working with you.
Sincerely yours,
SUN ENTERTAINMENT CORPORATION
/s/ Shelby S. Singleton, Jr.
-----------------------------
Shelby S. Singleton, Jr.
President
[SUN LOGO]
AGREEMENT
THIS AGREEMENT made this 9th day of February 1998, between Monaco
Records ("MR"), with its principal place of business at Gildo Pastor Center, 7
Rue du Gabian, Monaco, and Planet Entertainment Corporation ("PEC"), a Florida
Corporation, with its principal place of business at 222 Highway 35,
Middletown, New Jersey, USA.
WHEREAS, MR is an owner, distributor and marketer of certain recorded
music and other properties in Europe;
WHEREAS, PEC owns the rights to certain master recordings of recorded
music and other properties and is desirous of marketing and distributing these
properties in Europe;
WHEREAS, PEC and MR are desirous of entering into a joint venture for
the purpose of distributing PEC's products in Europe.
NOW in consideration for the mutual promises, and other consideration
as expressly set forth herein, the parties do hereby agree as follows:
1. MR will assist in building the Monaco label by releasing catalog
albums under the Monaco/PNEC label using Planet's catalog and future
catalog to be acquired. PEC shall contribute approximately 1,000
recordings sufficient to produce approximately 100 albums for
immediate distribution through Monaco/PNEC. All catalog sales will
be divided and distributed on a 50/50 basis after recoupment of all
costs. All costs incurred shall be at arms length and compiled in
accordance with Generally Accepted Accounting Principles.
2. In consideration of the foregoing, the Monaco/PNEC Label shall abide
by all contractual obligations made by Planet for the use of the
catalog, shall notify us of all compilations and release made by the
joint venture, and shall provide each of the parties with an
accounting of all such sales and costs on a quarterly basis. All
future ventures will be mutually agreed upon by both parties in
writing.
<PAGE>
3. As additional consideration, the Joint Venture shall open and
maintain a checking account into which all revenue income will be
deposited and from which all disbursements shall be paid.
4. All artists royalties and mechanical licenses shall be hold in a
separate bank escrow account to be paid when called for.
6. This Agreement shall be for a term of five years, and made by
extended by the parties in writing.
7. This is the entire agreement between the parties, and there have
been no prior or contemporaneous promises or representations made by
the parties not expressly set forth herein. This Agreement is
binding on the parties and their successors, but may not be assigned
by MR without the express, written consent of PEC.
8. The parties to this Agreement hereby consent to the jurisdiction of
any court of competent jurisdiction in the State of New Jersey, and
hereby agree to be bound by New Jersey law in connection with any
dispute arising out of this Agreement.
IN WITNESS HEREOF, the parties do hereby affix their hand and seal
this ___ day of February 1998.
MONACO RECORDS PLANET ENTERTAINMENT CORP.
/s/ Herman Erbel /s/ Joseph Venneri
- ------------------------------ -----------------------------
By Herman Erbel By Joseph Venneri
President President
Atlantic Coast Digital Concepts Inc.
Daniel A. Johnson
109 Spring Street
Suite 4N
New York, New York, 10012
212-497-4557
Planet Entertainment Corp.
222 Highway Route 35 South
Middle Town, NJ
28-Jun-98
SUB
BUDGET SUMMARY TOTAL TOTAL
- --------------------------------------------------------------------------------
The enhancement and up dating of Planet website
This entails:
PHASE ONE: PAID AND COMPLETE 12,000 --
PHASE TWO 15,000.00
PHASE THREE 15,000.00
PHASE FOUR/ON-LINE TRANSACTIONS 5,000.00
ATLANTIC OVERHEAD PER MONTH 9,000.00
----------
TOTAL $44,000.00
==========
- --------------------------------------------------------------------------------
Prepared By
Daniel A. Johnson
Atlantic Coast Digital Concepts
Confidential
Planet Entertainment Corp. 1 Final Draft 3.0
<PAGE>
PHASE ONE: STAR BUILD OUT
- --------------------------------------------------------------------------------
EXPENSE
DETAIL/EXPENSE qty
- --------------------------------------------------------------------------------
Write opening company profile 1 flat rate
- --------------------------------------------------------------------------------
Define total website budget 1 flat rate
- --------------------------------------------------------------------------------
Define flow chart/ Design site/define Navigation 1 flat rate
- --------------------------------------------------------------------------------
Test remote sit at value.net.cocm 1 flat rate
- --------------------------------------------------------------------------------
Transfer www.planetentertainment to GreenHorse 1 flat rate
- --------------------------------------------------------------------------------
Gather all artwork and text 1 flat rate
- --------------------------------------------------------------------------------
Gather all record database 1 flat rate
- --------------------------------------------------------------------------------
define transaction scheme 1 flat rate
- --------------------------------------------------------------------------------
Scan ant retouch all artwork 1 flat rate
- --------------------------------------------------------------------------------
Start Programming the site 1 flat rate
- --------------------------------------------------------------------------------
Start Inserting artwork 1
- --------------------------------------------------------------------------------
AREA TOTAL 12000.00
- --------------------------------------------------------------------------------
PHASE TWO/MOVE INTO OVER DRIVE
- --------------------------------------------------------------------------------
EXPENSE
- --------------------------------------------------------------------------------
DETAIL/ITEM/EXPENSE days
- --------------------------------------------------------------------------------
Continue scanning all work 15 flat
- --------------------------------------------------------------------------------
Define transaction model:
- --------------------------------------------------------------------------------
Visa, master card, American express, 1800, email. 5 flat
- --------------------------------------------------------------------------------
Define technology and test:
- --------------------------------------------------------------------------------
Streaming/Downloads/Full KHZ or samples 5 flat
- --------------------------------------------------------------------------------
Continue programming JAVA, HTML/CGI Scripts/shopping cart 15 flat
- --------------------------------------------------------------------------------
Continue inserting all art work for all sections 20 flat
- --------------------------------------------------------------------------------
Start electronic marketing plan: 15
- --------------------------------------------------------------------------------
email campaign flat
- --------------------------------------------------------------------------------
search engines listings flat
- --------------------------------------------------------------------------------
sponsorships flat
- --------------------------------------------------------------------------------
tie-ins flat
- --------------------------------------------------------------------------------
advertising banners flat
- --------------------------------------------------------------------------------
advertising company e.g. venture communications 3 pending
- --------------------------------------------------------------------------------
advertising revenue model 3 pending
- --------------------------------------------------------------------------------
AREA TOTAL 15000.00
- --------------------------------------------------------------------------------
Prepared By
Daniel A. Johnson
Atlantic Coast Digital Concepts
Confidential
Planet Entertainment Corp. 2 Final Draft 3.0
<PAGE>
PHASE THREE
- --------------------------------------------------------------------------------
EXPENSE
- --------------------------------------------------------------------------------
DETAIL/ITEM/EXPENSE days
- --------------------------------------------------------------------------------
Install all transaction software flat
- --------------------------------------------------------------------------------
Install all tracking software flat
- --------------------------------------------------------------------------------
Install all content: flat
- --------------------------------------------------------------------------------
All covers and logos flat
- --------------------------------------------------------------------------------
Any down loads flat
- --------------------------------------------------------------------------------
All company info. flat
- --------------------------------------------------------------------------------
All cutting edge technology for the site. flat
- --------------------------------------------------------------------------------
Install banner advertising to est. revenue stream flat
- --------------------------------------------------------------------------------
***Final programming phase flat
- --------------------------------------------------------------------------------
START TESTING FOR BUGS flat
- --------------------------------------------------------------------------------
Monitor all Marketing Programs for traffic flat
- --------------------------------------------------------------------------------
AREA TOTAL 30 15000.00
- --------------------------------------------------------------------------------
PHASE FOUR
- --------------------------------------------------------------------------------
EXPENSE
- --------------------------------------------------------------------------------
DETAIL/EXPENSE days
- --------------------------------------------------------------------------------
Test all the above aspects of the site flat
- --------------------------------------------------------------------------------
Debug all the above aspects of the site flat
- --------------------------------------------------------------------------------
Start collecting names in the database for sale
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AREA TOTAL 10 5000.00
- --------------------------------------------------------------------------------
ATLANTIC OVERHEAD MONTHLY
- --------------------------------------------------------------------------------
Monthly
- --------------------------------------------------------------------------------
DETAIL/ITEM/EXPENSE
- --------------------------------------------------------------------------------
Rent flat 1000.00
- --------------------------------------------------------------------------------
Phone lines 500.00
- --------------------------------------------------------------------------------
T1 monthly flat 400.00
- --------------------------------------------------------------------------------
Cleaning Service flat 200.00
- --------------------------------------------------------------------------------
Messenger service 200.00
- --------------------------------------------------------------------------------
Daniel's Monthly consulting for any additional work 6200.00
- --------------------------------------------------------------------------------
Misc. material, paper, office materials, T&E 500.00
- --------------------------------------------------------------------------------
AREA TOTAL 9000.00
- --------------------------------------------------------------------------------
Prepared By
Daniel A. Johnson
Atlantic Coast Digital Concepts
Confidential
Planet Entertainment Corp. 3 Final Draft 3.0
AGREEMENT
The undersigned Officers (each, an "Officer") from Planet Entertainment
Corp. ("Planet") and New Millenium Communications ("New Millenium") desire to
form a joint venture for the purpose of licensing and distributing all master
recordings heretofore recorded and/or acquired by Planet prior to the date
hereof (collectively, the "Prior Masters") and to License and distribute
Recordings recorded during the term hereof (the "Term Masters"); the "Prior
Masters" and the "Term Masters" are collectively hereinafter referred to as the
"Masters").
NOW, THEREFORE, the Officers agree as follows:
1. Name and Business. The Officers hereby form a joint venture for any
one or all of the following purposes, among others: to record, produce,
manufacture, lease, license, make and sell audio-only records and other devices
employing the use of audio-only or audiovisual recordings and to engage in such
other activities as are necessary or incidental thereto. The name of the new
company formed is: Planet Entertainment Europe Ltd. (the "Venture Name").
2. Term. The term of the Venture shall commence as of the date of this
Agreement and shall continue until it is dissolved by either of the following:
the sale or disposition of all Venture assets or upon judicial resolution. In
respect of the license term of the Masters, the Venture shall have the
non-exclusive right to exploit all subject Masters for a minimum period of
ninety-nine years (the "License Term") commencing on the date of full execution
of this Agreement.
3. Venture Contributions.
(a) It is agreed that Planet and New Millenium Communications shall
each receive a Fifty Percent (50%) interest in the Venture (the "Venture
Interest"). Each Officer may mutually agree from time to time to make voluntary
contributions to the capital of the Venture whether in the form of cash, labor
or other services or resources, as provided under the terms of this Agreement.
(b) The Venture's books and records shall be maintained in an account
maintained by New Millenium, unless otherwise agreed between the Parties.
Neither Officer shall be authorized to withdraw any funds from the Venture
without the prior written consent of the other. The Venture's profits and losses
shall be shared as follows: Fifty Percent (50%) Planet/Fifty Percent (50%) New
Millenium. The amount of Profits (as hereinafter defined) that shall be
available for distribution, and the amounts that shall remain undistributed
shall be made by unanimous decision of the Board (as hereinafter defined).
4. Allocations and Distributions.
(a) The Venture shall be initially taxed as a Company, unless otherwise
agreed. The fiscal year of the Venture shall, for bookkeeping purposes, be
divided into twelve (12) one month segments (each a "Monthly Segment"). Any
taxable income, gain, loss, deduction or other taxable items of the Venture with
respect to any such segment shall be allocated to each Officer as follows: 50%
to Planet/50% to New Millenium. The Venture's "net profits" or "net losses" for
each fiscal year shall be determined as soon as practicable after the close of
such fiscal year. This decision should be made by the Venture's accountant in
accordance with the generally accepted accounting principles.
(b) Net Cash Receipts ("Profits") of the Venture shall be distributed
to the Parties in accordance with its Percentage Interest, subject to the
Venture's reimbursing the Contributing Officer "off
<PAGE>
the top" for its Contributions made to the Venture. It is agreed that New
Millenium shall hire additional staff and provide additional overhead to carry
out Venture business, subject to the Board's prior approval. All administrative
charges billed to the Venture by New Millenium to carry out its management
responsibilities must be similarly approved in advance by the Board. All costs
for the foregoing purposes(s) must be approved in advance by the Board in order
to be binding on the Venture. "Profits" shall refer to the total gross monies
actually received by the Venture, reduced by such working capital reserves and
other Venture expenses as may be established and maintained by Board decision.
Distributions, if any, shall be made no later than thirty (30) days after the
end of each Monthly Segment, subject to the payment of Venture expenses (as
defined in paragraph 5 below), the maintenance of reserves and withholding of
applicable income taxes in an amount that is reasonably consistent with the
Venture's anticipated tax liability.
(c) Each Officer represents and warrants on behalf of itself and on
behalf of its agents and/or employees the following: (i) Neither shall, without
the prior written consent of the other, endorse any note or act as an
accommodation officer or surety on behalf of the Venture; and (ii) Neither shall
assign, mortgage, encumber or grant a security interest in, nor sell any or all
of its shares in the Venture and/or its capital assets, or do any act that is
detrimental to the interests of the Venture.
5. Drawings. Each Officer shall be entitled to reimbursement by the
Venture for approved direct out-of-pocket expenses, e.g., office overhead,
operational expenses, taxes, expenses in connection with preparing reports,
costs of acquiring computer equipment, employee salaries, insurance costs,
accounting fees to maintain the Venture's books, pressing and manufacturing
costs, legal fees and all other expenses directly incurred on behalf of the
Venture. Any such approved expenses shall be calculated and paid "off the top"
prior to the division of profits. Neither Officer shall be entitled to draw
against Venture profits, which shall only be distributed as provided in this
Agreement.
6. Banking. The capital account of the Venture shall be maintained in a
separate interest bearing account established in the Venture name. All checks
written against Venture funds, regardless of the value, shall require the
signature of a duly authorized Officer of Planet and a duly authorized Officer
of New Millenium.
7. Books. The Venture's books shall be maintained at the offices of New
Millenium, unless otherwise agreed. Any Officer of Planet, shall have access
thereto at all times to examine the books and records of the Venture. The books
shall be kept on a fiscal year basis (which may or may not be a calendar year)
and shall be closed and balanced as follows: at the end of each month and upon
the end of fiscal year. The Venture accountant shall cause an unaudited monthly
report to be sent to all Officers within thirty (30) days after the close of
each Monthly Segment. All statements and reports shall be prepared according to
generally accepted accounting principles.
8. Termination. The Venture shall terminate upon the following
event(s): (i) the sale or dissolution of all of its assets; or (ii) upon
judicial resolution. In the event of such termination, both Officers shall
proceed with reasonable promptness to liquidate the business of the Venture. The
assets of the Venture shall be used and distributed in the following order: (a)
to pay or provide for the payment of all Venture liabilities to liquidate
expenses and other financial obligations; (b) to discharge the balance of the
capital accounts of the Venture; (c) sell of any existing inventory and (d)
distribute all remaining funds in accordance with each Officer's interests.
9. Restrictions on Transfer of Venture Interest.
(a) Each Officer agrees on behalf of itself, and any of its officers,
agents and/or employees that it shall not sell, transfer, pledge, give, assign
or enter into any agreement, a result of which any third person (the "Recipient
Officer") shall acquire any interest in the Venture, unless such Officer (the
"Transferring Officer") shall have obtained prior written consent of the
other(s). If such consent is
<PAGE>
given, it shall not be effective unless: the Recipient Officer agrees in writing
to be bound by all of the terms and conditions of this Agreement.
(b) If either Officer (the "Selling Officer") receive(s) a bona fide
offer from a third party to purchase any stake (the "Selling Shares") in the
Venture (the "Third Party Offer"), it shall first give written notice of the
amount and the terms of the offer, the identity of the proposed buyer and its
willingness to accept the offer to the other Officer (the "Non-Selling
Officer"). The Non-Selling Officer shall have the option, within ten (10) days
after receipt of such notice to purchase the Selling Shares in the Venture from
the Selling officer under the same terms as are contained in the Third Party
Offer. In the event the Non-Selling Officer declines to purchase the Selling
Shares, then such Selling Officer shall have the right to sell its Interest to a
third party pursuant to the terms contained in the Third Party Offer. In the
event the Third Party Offer concerns the acquisition of one hundred percent
(100%) of the Venture Interest by another company (the "Acquiring Company"),
then, subject to the approval of the Parties of all substantive terms of such
acquisition, then the Venture shall become a subsidiary of such Third Party
Company.
(c) Ownership of all Masters subject to the terms hereto shall be
retained at all times by Planet.
10. Management Responsibilities.
Planet and New Millenium shall jointly share in all decisions relating
to the operation of the Venture (e.g., how many records to release each year,
artwork, the timing and hiring of personnel, the packaging of each Album
released hereunder, the determination of working capital reserves, the tax
election of the Venture, selection of an insurance carrier, if any, etc.) and
shall implement each decision by establishing a Management Board comprised of a
total of four Officers; two (2) Officers shall be elected by Planet and two
Officers shall be elected by New Millenium.
11. Miscellaneous
(a) This Agreement shall be governed by and construed in accordance
with the laws of United Kingdom.
(b) This Agreement shall be binding upon and inure to the benefits of
the parties hereto and their respective legal representatives, successors and
permitted assigns, subject to the terms, conditions and covenants set forth
herein.
(c) This Agreement may be executed in counterpart, each of which shall
be deemed on original, but all of which together shall constitute one and the
same instrument.
(d) This Agreement may be amended or modified by a written instrument
executed by an Officer of Planet and an Officer of New Millenium.
(e) It is understood that the Officers may engage in outside activities
("Outside Activities") so long as such Outside Activities do not directly
compete with the activities of the Venture.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
29 day of May, 1998.
PLANET ENTERTAINMENT CORP.
By: /s/ Joseph Venneri, President
------------------------------
Duly Authorized Signature
NEW MILLENIUM COMMUNICATIONS
By: /s/ Barry Sanders
-------------------------------
Duly Authorized Signature
JOINT VENTURE AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into as of June 1, 1995 between Joe Venneri
("Venneri") c/o Jeri Spenser, Golden Rule Administrators. 34-12 36th Street,
Astoria, New York 11106, and Danny D. Sims ("Sims") of 330 S. Spaulding Drive,
Suite 101, Beverly Hills, California 90210 with reference to the following
facts:
A. Venneri owns, controls and is a successor-in-interest to certain
master recording catalogs including without limitation the "Magnum" catalog and
other various catalogs;
B. Sims owns, controls and is a successor-in-interest to certain master
recordings previously known as the "JAD" and "JODA" catalogs;
C. Sims and Venneri desire to join together and combine The Magnum, JAD
and JODA catalogs (other than master recordings embodying the performances of
Bob Marley and the Wailers) (the "Marley Masters") for purposes of manufacturing
and selling phonograph records of such Magnum, JAD and JODA master recordings
(the "Subject Masters");
D. Sims and Venneri desire to exploit the Subject Masters under the
company name "Black Tiger Records" or such other name mutually agreed to; and
E. Sims and Venneri desire to have Sims' record distributing company,
Anansi Records ("Anansi") and its designees and licensees perform customary
distribution services for Black Tiger Records.
Now, therefore in consideration of the mutual covenants and promises herein, the
parties hereto agree as follows:
1. CATALOG EXPLOITATION AS BLACK TIGER RECORDS. Sims and Venneri shall
jointly contribute Subject Masters sufficient to fulfill the delivery
requirements requested by the current Anansi record distributor, AEC
Distribution Inc., ("AEC"), currently anticipated to be ten (10) albums every
ninety (90) days or thirty (30) albums each year. All Subject Masters
contributed hereunder shall be subject to the terms and conditions hereof and
shall be exploited under the company name, "Black Tiger Records". The Subject
Masters shall expressly include the Magnum catalog and the JAD/JODA catalogs,
but shall expressly exclude the Marley Masters. All "Net Receipts" received in
connection with Anansi's exploitation of the Subject Masters shall be paid as
follows:
Fifty percent (50%) to Joe Venneri or his designee; and Fifty percent
(50%) to Danny Sims or his designee.
2. TERRITORY. The World.
3. TERM. The "Term" of the Agreement shall be for an initial contract
period commencing on the date hereof and ending upon the date three (3) years
from the date hereof. Sims and Venneri shall have mutual successive options to
extend the term of the Agreement and their participation in this venture to
additional contract periods, each extending for a duration of one (1) year. Each
such option shall be automatically exercised unless either party sends the other
a notice of their intent not to exercise such option prior to the expiration of
then-in-effect contract period.
1
<PAGE>
4. EXCLUSIVE RIGHTS AND MECHANISM.
(a) Each album comprised of Subject Masters is referred to
herein as a "Catalog Album." Sims and Venneri hereby grant Anansi the exclusive
rights as distributor and record administrator of the Subject Masters. During
the Term of the Agreement, Anansi shall have the sole and exclusive right to
manufacture and release all phonograph records throughout the Territory
embodying the Catalog Albums, as configured in same.
(b) Phonograph Record Defined: As used herein, the terms
"phonograph record" and "record" shall mean every form of reproduction (whether
now known or unknown), embodying sound alone, or sound accompanied by visual
images (e.g., videos, laser discs, CD-I and CD Rom), distributed primarily for
home use, school use, juke box use, and use in means of transportation,
including, without limitation, discs of any speed or size, reel-to-reel tapes,
cartridges, cassettes, or other pre-recorded tapes, and new technology forms of
transmission (e.g., computerized digital delivery via alternative distribution
methods such as on-line delivery).
5. PRODUCT COMMITMENT/DELIVERY. Upon execution hereof, Sims and Venneri
doing business as Black Tiger Records shall deliver ten (10) completed and fully
mastered Catalog Albums as listed on Schedule A hereto and incorporated herein,
commercially and technically satisfactory for release for sale. In addition, no
less often than every ninety (90) days, Black Tiger Records shall deliver an
additional ten (10) Catalog Albums, the titles of which shall be mutually
selected and designated by Sims and Venneri. This Agreement shall apply to all
Subject Masters owned by Sims and Venneri and embodied within Catalog Albums
released by Black Tiger Records. From time to time as the Catalog Albums are
compiled and selected, the parties shall amend and update Schedule A hereto.
6. RESPONSIBILITIES OF BLACK TIGER RECORDS. Black Tiger Records shall
have the primary responsibility for the following activities, and all costs,
expenses and charges in connection therewith. All expenses of Black Tiger
Records shall be borne equally by Sims and Venneri but if not reimbursed by
Black Tiger Records to the requisite party shall be recoupable by Anansi from
any monies becoming payable to Black Tiger Records under the Agreement except as
otherwise indicated herein.
(a) The creation or restoration of such and the acquisition of
all Subject Masters contained in the Catalog Albums, the rights thereto and all
steps (creative and technical) required to utilize the Subject Masters in the
manufacture of phonograph records hereunder;
(b) The delivery to the facilities designated by Anansi that
will manufacture the product of a fully mixed, leadered, sequenced and equalized
30 IPS and/or DAT two-track master tapes in proper form for the production of
parts necessary to manufacture phonograph records therefrom;
(c) The delivery to Anansi of the artwork ideas to be
contained in or on the album packaging layout in connection with each record
concerned (the "Artwork") and label copy and all other applicable packaging,
merchandising or promotional elements included in such record or utilized in
connection therewith, such as Black Tiger Records' logotype or other trade
symbol, inserts, cards and stickers (the elements set forth in this sentence are
hereinafter at times called the "Packaging Elements") in connection with each
record concerned, together with all licenses and consents required in connection
with the Artwork and Packaging Elements; and
2
<PAGE>
(d) The delivery, in writing, of all documents demonstrating
that Black Tiger Records holds all necessary rights, licenses, consents and
authorizations for the exploitation of the Masters, the Artwork and the
Packaging Elements, including without limitation (A) authorizations from all
artists, prior owners of Masters and any other persons whose name, likeness,
performance or services are embodied in any such record or in any advertising or
promotional materials in connection therewith; and (B) consents and clearances
necessary to use any copyrights, trademarks, tradenames, Artist names, group
names, artwork, patents, or any similar intangible property rights of any person
in or on the Masters, records manufactured hereunder, videos and accompanying
printed material.
7. RESPONSIBILITIES OF ANANSI. Anansi shall have the primary
responsibility for the following activities and all costs, expenses and charges
in connection therewith paid for by Anansi shall be reimbursed and deducted as
part of the "Net Receipts" calculation in paragraph 10 hereof:
(a) Selection of manufacturers, wholesalers, distributors,
subdistributors and foreign licenses;
(b) Supervision and coordination of manufacturing and
distribution, whether performed by Anansi or a subdistributor or license
(including fulfillment of orders, processing returns, inventory control, etc.);
(c) Preparation of final artwork packaging sales, marketing,
publicity and advertising;
(d) Radio, street and video promotion;
(e) International distribution and licensing;
(f) Business and legal affairs;
(g) Accounting and financial administration;
(h) Direct payment of record royalties to Artists and
producers and mechanical royalties to songwriters and third party publishers.
Notwithstanding the foregoing, if either Sims or Venneri desires to pay Artists
and producers separately, each shall indemnify Anansi and the others agreement
any claims relating to payment of such record royalties;
(i) World-wide issuance of mechanical licenses for all
compositions of which Black Tiger Records has given Anansi notice;
(j) General administration for Anansi and Black Tiger Records;
(k) Subject to the request of the parties hereto, consultation
and advice with respect to activities related to the operation of an independent
record label; and
(l) Other services generally performed by a distributor for
record labels solely in its capacity as a distributor of records.
8. GRANT OF RIGHTS.
(a) All right, title and interest in and to the Subject
Masters exploited hereunder together with each artist's performances embodied
therein, as well as all
3
<PAGE>
copyrights therein and renewals and extensions thereof (excluding the underlying
musical composition except as otherwise set forth in this Agreement), shall be
entirely Black Tiger Records' property, free of any claim or encumbrance
whatsoever with Anansi having the exclusive administrative and exploitation
rights for such Subject Masters. Anansi shall have the sole and exclusive right
to secure copyright in such recordings in the name of Black Tiger Records owner
and author thereof, and to secure all renewals and extensions of such copyright.
The parties hereto and Black Tiger Records shall, upon Anansi's written request,
execute and deliver to Anansi any assignments of copyright (including renewals
and extensions thereof) in and to such recordings as Anansi may deem necessary
to effectuate the purpose of the Agreement, and Black Tiger Records hereby
irrevocably appoints Anansi its attorney-in-fact for the purpose of executing
such assignments in Black Tiger Records' name in the event Black Tiger Records
fails to execute any such assignment within ten (10) days after receipt of
Anansi's written request provided Anansi complies with the conditions set forth
in the next sentence. Notwithstanding the foregoing, Anansi shall not without
the written approval of Black Tiger Records (not to be unreasonably withheld),
sell, assign, convey or license rights in the Masters to a third party other
than with respect to territorial or other licenses solely for the exploitation
and sale of phonograph records. Anansi shall use its reasonable efforts to
promptly provide Black Tiger Records with copies of all documents signed by
Anansi pursuant to the foregoing power of attorney. Without limitation of any of
the foregoing, Anansi shall during and after the Term, have the exclusive
worldwide right in perpetuity to manufacture, sell, distribute and advertise
phonograph records embodying such recordings by any method now or hereafter
known, in any field of use; to release phonograph records embodying such
recordings under any trademarks, tradenames, or labels; to perform such
recordings publicly and to permit the public performance thereof by radio or
television broadcast or any other method now or hereafter known, all upon such
terms and conditions as Anansi may approve, and to permit any other person, firm
or corporation to do any or all of the foregoing or to refrain, from doing any
and/or all of the foregoing. Anansi shall obtain Black Tiger Records' consent
(not to be unreasonably withheld) prior to granting licenses in the Subject
Masters for commercial and political advertisements or use in X or NC rated
motion pictures.
(b) Anansi shall have the exclusive right during the Term to
use and permit holders to use Black Tiger Records' name and the non-exclusive
right during and after the Term to use and permit others to use each artist's
name, approved likeness, and approved biographical material concerning an artist
for advertising and trade purposes solely in connection with the manufacture,
distribution, sale and exploitation of phonograph records embodying an artist's
performance recorded hereunder, no matter when or where manufactured,
distributed, sold or exploited.
(c) Anansi shall have the right, and may grant to others the
right, to use the artwork contained in or on the album packaging layout in
connection with each record concerned (the "Artwork"), label copy and all other
applicable packaging, merchandising or promotional elements included in such
record or utilized in connection therewith, such as Black Tiger Records'
logotype or other trade symbol, inserts, cards and stickers (the elements set
forth in this sentence are hereinafter at times called the "Packaging
Elements"), on the packaging, covers, sleeves and liner notes of phonograph
records manufactured and distributed hereunder and for the purposes of trade,
advertising, publicity and promotion, solely in connection with the sale of
phonograph records manufactured and distributed hereunder.
4
<PAGE>
(d) During the Term hereof, Black Tiger Records shall not
itself distribute or manufacture records embodying Catalog Album's released
hereunder or license to allow any person or entity other than Anansi to
manufacture or distribute such records, except as otherwise specifically set
forth herein.
9. CONSULTATION/APPROVAL RIGHTS. Anansi shall use its reasonable
efforts to consult with Black Tiger Records in all material aspects of Anansi's
operations, which directly pertain to Black Tiger Records, including without
limitation decisions as to the number of units of a phonograph record initially
manufactured and material promotional and marketing expenses. In all instances
hereunder where the consent or approval of Anansi or Black Tiger Records is
required or provided for, such approval shall not be unreasonably withheld. All
decisions made hereunder by Anansi or Black Tiger Records, as applicable, shall
be made in good faith using reasonable business discretion.
10. BLACK TIGER RECORDS IDENTITY. All phonograph record packaging and
advertisements relating to phonograph records released hereunder shall be
identified as Black Tiger Records' records, with Anansi's logo as the
distributing company also being included thereon. An inadvertent failure to
include such Black Tiger Records identity shall not be a breach hereof provided
that Anansi uses best efforts to promptly cure any such failure with respect to
future product shipments or advertisements after the date of Black Tiger
Records' notice of such failure.
11. COMPUTATION AND PAYMENT OF NET RECEIPTS.
(a) In consideration of the right to manufacture and
distribute records as contemplated hereunder and the rights granted to Anansi by
Black Tiger Records hereunder, Anansi agrees to pay Black Tiger Records'
principals the percentage of Net Receipts in respect of each record manufactured
and sold hereunder as set forth in paragraph 1 above.
(b) "Net Receipts" as used herein shall mean the gross
revenues actually received by Anansi in the United States from wholesalers,
licenses (foreign or domestic) and accounts for exploitation of Masters and sale
or license of records and videos, LESS:
(i) Manufacturing costs;
(ii) Shipping and pressing costs;
(iii) Distribution costs paid to a third party
wholesaler, distributor or subdistributor;
(iv) Free goods in an amount deemed reasonable by
Anansi in its sole discretion, it being acknowledged and agreed by Black Tiger
Records that fifteen percent (15%) of records manufactured shall be deemed
reasonable;
(v) Taxes and tariffs, including property, sales,
use, excise, value added or any and all other taxes and charges applicable to
such records;
(vi) Artist royalties, producer royalties and
recording costs. Artist royalties accruing, but not required to be paid due to
Artist's account not being a recouped position shall be segregated in an account
in Black Tiger Records' name and paid, as earned, to Black Tiger Records as
reimbursement for recording costs previously paid by Black Tiger Records;
5
<PAGE>
(vii) Mechanical royalties;
(viii) Marketing, promotion (including promotional
records), advertisement (including co-op advertising and point of sale
materials), publicity and other expenses actually paid or incurred by Anansi on
Black Tiger Records' behalf. Paragraph 8 of the Agreement shall apply to
expenditures hereunder;
(ix) Video production costs, if applicable;
(x) All costs incurred by Anansi in connection with
discount and special sales programs; and
(xi) An administration fee of fifteen percent (15%)
of the gross receipts allocated and paid as follows:
(A) 5% to Ira Herzog and Seymour Strauss of
Padell, Fine & Weinberger (or a successor accounting firm) for
financial administration of Anansi;
(B) 2.5% to the applicable law firm
(currently Law Offices of Donna G. Cole-Brule) for business and legal
affairs and administration of Anansi;
(C) 7.5% to Anansi for international and
operational administration (including without limitation administration
and coordination of foreign licenses and mechanical licenses) and other
administrative services and expenses incurred as a result thereof
(e.g., expenses for long distance telephone and fax, courier, postage,
travel, unallocable independent contractor services, etc.) rendered by
Anansi on behalf of Black Tiger Records.
Other than administration fees set forth in this section 10(b)(xi),
there shall be no charge to Black Tiger Records for the overhead costs of Anansi
and any staff members of Anansi.
(c) Net Receipts shall be computed with respect to each
calendar month during the Term and Black Tiger Records share of Net Receipts
paid to the applicable principals by Anansi within sixty (60) days after the end
of each monthly billing period, after deduction of any unrecouped advances,
reserves and any outstanding amounts owing from Black Tiger Records to Anansi.
Anansi will have the express right to cross-collateralize Net Receipts from all
records and Subject Masters exploited hereunder whenever necessary to recoup
expenses in connection with such records; provided that Anansi shall not
cross-collateralize mechanical royalties against net Receipts.
(d) Anansi shall segregate and retain in an account in Black
Tiger Records' name and for Black Tiger Records' benefit the greater of
twenty-five percent (25%) of the amount otherwise due to Black Tiger Records
from a given month's accounting as a reserve against anticipated returns,
credits and costs or the actually reserve taken by Anansi's distributing
company, AEC. The reserve established with respect to each billing period, to
the extent not reduced for actual returns, credits and costs shall be liquidated
and paid over to Black Tiger Records as follows;
6
<PAGE>
(i) Twenty-five percent (25%) three (3) months
following the accounting date as of which such reserve is established;
(ii) Twenty-five percent (25%) six (6) months
following the accounting date as of which such reserve is established;
(iii) Twenty-five (25%) nine (9) months following the
accounting date as of which such reserve is established;
(iv) The balance twelve (12) months following the
accounting data as of which such reserve is established.
(e) Anansi will maintain books and accounts which report sales
of records and merchandise, all expenses incurred in connection with the sale of
such records and any other transactions in which proceeds are payable to Black
Tiger Records. Standard accounting practices will accrue to Black Tiger Records
(i.e., one examination of each accounting statement, two years to examine such
statement and six months after such two-year period to institute legal action.)
12. MECHANICAL ROYALTY RATES. With respect to the exploitation of
musical compositions written, owned or controlled (in whole or in part) by Black
Tiger Records or a producer of any master recording or any artist whose
performances are embodied in any master recordings ("Controlled Compositions"),
Anansi shall only be required to pay such writer for sales in the United States
and Canada a mechanical royalty rate equal to the lesser of the rate provided
for in the applicable artist agreement or seventy-five percent (75%) of the
minimum statutory rate (without regard to playing time) effective on the date of
delivery of the applicable album. If any party hereto owns or controls such
Controlled Composition, such party by their signature below hereby grants Black
Tiger Records and it's distributing partners a license in compliance with the
foregoing terms as well as a free license for promotional video cassettes. It is
expressly acknowledged and agreed that all mechanical royalties (whether paid
for Controlled Compositions or otherwise) shall be deducted from gross revenues
and included in the calculation of Net Receipts under paragraph 11 above
regardless of whether owned by Venneri, Sims, Anansi, Black Tiger Records or
otherwise.
13. ARTIST AGREEMENTS AND PAYMENT. Promptly after acceptance by Anansi
of a particular Catalog Album, Black Tiger Records shall deliver to Anansi
copies of the agreements or other documentation which establishes Black Tiger
Records' rights in the subject Masters (including without limitation recording,
license and producer agreements). Black Tiger Records failure to deliver such
agreements shall not be a breach hereof; provided that Black Tiger Records shall
deliver a schedule identifying all artists and performers, their addresses,
royalty rates, methods of calculation and other information necessary to
calculate and pay royalties.
14. REPRESENTATIVES AND WARRANTIES/INDEMNIFICATION.
(a) Each party hereto represents, warrants and agrees that (i)
it has the right and power to enter into and perform this agreement and grant
all rights herein granted, and is under no restrictions or obligations which
will impair Black Tiger Records' performance and Anansi's full enjoyment of the
rights agreed to be granted hereunder; (ii) Neither Anansi nor any party not
originally owning or controlling Subject Masters shall be required to make any
payments of any nature for, or in connection with, the acquisition, exercise or
exploitation of rights by Black Tiger Records or Anansi pursuant to this
agreement except as specifically provided
7
<PAGE>
in this agreement; (iii) Neither any name(s) utilized by Black Tiger Records or
an artist, the Subject Masters, any of the selections embodied therein, any
other matters or materials supplied by Black Tiger Records hereunder, nor any
exploitation or use of any of the foregoing, shall violate or infringe upon any
civil, personal or proprietary rights of any person, including, without
limitation, trademark, trade names, copyrights and rights of privacy and
publicity; (iv) During the Term, no person other than Anansi has any right to
use the Subject Masters as configured on each Catalog Album selected to be
released hereunder for making, promoting, or marketing phonograph records; (vi)
The selections embodied in the Subject Masters shall be available for mechanical
licensing; (vii) Other than as specifically set forth in this agreement, Anansi
shall be subject to no costs, fees, advances, charges or royalties for or in
connection with the recording, sale, use or exploitation of the Subject Masters;
and (viii) Venneri shall be responsible for all payments, representations and
warranties made hereunder with respect to Subject Masters originating from the
Magnum catalog and Sims shall be responsible for all payments, representations
and warranties made hereunder with respect to Subject Masters originating from
the JAD/JODA catalog.
(b) Anansi's acceptance and/or utilization of Masters or other
matters or materials hereunder shall not constitute a waiver of any of the
applicable principals of Tigers Records' representations, warranties or
agreements in respect thereof.
(c) During the Term: (i) neither Black Tiger Records nor any
principal thereof shall enter into any agreement or make any commitment which
would interfere with the full and prompt performance of the applicable party's
obligations hereunder; and (ii) Black Tiger Records shall not license rights in
the Subject Masters for distribution or sale by any person other than Anansi,
nor grant any name or likeness rights to any other person in connection
therewith;
(d) Each applicable party as set forth in section 14(a)(viii)
above (the "Indemnifying Party") agrees to indemnify and hold Anansi and its
joint venturers, distributors and subdistributors, their officers, directors,
shareholders, employees, agents and licenses harmless from and against any
liability, damage, cost or expense (including reasonable attorney's fees)
occasioned by or arising from any claim, demand or action inconsistent with any
agreement, representation, grant or warranty made or assumed by such
Indemnifying Party. The applicable Indemnifying Party agrees to pay Anansi on
demand any amounts for which it may be responsible under the foregoing
indemnity, and, without limiting any of its other rights or remedies, upon the
making or filing of any action, claim, or demand to which such indemnity may
relate, Anansi shall be entitled to withhold sums payable under this agreement
in an amount reasonably related to the potential liability, plus anticipated
costs and attorney's fees and provided further that Anansi shall liquidate all
such sums withheld within twelve (12) months from the date such written claim is
made if no action is filed (but if Anansi releases such monies as aforesaid
Anansi shall have the right to thereafter withhold monies if an action is
thereafter filed with respect to such claim). An Indemnifying Party, at Anansi's
request, will cooperate fully with Anansi in any controversy which may arise
with their parties concerning this agreement or any of Anansi's rights
hereunder.
15. SALE OF ANANSI AND BLACK TIGER RECORDS ASSETS. The parties hereto
acknowledge and agree that they may jointly elect during the Term to assign or
sell, in whole or in part, all rights and the assets created hereunder; provided
that the parties hereto shall mutually agree upon the material terms of such
sale or other disposition. In such event, the gross proceeds derived from such
sale or assignment
8
<PAGE>
which are directly related to Black Tiger Records contribution of assets, or in
the event of the sale or assignment of multiple labels, a proportionate amount
of such gross proceeds, shall be deemed gross receipts under paragraph 10
hereunder.
16. NOTICES.
(a) All notices to be given a party hereunder and all
statements and payments to be sent hereunder shall be addressed to the
applicable party at the address set forth on page 1 hereof or at such other
address as such party shall designate in writing from time to time.
(b) Courtesy copies of any notices hereunder shall be sent to
Donna G. Cole-Brule, Esq., Law Offices of Donna G. Cole-Brule, 4711 Cartwright
Avenue, Toluca Lake, CA 91602. All notices shall be in writing and shall either
be served by personal delivery (to an officer of our company if to us), mail or
telegraph, all charges prepaid. Except as otherwise provided herein, such
notices shall be deemed given when personally delivered, mailed or delivered to
a telegraph office, all charges prepaid, except that notices of change of
address shall be effective only after the actual receipt thereof.
17. MISCELLANEOUS.
(a) This contract sets forth the entire understanding of the
parties hereto relating to the subject matter hereof. No modification,
amendment, waiver, termination or discharge of this contract or of any of the
terms or provisions hereof shall be binding upon either of us unless confirmed
by a written instrument signed by you and by a duly authorized officer of our
company. No waiver by any party hereto of any term or provisions of this
contract or of any default hereunder shall affect such party's respective rights
thereafter to enforce such term or provision or to exercise any right or remedy
in the event of any other default, whether or not similar.
(b) If any provision of this contract shall be held void,
voidable, invalid or inoperative, no other provision of this Agreement shall be
affected as a result thereof, and accordingly, the remaining provisions of this
contract shall remain in full force and effect as though such void, voidable,
invalid or inoperative provision had not been contained herein.
(c) A party hereto shall not be deemed to be in material
breach of any of its obligations hereunder unless and until the other party
shall have given such party specific written notice by certified or registered
mail, return receipt requested, of the nature of such breach and such party
shall have failed to cure such breach within thirty (30) days after such party's
receipt of such written notice. Nothing contained herein shall limit our right
to obtain injunctive relief during any cure period for which this contract
provides.
(d) No party hereto shall hold itself out contrary to the
terms of this Agreement, and neither party shall become liable for any
representation, act, or omission of the other contrary to the provisions hereof.
This contract shall not be deemed to give any right or remedy to any third party
whatsoever unless said right or remedy is specifically granted by all parties
hereto in writing to such third party.
(e) The provisions of any applicable collective bargaining
agreement between us and any labor organization which are required by the terms
of such
9
<PAGE>
Agreement to be included in this Agreement shall be deemed incorporated
hereunder in as if such provisions were expressly set forth in this Agreement.
(f) In the event of any action, suit or proceeding arising
from or based upon this Agreement brought by either party hereto against the
other, the prevailing party shall be entitled to recover from the other its
attorneys' fees in connection therewith in addition to the costs of such action,
suit or proceeding.
(g) Except as otherwise provided in this Agreement, all rights
and remedies herein or otherwise shall be in limitation of any other right or
remedy.
(h) This Agreement has been entered into in the State of
California, and its validity, construction, interpretation and legal effect
shall be governed by the laws of the State of California applicable to contracts
entered into and performed entirely within the State of California.
(i) This Agreement shall not become effective until signed by
all parties hereto.
(j) Captions used in this Agreement are for convenience only
and shall not effect its validity, construction and interpretation and legal
effect.
ACCEPTED AND AGREED:
/s/ Joe Venneri /s/ Danny D. Sims
- -------------------------- ------------------------------
JOE VENNERI DANNY D. SIMS
ANANSI RECORDS
By /s/ Danny D. Sims
-----------------------
An Authorized Signatory
10
AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 8TH DAY OF JULY 1997 BY AND
BETWEEN PLANET ENTERTAINMENT CORP. (PLANET), 222 HIGHWAY35,
MIDDLETOWN, NJ 07748 AND NIPPON COLUMBIA CO. LTD. (NCC) OF
14-14. AKASAKA 4-CHOME, MINATO-KU, TOKYO 11, JAPAN
BOTH PARTIES THERETO HEREBY AGREE AS FOLLOWS:
1.
PLANET HEREBY GRANTS THE EXCLUSIVE RIGHT TO PRESS, DUPLICATE,
DISTRIBUTE, SELL, AND MARKET MUSIC CD's AND VIDEOTAPES, AND TO
SUBLICENSE SUCH GRANTED RIGHT TO NCC AND ITS SUBSIDIARY, DENON ACTIVE
MEDIA ("DAM"), A DIVISION OF DENON CORPORATION U.S.A. FOR THE TERRITORY
DEFINED BELOW UNDER THE FOLLOWING TERMS AND CONDITIONS:
A.
TERRITORY: JAPAN, HONG KONG, TAIWAN, KOREA, AND SINGAPORE, (HEREIN
CALLED THE LICENSED TERRITORY)
B.
TERM: ONE (1) YEAR COMMENCING SEPT. 1, 1997, FURTHERMORE, IN THE EVENT
THAT TOTAL AMOUNT OF ROYALTIES AND PRODUCT PRICES PAYABLE BY NCC TO
PLANET UNDER SUBPARAGRAPH C BELOW EXCEEDS TWO HUNDRED FIFTY THOUSAND
DOLLARS (US $250,000) AS OF AUGUST 31, 1998, THE TERM OF THIS AGREEMENT
SHALL AUTOMATICALLY BE EXTENDED WITH NO FURTHER ADVANCE PAYMENT FOR A
PERIOD OF ONE (1) YEAR THEREAFTER OR UPON MUTUAL AGREEMENT. WHEN THE
TERM OF THIS AGREEMENT EXPIRES, NCC SHALL HAVE A SIX-MONTH SELL-OFF
PERIOD.
C.
ROYALTY & PRODUCT PRICE: NCC OR DAM SHALL PAY A PER-UNIT PRICE LISTED
IN SCHEDULE A. IF A MECHANICAL RIGHTS COST (CURRENTLY $.0695 PER SONG)
INCREASES OR DECREASES, THE PRICE FOR NAKED CD AND FINISHED GOODS WILL
INCREASE OR DECREASE PROPORTIONATELY.
D.
BROADCAST RIGHT: NCC SHALL HAVE THE RIGHT TO SUBLICENSE MOVIES AND
MUSIC VIDEOS SUBJECT TO PRICE NEGOTIATION BY PLANET AND NCC.
E.
ACCOUNTING: WITH RESPECT TO THE PER-UNIT LICENSE ROYALTIES OR FINISHED
GOODS SET FORTH ABOVE, NCC SHALL ACCOUNT TO PLANET QUARTERLY WITH
DETAILED ROYALTY REPORTS ACCOMPANIED BY PAYMENTS WITHIN SIXTY (60) DAYS
OF CLOSE OF EACH QUARTERLY PERIOD ENDING ON MARCH 31, JUNE 30,
SEPTEMBER 30, AND DECEMBER 31, OF EACH YEAR.
F.
PAYMENT: ALL ROYALTIES AND OTHER PAYMENTS HEREUNDER SHALL BE MADE BY
NCC TO PLANET IN UNITED STATES DOLLARS IN THE UNITED STATES. IN
DETERMINING THE AMOUNT OF U.S. DOLLARS TO BE PAID HEREUNDER, THE
CURRENCY OF THE LICENSED TERRITORY SHALL BE CONVERTED TO U.S. DOLLARS
AT THE RATE OF EXCHANGE PREVAILING ON THE DATE OF DEPOSIT BY NCC AT ITS
BANK IN THE LICENSED TERRITORY FOR REMITTANCE TO PLANET. SUCH DEPOSIT
SHALL BE MADE ON OR BEFORE THE
<PAGE>
DATE WHEN ANY PAYMENT IS DUE HEREUNDER AND NCC SHALL ADVISE PLANET WHEN
SUCH DEPOSIT MADE WITHOUT PREJUDICE TO PLANET'S RIGHTS IN THE EVENT OF
NCC'S FAILURE TO MAKE TIMELY PAYMENT OF ALL SUMS DUE HEREUNDER, WHICH
OBLIGATIONS IS OF THE ESSENCE OF THIS AGREEMENT ALL PAYMENTS TO BE MADE
HEREUNDER SHALL BEAR INTEREST IN THE FAVOR OF PLANET AT THE RATE OF
(1%) PERCENT PER ANNUM ABOVE THE PRIME RATE PREVAILING IN THE UNITED
STATES AT AT THE TIME WHEN SUCH PAYMENT IS DUE, PAYABLE MONTHLY
COMMENCING THIRTY (30) DAYS AFTER THE DUE DATE UNTIL PAYMENT IN FULL IS
DEPOSITED BY NCC WITH ITS BANK IN THE LICENSED TERRITORY FOR REMITTANCE
TO PLANET.
G.
ADVANCE: ON SIGNING THIS AGREEMENT, NCC WILL PAY PLANET AN ADVANCE OF
ONE HUNDRED FIFTY THOUSAND DOLLARS (US $150,000), PAYABLE ON SIGNING
THIS AGREEMENT. THIS ADVANCE WILL BE RECOUPABLE AGAINST ANY FUTURE
AUDIO AND VIDEO SALES DUE PLANET INCLUDING ALL ITEMS LISTED ON SCHEDULE
A.
H.
TARGET: NCC WILL MAKE EVERY POSSIBLE EFFORT TO ACCOMPLISH THE TARGET
SALE AS SUMMARIZED IN SCHEDULE A. IT IS ACKNOWLEDGED THAT PLANET WILL
BE SUBMITTING A MAXIMUM OF 15 AUDIO CD's PER MONTH, AND AT LEAST 2
MOVIE TITLES AND 2 MUSIC VIDEO TITLES TO NCC. PLANET AND NCC WILL
EVALUATE AUDIO AND VIDEO TARGET SALES AT THE END OF THE SIXTH MONTHS
(FEBRUARY 28, 1998)
I.
IT IS UNDERSTOOD THAT PLANET WILL BE SUBJECT TO INTERNATIONAL TAX.
J.
NCC WILL RELEASE VIDEO PRODUCTS FOR PLANET TO DISTRIBUTE IN THE USA
UNDER THE PLANET NAME.
2. PLANET WARRANTIES:
A.
PLANET WARRANTS THAT IT HAS THE RIGHT TO CONTROL, LICENSE AND
DISTRIBUTE SAID PRODUCTS; AND
B.
PLANET WARRANTS THAT ALL PRODUCTS PURCHASED BY NCC OR DAM FROM PLANET
HEREUNDER SHALL BE FREE OR ALL ENCUMBRANCES AND OBLIGATIONS INCLUDING
ALL ARTIST ROYALTIES ARISING OUT OF THE USE, DISTRIBUTION AND SALE OF
SAID FINISHED PLANET PRODUCTS HEREUNDER. PLANET ALSO WARRANTS THAT ALL
PRODUCTS MANUFACTURED AND SOLD BY NCC, DAM AND/OR THEIR SUBLICENSES
UNDER THIS AGREEMENT SHALL BE FREE OF OBLIGATION TO ANY ARTIST
ROYALTIES.
C.
WITH RESPECT TO COPYRIGHTED MUSIC CONTAINED IN THE PLANET PRODUCT
PURCHASE BY NCC AND/OR DAM HEREUNDER, PLANET WARRANTS THAT PLANET HAS
SECURED ALL MECHANICAL AND/OR SYNCHRONIZATION LICENSES FROM COPYRIGHT
PROPRIETORS OR THEIR AGENTS. FOR EACH VIDEO TITLE CHOSEN FOR
MANUFACTURE, DISTRIBUTION, AND SALE BY NCC OR IT'S SUBLICENSEES IN THE
TERRITORY, PLANET WILL SECURE SYNCHRONIZATION LICENSE AND PROVIDE PROOF
OF PROPER LICENSE IN EACH TERRITORY. NCC WILL BE RESPONSIBLE FOR ALL
MECHANICAL LICENSE PAYMENTS FOR PRODUCT MANUFACTURED BY NCC AND/OR ITS
SUBLICENSEES OUTSIDE THE UNITED STATES.
<PAGE>
3.
NCC'S WARRANTIES
NCC WARRANTS THAT NCC SHALL USE ITS BEST EFFORTS TO DISTRIBUTE, SELL
AND OTHER WISE EXPLOITE PLANET PRODUCTION IN THE TERRITORY HEREUNDER
AND HAS THE FULL DISTRIBUTION AND MARKETING CAPABILITY IN THE LICENSED
TERRITORY.
4.
PRICE TO CONSUMERS: NCC OR DAM SHALL MAKE ALL PLANET MUSIC CD's
AVAILABLE TO THE GENERAL PUBLIC IN THE TERRITORY AT "MID-LINE" PRICES
HEREIN DEFINED AS PRICES WHICH ARE LESS THAN 30 (30%) OF NORMAL RETAIL
PRICES FOR S0-CALLED "TOP LINE" CD's IN THE TERRITORY. NCC WILL NOTIFY
PLANET OF THE PRICE TO CONSUMERS FOR VIDEOTAPES IN THE LICENSED
TERRITORY NO LATER THAN 90 DAYS BEFORE RELEASE.
5.
SELL-OFF PERIOD: NCC AND DAM HAVE, FOR A PERIOD OF SIX (6) MONTHS
COMMENCING UPON THE DATE OF EXPIRATION OR TERMINATION OF THE TERM OF
THIS AGREEMENT, THE NON-EXCLUSIVE RIGHT TO SELL OFF THEIR EXISTING
INVENTORY.
6.
SAMPLE: FOR EACH TITLE OF PLANET PRODUCTS WHICH NCC WILL BE INTERESTED
TO DISTRIBUTE IN THE TERRITORY, PLANET AGREES TO DELIVER TO NCC, FREE
OF CHARGE, TWO (2) UNITS PER COUNTRY OF THE TERRITORY IN WHICH
DISTRIBUTION OF SUCH TITLE WELL BE CONTEMPLATED.
7.
ASSIGNMENT: NO RIGHT OR OBLIGATION OF EITHER PARTY TO THE AGREEMENT MAY
BE ASSIGNED OR DELEGATED IN WHOLE OR IN PART, TO ANY THIRD PERSON OR
ENTITY WITHOUT THE PRIOR WRITTEN CONSENT OF THE PARTY HERETO.
8.
GOVERNING LAW: THIS AGREEMENT SHALL BE GOVERNED BY AND UNDER THE LAWS
OF THE STATE OF NEW JERSEY AND THE UNITED STATES OF AMERICA.
THE PARTIES HERETO EXECUTE THIS AGREEMENT BY SIGNING BELOW AS OF
THIS DAY AND YEAR FIRST ABOVE WRITTEN.
PLANET ENTERTAINMENT CORP. NIPPON COLUMBIA CO; LTD.
/s/ Joseph Venneri /s/ T. Anazawd
- ----------------------------- -----------------------------
Joseph Venneri
President
DATE 7/8/97 DATE July 8th, 1997
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Music/Video CATEGORY UNIT PRICE TARGET SALES ADVANCE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUSIC ROYALTY 10,000 Units $150,000 Advance
(manufactured per Month for for 1st Year.
outside USA) no Music Royalty, recoupable by audio
mechanical Naked CD, and and video production
right fee $1.00/CD Finished payable on signing
Product contract.
- ----------------------------------------------------------------------
MUSIC NAKED CD
With
mechanical
right fee $2.20/CD
- ----------------------------------------------------------------------
MUSIC
FINISHED
GOODS With $4.20/CD
mechanical
Right fee
- ---------------------------------------------------------------------------------------------------------------------
VIDEO
At Least 2
$3.00/Unit Movies
(DVD, VHS, (12,000)
ETC) Units
$1.25/UNIT
(Video CD)
$1.25/UNIT
ROYALTY (Public
FOR MOVIE Domain)
- ---------------------------------------------------------------------------------------------------------------------
VIDEO At least 2
$2.50/Unit Music Videos
(DVD, VHS, (5,000) Units
ROYALTY ETC)
FOR MUSIC $1.25/Unit
VIDEO (Video CD)
- ---------------------------------------------------------------------------------------------------------------------
VIDEO $250-$10,000 At least 3
Depends on title Times of
BROAD and number of Broadcasting
CAST FEE viewers. for videos.
FOR MOVIE Memorandum
AND MUSIC for each title is
VIDEO required.
(including
small CATV
stations)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PRODUCTION, DEVELOPMENT AND DISTRIBUTION AGREEMENT
By and Between
Multi-Media Industries Corp.,
Joseph Venneri
And
Planet Entertainment Corporation
The purpose of this Agreement is to extend the production, development and
distribution agreement between Multi-Media Industries Corporation ("MMIC"),
Joseph Venneri ("Venneri") and Planet Entertainment Corporation ("Planet").
1. MMIC hereby enters into a 50/50 production, development and distribution
agreement (P&D) with Venneri/Planet for the production, development and
distribution of the interactive and regular technology for MMIC's Century
Records, a wholly owned subsidiary of MMIC. (The previous agreement with Rev is
no longer necessary.) The joint venture will distribute all net revenue from
production, development and distribution of the items subject to this Agreement
as follows: 50% to MMIC and 50% to Venneri/Planet. It is further agreed that
MMIC and Planet will each appoint two (2) member to the management committee,
with Venneri to serve as the managing director of said committee.
2. Venneri agrees to produce a minimum of 20 new albums per year for Century
Records (MMIC) if funding is made available per Item 3 below.
3. On albums that MMIC agrees to produce and distribute, it will advance $10,000
per album, plus production and distribution costs, if any, to fund each such
album. The $10,000 per album advance will be subject to an annual cost of living
price adjustment. This advance and all costs associated therewith will be
recouped by MMIC prior to distribution per Item 6 below.
4. Venneri will arrange foreign distribution and will receive 10% of the cash
receipts, net of returns and allowances from foreign distribution as a
distribution royalty. If MMIC requests Venneri to arrange U.S. distribution
rights in the future, Venneri's fee will be extended thereto. To the extent that
MMIC arranges U.S. distribution, it will receive a comparable 10% fee. The party
arranging distribution will be responsible for obtaining publishing clearance.
5. MMIC hereby grants to Venneri a non-exclusive right to use the Century
masters (formerly known as the Venneri library), in exchange for Venneri waiving
his U.S. distribution rights to Century product. This right will be subject to
the Joint Venture (P&D) group having a right of first refusal on any material in
the Century library, which may be used by Venneri or Planet. Should MMIC not
elect to fund any particular album, Venneri/Planet will have the right to use
the Century master for that album at no charge.
In addition to the non-exclusive rights given Venneri to use the
Century record master library (under the terms and conditions of this
Agreement), Venneri will also have the right (subject to the Joint Venture (P&D)
Group right of first refusal, a similar right to use materials
<PAGE>
From MMIC's film library which presently consists of 271 (primarily public
domain films) and approximately 1,000 soundies (musical 5 minute clips). To the
extent that Venneri, Planet or the Joint Venture (P&D) Group utilizes this film
and music material, MMIC will be paid an owner's royalty of 10% of the cash
receipts, net of returns and allowances. To the extent that the P&D Group
utilizes film or record masters by Planet, Planet will be paid a similar 10%
owner's royalty.
6. Net profits, after all expenses, will be distributed on a 50/50 basis,
subject to MMIC's recoupment of its expenses per Item 3 above.
7. All other provisions of the original exchange agreement between MMIC, Century
Records and Venneri dated December 1, 1996 will remain in effect.
8. This Agreement will be construed according to the laws of the State of Utah
and shall be enforceable against MMIC only in a court of competent jurisdiction
in Salt Lake County in Utah.
ACCEPTED AND AGREED TO THIS 22nd day of July, 1997.
Planet Entertainment Corporation Multi-Media Industries Corp.
By /s/ Joseph Venerri, Pres. By /s/ Robert Stenquist
------------------------------ --------------------------
Joseph Venerri Robert Stenquist
Its President Its Secretary/Treasurer
----------------------------- -------------------------
/s/ Joseph Venerri
- ---------------------------------
Joseph Venerri - Individually
<PAGE>
Multi-Media Industries Corporation
To: Joe Venerri
From: Dick Bluestine
Subject: Production Agreement
Date: September 10, 1996
The purpose of this memorandum is to confirm our conversation with respect to
your production agreement, as follows:
1. As compensation, you will receive 10% of the cash receipts, net of
returns, of the sales from the 10 original albums.
2. In exchange you will:
a. Handle complete production of the albums.
b. Arrange distribution of the albums.
c. Coordinate joint production with Rev Entertainment.
3. You may assign the agreement to any entity in which you are a
control person.
<PAGE>
To: Dick Bluestine
From: Joe Venneri
Subject: Assignment of Production Agreement
Date: September 10, 1996
Please be advised that I have assigned the referenced production agreement to
Planet Entertainment, Inc., a Company in which I am a control person.
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
PLANET ENTERTAINMENT CORPORATION
and
JNC OPPORTUNITY FUND LTD.
Dated as of May 3l, 1998
================================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of May 31, 1998, between Planet Entertainment Corporation, A Florida
corporation (the "COMPANY"), and JNC Opportunity Fund Ltd., a Cayman Islands
corporation (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company, shares of the Company's 7%
Series A Convertible Preferred Stock, par value $.0001 per share (the "PREFERRED
STOCK"), which is convertible into shares of the Company's common stock, par
value $.00l per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser and
the Purchaser shall purchase 500 shares of Preferred Stock (the "Shares") for an
aggregate purchase price of $5,000,000. The closing of the purchase and sale of
the Shares (the "CLOSING") shall take place at the offices of Robinson Silverman
Pearce Aronsohn & Berman LLP (the "ESCROW AGENT"), 1290 Avenue of the Americas,
New York, New York 10104, immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is hereinafter
referred to as the "CLOSING DATE."
(ii) Prior to the Closing, the parties shall deliver or
shall cause to be delivered to the Escrow Agent such items as are required to be
delivered by them in accordance with and subject to the terms and conditions of
the Escrow Agreement, dated as of the date hereof, by and among the Company, the
Purchaser and the Escrow Agent, in the form of EXHIBIT E (the "ESCROW
AGREEMENT"), including the following: (A) the Company shall deliver (1) stock
certificates representing the Shares, registered in the name of the Purchaser,
(2) a common stock purchase warrant, in the form of EXHIBIT D, registered in the
name of the Purchaser, pursuant to which the Purchaser shall have the right at
any time and from time to time thereafter through the fifth anniversary date of
the Original Issue Date to acquire 75,000 shares of Common Stock (the
"Warrant"), (3) the legal opinion of Frohling, Hudak & McCarthy, outside counsel
to the Company, substantially in the form of EXHIBIT C, and (4) all other
documents, instruments and writings required to have been delivered at or prior
to the Closing Date by the Company pursuant to this Agreement, including an
executed Registration Rights Agreement, dated the date hereof, between the
Company and the Purchaser, in the form of EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"), and the Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT F, delivered to and acknowledged by the Company's transfer agent (the
"TRANSFER AGENT INSTRUCTIONS"); and (B) the Purchaser shall deliver (1)
$5,000,000 in United States dollars in immediately available funds by wire
transfer to an
<PAGE>
account designated in writing by the Company for such purpose, and (2) all
documents, instruments and writings required to have been delivered at or prior
to the Closing Date by the Purchaser pursuant to this Agreement, including an
executed Registration Rights Agreement; and (C) each party hereto shall deliver
all other executed instruments, agreements and certificates as are required to
be delivered hereunder by or on their behalf at the Closing.
1.2 FORM OF PREFERRED STOCK. The Preferred Stock shall have
the rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into a Certificate of Designation ("CERTIFICATE OF DESIGNATION"),
in form and substance approved by the Purchaser.
For purposes of this Agreement, "CONVERSION PRICE," "ORIGINAL
ISSUE DATE," "CONVERSION DATE" and "TRADING DAY" shall have the meanings set
forth in Exhibit A; "BUSINESS DAY" shall mean any day except Saturday, Sunday
and any day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS. WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Florida, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
SCHEDULE 2.1 (a) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is
an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Certificate of Designation, the
Registration Rights Agreement, the Warrant or the Escrow Agreement
(collectively, the "TRANSACTION DOCUMENTS"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (x), (y) or (z),
a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents, and otherwise to
carry out its obligations thereunder. The execution and
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delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company. Each of the Transaction Documents has been
duly executed by the Company and, when delivered (or filed, as the case may be)
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate of incorporation, bylaws or other
charter documents.
(c) CAPITALIZATION. The number of authorized, issued and
outstanding capital stock of the Company is set forth in SCHEDULE 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in SCHEDULE 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares and the Warrant, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in SCHEDULE
2.1(c), no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")) or has the right to acquire by agreement with or
by obligation binding upon the Company beneficial ownership of in excess of 5%
of the Common Stock. A "PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
(d) ISSUANCE OF THE SHARES AND THE WARRANT. The Shares and
the Warrant are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). The Company has on the date hereof
and will, at all times while the Shares and the Warrant are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Shares, to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Certificate
of Designation and the Warrant. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Shares,
assuming such conversion occurred on the Original Issue Date or the Filing Date
(as defined in the Registration Rights Agreement), whichever yields a lower
Conversion Price, (ii) the number of shares of Common Stock issuable upon
exercise of the Warrant, and (iii) the number of shares Common Stock which would
be issuable upon payment of dividends on the Shares, assuming each Share is
outstanding for two years and all dividends are paid in shares of Common Stock.
The shares of Common Stock issuable upon conversion of the Shares, as payment of
dividends thereon and upon exercise of the Warrant are collectively referred to
herein as the "UNDERLYING SHARES." The Shares, the Warrant and the Underlying
Shares are, collectively,
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the "SECURITIES." When issued in accordance with the Certificate of Designation
and the Warrant, in accordance with their respective terms, the Underlying
Shares shall have been duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority, for
violations which, individually or in the aggregate, could not have or result in
a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of Florida, (ii) the filing of the
Underlying Securities Registration Statement with the Securities and Exchange
Commission (the "COMMISSION") pursuant to the Registration Rights Agreement,
(iii) the filing of a Form D with the Commission, (iv) the filing of a Form 10
with the Commission in accordance with Section 3.16, and (v) in all other cases
where the failure to obtain such consent, waiver, authorization or order, or to
give such notice or make such filing or registration could not have or result
in, individually or in the aggregate, a Material Adverse Effect (the consents,
waivers, authorizations, orders, notices and filings referred to in (i)-(v) of
this Section are, collectively, the "REQUIRED APPROVALS").
(g) LITIGATION: PROCEEDINGS. There is no action, suit,
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with
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notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, have or result in a
Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Sections
2.2(b)-(h), the offer, issuance and sale of the Securities to the Purchaser as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Neither the Company
nor any Person acting on its behalf has taken any action could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) FINANCIAL STATEMENTS; CERTAIN CHANGES. The Company has
provided to the Purchaser true and complete copies of the Audited Consolidated
Financial Statements of the Company and its Subsidiaries (including the
Consolidated Balance Sheet dated December 31, 1996, Consolidated Statement of
Operations for the Period May 17, 1996 (Inception) to December 31, 1996,
Consolidated Statement of Changes in Stockholders' Equity for the Period May 17,
1996 (Inception) to December 31, 1996, and Consolidated Statement of Cash Flows
for the Period May 17, 1996 (Inception) to December 31, 1996) and the Notes
thereto and the Unaudited Consolidated Financial Statements of the Company and
its Subsidiaries (including the Consolidated Balance Sheet dated December 31,
1997 and the Consolidated Statement of Operations, Consolidated Statement of
Changes in Stockholders' Equity, and Consolidated Statement of Cash Flows, in
each case for the year ended December 31, 1997) and the Notes thereto
(collectively, the "FINANCIAL STATEMENTS" and, together with the Schedules to
this Agreement the "DISCLOSURE MATERIALS"). As of their respective dates, the
Financial Statements did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Financial Statements were prepared by the
Company in accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") during the periods involved, except as may be
otherwise specified in such Financial Statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments. Since
December 31, 1997, (a) there has been no event, occurrence or development that
could have or result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP, (c) the Company has not altered its method of
accounting or the identity of its auditors, (d) the Company has not declared or
made any payment or distribution of cash or other property to its stockholders
or officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock and (e)
other than as disclosed in the Financial Statements and as required by this
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Agreement, the Company has not entered into any agreement or other commitment to
issue its securities.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(1) CERTAIN FEES. Except for certain fees payable by the
Company to CDC Consulting, Inc., no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, or bank with respect to the transactions contemplated by this
Agreement. The Purchaser shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) SOLICITATION MATERIALS. Neither the Company nor any
Person acting on the Company's behalf has (i) distributed any offering materials
in connection with the offering and sale of the Securities, or (ii) solicited
any offer to buy or sell the Securities by means of any form of general
solicitation or advertising.
(n) FORM SB-2 ELIGIBILITY. The Company is eligible to
register securities for resale with the Commission under Form SB-2 promulgated
under the Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the
Shares to any Person other than the Purchaser other than with the specific prior
written consent of the Purchaser.
(p) SENIORITY. No class of equity securities of the Company
is senior to the Shares in right of payment, whether upon liquidation or
dissolution, or otherwise.
(q) PATENTS AND TRADEMARKS. The Company has, or has rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"INTELLECTUAL PROPERTY RIGHTS") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(r) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
set forth on SCHEDULE 6(b) to the Registration Rights Agreement, (i) the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied and (ii) no Person, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.
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(s) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the Financial Statements, except where the
failure to possess such permits could not, individually or in the aggregate,
have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(t) TAXES. The Company has prepared and duly and timely
filed (taking into account all extensions of due dates) all tax returns and
reports required to be filed by it prior to the date hereof; and has paid all
applicable taxes, interest, penalties and assessments due with respect thereto,
including, without limitation, payroll taxes, property taxes, income taxes,
estimated taxes, excise taxes, sales taxes, franchise taxes and personal
property taxes, except where the failure to so file or pay, individually or in
the aggregate, could not have or result in a Material Adverse Effect. The
Company has not executed or revoked any request for waiver or extension of the
time to assess any tax the time for assessment of which has not expired. There
are no audits pending (and to the Company's knowledge, none are proposed) of the
Company's federal, state or local income tax returns, federal excise tax returns
or franchise or other tax liabilities by any taxing authority.
(u) DISCLOSURE. The Company confirms that it has not
provided the Purchaser or its agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchaser regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
(a) ORGANIZATION: AUTHORITY. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by the Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement,
the Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by the Purchaser and constitutes the valid and legally
binding obligation of the Purchaser, enforceable against it in accordance with
its terms.
(b) INVESTMENT INTENT. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to
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sell or otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered
the Shares and the Warrant, it was, and at the date hereof it is, and at each
exercise date under the Warrant, it will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF THE PURCHASER. The Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges
receipt of the Disclosure Materials and further acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials.
(g) GENERAL SOLICITATION. The Purchaser is not purchasing
the Shares as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
(h) RELIANCE. The Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption, depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and the Purchaser hereby consents
to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
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ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by the Purchaser to an Affiliate of the
Purchaser or to a fund under common management with the Purchaser, and any
transfer among any such Affiliates or funds, provided that transferee certifies
to the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and that it is acquiring the Securities solely for
investment purposes. Any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH IN A
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 31,
1998, BETWEEN PLANET ENTERTAINMENT CORPORATION (THE "COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares, the payment of dividends
thereon, and exercise of the Warrant or other issuances of Underlying Shares as
contemplated hereby, by the Certificate of Designation or the Warrant occurs at
any time while an Underlying Securities Registration Statement is effective
under the Securities Act or, in the event there is not an effective Underlying
Securities Registration
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Statement at such time, if in the opinion of counsel to the Company such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Securities Registration Statement is declared
effective by the Commission. The Company agrees that it will provide the
Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares and payment
of dividends thereon in accordance with the terms of the Certificate of
Designation, and (ii) exercise of the Warrant in accordance with its terms, may
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon (x) conversion of the Shares
and payment of dividends thereon in accordance with the terms of the Certificate
of Designation, and (y) exercise of the Warrant in accordance with its terms, is
unconditional and absolute, subject to the limitations set forth herein in the
Certificate of Designation or pursuant to the Warrant, regardless of the effect
of any such dilution. The parties understand that the Company's obligation to
issue Underlying Shares does not arise except upon conversions of Shares and as
payment of dividends thereon in shares of Common Stock (in accordance with the
Certificate of Designation) and upon exercises of the Warrant (in accordance
with the terms thereof).
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchaser owns Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may reasonably request and shall continue such
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qualification or exemption at all times until the Purchaser notifies the Company
in writing that it no longer owns Securities; PROVIDED, HOWEVER, that neither
the Company nor its Subsidiaries shall be required in connection therewith to
qualify as a foreign corporation where they are not now so qualified or to take
any action that would subject the Company to general service of process in any
such jurisdiction where it is not then subject.
3.5 INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchaser.
3.6 INCREASE IN AUTHORIZED SHARES. At such times as the Company
would be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) issuing 200% of the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Shares and as payment of any accrued and unpaid dividends in respect thereof in
shares of Common Stock or (b) honoring the exercise in full of the Warrant, in
either case, due to the unavailability of a sufficient number of shares of
authorized but unissued or reserved Common Stock, the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue to
at least such number of shares as reasonably requested by the Purchaser in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its conversion exercise and reservation of
shares obligations as set forth in this Agreement, the Certificate of
Designation and the Warrant (the sum of (x) the number of shares of Common Stock
then authorized, (y) the number of shares of Common Stock then outstanding plus
all shares of Common Stock issuable upon exercise of all outstanding options,
warrants and convertible instruments, and (z) the sum of (i) 200% of the number
of Underlying Shares as are then issuable upon a conversion in full of all
Shares and as payment of dividends thereon, and (ii) the number of Underlying
Shares as are issuable upon exercise in full of the Warrant, shall be a
reasonable number). In connection therewith, the Board of Directors shall (a)
adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder approval
to carry out such resolutions (and hold a special meeting of the stockholders no
later than the 60th day after delivery of the proxy materials relating to such
meeting) and (c) within 5 Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's Certificate of
Incorporation to evidence such increase.
3.7 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) The Company
shall maintain a reserve of Common Stock for issuance upon conversion of the
Shares (and for payment of dividends thereon in shares of Common Stock) and
exercise of the Warrant in such amount as may be required to perform its
obligations in full under the Transaction Documents, which reserve shall include
a number of shares of Common Stock equal to no less than (i) 200% of the number
of shares of Common Stock as would be issuable upon conversion in full of the
Shares and upon payment of dividends thereon, and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrant.
-11-
<PAGE>
(b) The Company shall (i) not later than the Tenth (10th) day
following the date, if any, on which the shares of Common Stock become listed
for trading on any of the New York Stock Exchange, American Stock Exchange,
Nasdaq National Market or Nasdaq SmallCap Market (each a "SUBSEQUENT MARKET"),
prepare and file with any such Subsequent Market an additional shares listing
application covering a number of shares of Common Stock which is at least equal
to the number of shares required to be reserved pursuant to Section 2.1(d), (ii)
take all steps necessary to cause the such shares to be approved for listing on
such Subsequent Market as soon as possible thereafter, and (iii) provide to the
Purchaser evidence of such listing, and the Company shall maintain the listing
of its Common Stock thereon. If the number of Underlying Shares as are issuable
upon conversion in full of the number of Shares then outstanding, as payment of
dividends thereon and exercise of the Warrant exceeds 85% of the number of
Underlying Shares previously listed on account thereof with such Subsequent
Market, the Company shall take the necessary actions to immediately list a
number of Underlying Shares as equals (i) 200% of the number of Underlying
Shares then issuable upon conversion in full of the Shares and upon payment of
dividends thereon, and (ii) the number of Underlying Shares issuable upon
exercise of the Warrant.
3.8 PURCHASER OWNERSHIP OF COMMON STOCK. The Purchaser agrees not
to convert Shares or exercise the Warrant to the extent such conversion or
exercise would result in the Purchaser beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the shares of Common Stock then issued and outstanding,
including shares issuable upon conversion of the Shares and exercise of the
Warrant held by such Purchaser after application of this Section. To the extent
that the limitation contained in this Section applies, the determination of
whether Shares are convertible or the Warrant is exercisable (in relation to
other securities owned by a Purchaser) and of which Shares are convertible shall
be in the sole discretion of the Purchaser, and the submission of Shares for
conversion or the Warrant for exercise shall be deemed to be such Purchaser's
determination of whether such Shares are convertible or the Warrant is
exercisable (in relation to other securities owned by a Purchaser) and of which
portion of such Shares or portion of the Warrant are convertible or exercisable
(as the case may be), in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. Nothing contained herein shall be deemed to
restrict the right of the Purchaser to convert Shares or exercise the Warrant at
such time as such conversion will not violate the provisions of this Section.
The provisions of this Section will not apply to any conversion pursuant to
Section 5(a)(ii) of the Certificate of Designation, and may be waived by the
Purchaser upon not less than 75 days prior notice to the Company, and the
provisions of this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3.9 CONVERSION PROCEDURES. The Transfer Agent Instructions and
Conversion Notice (as defined in EXHIBIT A) and Notice of Exercise under the
Warrant set forth the totality of the procedures with respect to the conversion
of the Shares and exercise of the Warrant, including the form of legal opinion,
if necessary, that shall be rendered to the Company's transfer agent and such
other information and instructions as may be reasonably necessary to enable the
Purchaser to convert its Shares and exercise the Warrant as contemplated in the
Certificate of Designation and the Warrant (as applicable).
3.10 NOTICE OF BREACHES. (a) Each of the Company and the Purchaser
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement
-12-
<PAGE>
contained in any Transaction Document, as well as any events or occurrences
arising after the date hereof which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may be,
contained therein to be incorrect or breached. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.10(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Shares a copy of any written statement in support of or
relating to such claim or notice.
3.11 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The
Company shall honor conversions of the Shares and exercises of the Warrant and
shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the respective Certificate of
Designation and the Warrant.
3.12 RIGHT OF FIRST REFUSAL. SUBSEQUENT REGISTRATIONS. (a) The
Company shall not, directly or indirectly, without the prior written consent of
Encore Capital Management, L.L.C. ("Encore"), offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its or its Affiliates' equity or
equity-equivalent securities in a transaction intended to be exempt or not
subject to registration under the Securities Act (a "SUBSEQUENT PLACEMENT") for
a period of 180 days after the Closing Date, except (i) the granting of options
or warrants to employees, officers and directors, and the issuance of shares
upon exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in SCHEDULE
2.1(c), and (iii) shares of Common Stock issued upon conversion of Preferred
Stock and as payment of dividends thereon and upon exercise of the Warrant in
accordance with the Certificate of Designation or the Warrant, unless (A) the
Company delivers to Encore a written notice (the "SUBSEQUENT PLACEMENT NOTICE")
of its intention effect such Subsequent Placement, which Subsequent Placement
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Placement, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Placement shall be affected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Encore shall
not have notified the Company by 5:00 p.m. (New York City time) on the tenth
(10th) Business Day after its receipt of the Subsequent Placement Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Placement
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Placement Notice;
PROVIDED that the Company shall provide Encore with a second Subsequent
Placement Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Placement subject to the
initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth
-13-
<PAGE>
in such Subsequent Placement Notice within thirty (30) Business Days after the
date of the initial Subsequent Placement Notice with the Person (or an Affiliate
of such Person) identified in the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, and (z) Common
Stock to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) and (ii) of Section 3.12(a), the Company shall not,
without the prior written consent of the Purchaser (i) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for resale
any securities of the Company for a period of not less than 90 Trading Days
after the date that the Underlying Securities Registration Statement is declared
effective by the Commission. Any days that a Purchaser is unable to sell
Underlying Securities under the Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
3.13 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company
shall: (i) issue a press release acceptable to the Purchaser disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten (10) Business Days after the Closing Date, and (iii) timely file with
the Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchaser promptly after the filing thereof. The Company shall, no less than
two (2) Business Days prior to the filing of any disclosure required by clauses
(ii) and (iii) above, provide a copy thereof to Encore. No such filing or
disclosure may be made that mentions the Purchaser or Encore by name without the
prior consent of Encore.
3.14 USE OF PROCEEDS. The Company may only use the net proceeds
from the sale of the Securities hereunder for working capital purposes, to fund
acquisitions and to repay any portion of Company, debt not to exceed $100,000,
that is or was incurred (and is being repaid) in the ordinary course of
business, without prior consent of the Purchaser, and the Company shall not use
any proceeds from the sale of the Securities hereunder to pay any indebtedness
owed to the principals, officers and directors of the Company. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3.15 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed), without the prior
written consent of the Purchaser.
3.16 FILING OF FORM 10. The Company shall prepare and file with the
Commission a registration statement for the Common Stock pursuant to Section
12(g) of the Exchange Act on Form 10 as soon as possible, and in any event
within fifteen (15) days, after the Closing Date, and shall use its best efforts
to cause such Form 10 to be declared effective as promptly as possible
thereafter.
-14-
<PAGE>
3.17 REIMBURSEMENT. If the Purchaser, other than by reason of its
gross negligence, willful misconduct or fraud, becomes involved in any capacity
in any action, proceeding or investigation brought by or against any Person,
including stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchaser or entity in connection with the
transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall (i) pay
$15,000 to Escrow Agent in connection with the preparation and negotiation of
the Transaction Documents, and (ii) pay to $10,000 to Encore for its due
diligence expenses and disbursements in connection with the transactions
contemplated hereby. Other than the amounts contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
and Schedules hereto, the Registration Rights Agreement, the Certificate of
Designation, the Warrant and the Escrow Agreement contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
-15-
<PAGE>
4.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than
8:00 p.m. New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the Business Day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Planet Entertainment Corporation
222 Highway 35
P.O. Box 4085
Middletown, NJ 07748
Facsimile No.: (732) 530-1165
Attn: Secretary
With copies to: Frohling, Hudak & McCarthy
425 Eagle Rock Avenue
Roseland, NJ 07068
Facsimile No.: (973) 973-0969
Attn: John Frohling
If to the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM 11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
-16-
<PAGE>
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof; nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchaser may not assign this Agreement or any of
the rights or obligations hereunder without the consent of the Company. This
provision shall not limit the Purchaser's right to transfer securities or
transfer or assign rights hereunder or under the Registration Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and, other with respect to Encore who is an intended beneficiary of, and
entitled to enforce, Sections 3.12, 4.1 and 4.11, is not for the benefit of; nor
may any provision hereof be enforced by, any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrant.
-17-
<PAGE>
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser or Encore, or include the name of
the Purchaser or Encore in any filing with the Commission, or any regulatory
agency, trading facility or stock market without the prior written consent of
Encore, except to the extent such disclosure (but not any disclosure as to the
controlling Persons thereof) is required by law, in which case the Company shall
provide the Purchaser and Encore with prior notice of such disclosure.
4.12 SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
PLANET ENTERTAINMENT CORPORATION
By: /s/ JOSEPH VENNERI
------------------
Name: Joseph Venneri
Title: President
JNC OPPORTUNITY FUND LTD.
By: /s/ THOMAS H. DAVIS
-------------------
Name: Thomas H. Davis
Title: Director
<PAGE>
SCHEDULE 2.1(a)
PLANET ENTERTAINMENT CORP.
Subsidiaries
May31, 1998
Higher Ground Records
Maestro Holding Corporation
Planet Studios Inc.
<PAGE>
SCHEDULE 2.1(c)
PLANET ENTERTAINMENT CORP.
CAPITALIZATION TABLE
May 31, 1998
I. Common Stock
Authorized 50,000,000 shares
Outstanding 12, 081,055 shares
Reserved for Employee Stock Option Plan 1,000,000 shares
Warrants to purchase 3,160,000 shares issued 1/29/97
Exercise price - $2
Expiration date - January 28, 2007
II. Preferred Stock
Authorized 10,000,000 shares
Outstanding None
Principal Shareholders
----------------------
Name (1) Number Of Shares
-------- ----------------
Wallace Giakas 2,314,000 (2)
Joseph Venneri 2,127,000 (2)
John Arnone 2,366,000 (2)
Briolette Investments 1,100,000
Richard Bluestine 400,000 (2)
J.William Valenziano 806,000
Upbeat Records 694.000
---------
9,807,000
=========
1. Includes both record and/or beneficial ownership of the above shares.
2. In addition, an aggregate of 316,000 warrants to purchase 3,160,000
shares, exercisable at $2.00 per share, expiring January 28, 2007, were
issued to the officers as follows:
Wallace Giakas 100,000 warrants
John Arnone 100,000 warrants
Richard Bluestine 75,000 warrants
Joseph Venneri 41,000 warrants
<PAGE>
EXHIBIT B
See tab 3 herein.
<PAGE>
EXHIBIT C
See tab 4 herein.
<PAGE>
EXHIBIT D
See tab 6 herein.
<PAGE>
EXHIBIT E
See tab 8 herein.
<PAGE>
EXHIBIT F
<PAGE>
Planet Entertainment Corporation
222 Highway 35
P.O. Box 4085
Middletown, NJ 07748
Olde Monmouth Stock Transfer
77 Memorial Parkway South, Suite 101
Atlantic Highlands, NJ 07716
May 31, 1998
RE: TRANSFER AGENT INSTRUCTIONS
Ladies and Gentlemen:
Reference is made to that certain Convertible Preferred Stock Purchase
Agreement (the "Purchase Agreement") between Planet Entertainment Corporation
(the "Company"), and the buyer named therein (the "Holder") pursuant to which
the Company is issuing to the Holder shares of its 7% Series A Convertible
Preferred Stock, par value $.0001 per share (the "Preferred Shares"), and a
common stock purchase warrant (the "Warrant") which shall be convertible and
exercisable, respectively, into shares of the Company's common stock, $.0001 par
value per share (the "Common Stock'). The shares of Common Stock issuable upon
conversion of the Preferred Shares, payment of dividends thereon and exercise of
the Warrant are collectively referred to herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent of the Company at such time) to
issue shares of Common Stock upon conversion of the Preferred Shares, payment of
dividends thereon or exercise of the Warrant, from time to time, upon surrender
to you of (i) a properly completed and duly executed Conversion Notice, in the
form attached hereto as Exhibit I or Exercise Notice, in the form attached
hereto as Exhibit II, and (ii) certificates representing Preferred Shares being
converted or the Warrant being exercised (or an indemnification undertaking with
respect to such share certificates in the case of their loss, theft or
destruction).
So long as you have previously received (x) an opinion of the Company's
outside counsel substantially in the form of Exhibit III attached hereto (which
the Company shall direct be delivered to you by such outside counsel upon the
effectiveness of the registration statement covering Underlying Shares) stating
that a registration statement covering resales of Underlying Shares has been
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and that Underlying Shares may be issued or
resold without any restrictive legend (the "Opinion"), and (y) a copy of such
registration statement, certificates representing Underlying Shares shall not
bear any legend restricting transfer of Underlying Shares thereby and should not
be subject to any stop-transfer restriction. Provided, however, that if you
<PAGE>
have not previously received (i) a copy of the Opinion, and (ii) a copy of such
registration statement, then the certificates for Underlying Shares shall bear
the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
Please be advised that the Holder has relied upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, the Holder is
a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at [ ].
Very truly yours,
By:
---------------------
Name:
---------------------
Title:
---------------------
ACKNOWLEDGED AND AGREED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
- --------------------------------------
By: /s/ JOHN A TROSTER
---------------------------------
Name: JOHN A TROSTER
---------------------------------
Title: PRESIDENT
---------------------------------
OLDE MONMOUTH STOCK TRANSFER
77 MEMORIAL PKWY SUITE 101
ATLANTIC HIGHLANDS NJ 07716
/s/ JOHN A TROSTER
-2-
AGREEMENT OF LEASE
(WITH PURCHASE OPTION)
AND STOCK PURCHASE AGREEMENT
THIS AGREEMENT OF LEASE (WITH PURCHASE OPTION) AND STOCK PURCHASE
AGREEMENT is made as of March 1, 1997 between Albert N. Albertini, Albert V.
Albertini and Christopher M. Albertini (together, the "Owners"), Al Alberts On
Stage, Ltd., a Pennsylvania corporation, having an office at 15 East 8th Street,
Chester, Pennsylvania 19013 ("Onstage"), and Planet Entertainment Corporation, a
Delaware corporation, having an office at 222 Highway 35, Middletown, New Jersey
07748 ("Planet").
RECITALS
A. Owners own the plot of land and building situated thereon known as
15 East 8th Street, Chester, Pennsylvania 19013 (said building hereinafter
called the "Building" and the Building, together with said plot of land
hereinafter called the "Premises").
B. Owners own all the outstanding shares of stock of Onstage.
C. Planet desires to lease the Premises from Owners, to obtain an
option to purchase the Premises and to acquire all the outstanding shares of
stock of Onstage. Owners are willing to lease the Premises to Planet, to grant
to Planet an option to purchase the Premises and to sell to Planet all the
outstanding shares of stock of Onstage, upon the terms set forth herein.
WITNESSETH:
1. LEASE.
(a) PREMISES, TERM. Owners hereby leases to Planet and Planet hereby
hires from Owners the Premises, for a term to commence on March 1, 1997 and to
end on February 28, 2002 (the "Initial Term"), and, at the election of Planet,
for a Renewal Term as hereinafter defined, unless the Initial Term or Renewal
Term, as the case may be, shall sooner end pursuant to any of the terms or
conditions of this Lease or pursuant to law, at the Rent as hereinafter defined.
Planet shall have the right to extend the Initial Term for a second five-year
period (the "Renewal Term") by giving notice to Owners to that effect not less
than 60 nor more than 120 days prior to the expiration of the Initial Term.
Where the context requires, "Term" as used herein shall mean the Initial Term
together with the Extended Term, if any.
(b) RENT. "Rent" during the Initial Term shall mean the sum of:
(i) the debt service on the mortgage held by Wilmington Savings
Fund Society on the Premises (hereinafter called the "WSFS Mortgage");
(ii) the debt service on the mortgage held by Chester Redevelopment
Authority on the Premises (hereinafter called the "CRA Mortgage");
(iii) the real estate taxes (the "Taxes") imposed upon the
Premises; and
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(iv) the ordinary and necessary expenses of the operation of the
business of The Sound Spa presently conducted on the Premises (the
"Business"), including but not limited to charges for electricity,
water, telephone, cleaning and trash removal, security system, and
customary commercial casualty and liability insurance,
as and to the extent that the same shall accrue from and after the commencement
of the Term. Planet shall not be obligated to pay any of the foregoing items
comprising Rent that shall have accrued prior to the commencement of the Term.
"Rent" during the Extended Term shall be at the market rate prevailing
at the time of the election by Planet to extend the Term
"Debt service" on a Mortgage shall mean the regularly scheduled monthly
payments of principal and interest but shall not include any "balloon" payments
of principal at maturity or otherwise, nor any acceleration of principal
pursuant to the terms of said Mortgage or otherwise.
(c) PAYMENT OF RENT. Planet shall pay the portion of the Rent
constituting the debt service on the WSFS Mortgage and the CRA Mortgage
(together the "Mortgages") directly to the respective mortgagees as the same
become due during the Initial Term, excluding, however, any acceleration of the
principal thereof pursuant to the terms of either such Mortgage or otherwise.
Planet shall pay (directly to the taxing authority) the portion of the Rent
constituting the Taxes as and when the same become due and payable, provided
that all Taxes assessed prior to but payable in whole or in installments after
the date hereof, and all Taxes assessed during the Initial Term but payable in
whole or in installments after the Initial Term, shall be adjusted and prorated
so that Owners shall pay their prorated share for the period prior to and for
the period subsequent to the Initial Term and Planet shall pay its prorated
share for the Initial Term of this Lease. Planet will deliver to Owners or
Owners' representative Planet's checks in payment of its Rent obligations
hereunder, and Owners or Owners' representative shall forward such checks to the
respective payees.
(d) USE, OCCUPANCY, ALTERATIONS. Planet shall use and occupy the
Building in the conduct of the Business and any related business use permitted
by law. Planet shall be entitled to make any alterations, installations,
improvements, additions or other physical changes in or to the Building
(11ereinafter called "Alterations") without Owners' prior consent, provided such
Alterations are nonstructural and do not affect the Building's mechanical
systems.
(e) SUBORDINATION; OTHER LIENS. Owners represents that, except for (1)
the Mortgages and (2) a lease of a portion of the premises to Attic Studios,
which lease expires on March 31, 1997, there are no mortgages, trust indentures
or leases affecting the Premises to which this Lease is or would be subject or
subordinate. Owners agree not to enter into any such additional mortgage, trust
indenture or lease which would rank superior in right to the interest of Planet
under this Lease. Planet is not obligated to attorn to either of the mortgagees
on the Mortgages, and in the event that either such Mortgage shall be foreclosed
at any time prior to the expiration of this Lease, Planet may in its discretion
terminate this Lease forthwith, whereupon Planet shall have no further
obligation to Owners hereunder. Owners further covenant that they will not
extend the term of either Mortgage; increase the amount of indebtedness secured
by either Mortgage; or take or omit to take any act, which act or omission would
cause either Mortgage to be in default or otherwise permit either mortgagee to
accelerate the maturity thereof.
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(f) DESTRUCTION OF PREMISES; EMINENT DOMAIN. If the Building shall be
damaged by fire or other casualty, the damages shall be repaired by and at the
expense of Owners and the Rent until such repairs shall be made shall be reduced
in the proportion which the area of the part of the Building which is not usable
by Planet bears to the total area of the Building. Notwithstanding the
foregoing, if the Building is totally damaged or is rendered wholly
untenantable, or if the Building shall be so damaged by fire or other casualty
that, in Planet's opinion, substantial alteration, demolition, or reconstruction
of the Building shall be required (whether or not the Building shall have been
totally damaged or rendered untenantable), then in any of such events, Planet at
its option, may, not later than thirty (30) days following the damage, give
Owners a notice in writing terminating this Lease. If Planet elects to terminate
this Lease, the Term shall expire upon the fifth (5th) day after such notice is
given, and Planet shall vacate the Building and surrender the same to Owners. If
Planet shall not be in default under this Lease, then upon the termination of
this Lease under the conditions provided for in the next preceding sentence,
Planet's liability for Rent shall cease as of the day following such damage. If
the whole or any part of the Premises or the Building shall be acquired or
condemned for any public or quasi-public use or purpose, this Lease and the Term
shall end as of the date of the vesting of title.
(g) QUIET ENJOYMENT. Owners covenant and agree with Planet that upon
Planet paying the Rent and observing and performing all the other terms,
covenants and conditions, on Planet's part to be observed and performed, Planet
may peaceably and quietly enjoy the Premises subject, nevertheless, to the terms
and conditions of this Lease.
(h) END OF TERM. Upon the expiration of the Initial Term (if not
extended), or, if the Initial Term is extended, upon the expiration of the
Extended Term, Planet shall quit and surrender to Owners the Premises in good
order and condition, ordinary wear and tear excepted, and Planet shall be
entitled to remove all its property from the Premises.
(i) SUBLEASE. Planet may assign this Lease (and the Option granted in
Section 4) or sublet all or portions of the Premises for the remainder of the
Term with the approval of Owners, which approval Owners shall not unreasonably
withhold, provided that the business or occupation of the assignee or subtenant
is not extra-hazardous, disreputable or illegal, and provided further that
Planet shall remain primarily liable for the payment of the Rent and for the
performance of all the other terms of this Lease required to be performed by
Planet.
3. OPERATION OF BUSINESS; PURCHASE OF EQUIPMENT.
(a) In consideration of the payment of Rent as provided herein, Planet
shall, during the Term, be entitled to operate the Business heretofore conducted
under the name of The Sound Spa, and to receive all the revenues and other
income from the Business.
(b) Albert V. Albertini (the "Executive") shall be employed by Planet
pursuant to an employment contract substantially in the form of Exhibit A to be
entered into contemporaneously herewith.
(c) The Executive represents that he has heretofore incurred expenses
on behalf of the Business which have been paid by his personal credit card, and
that said expenses do not exceed $21,000 in the aggregate, which amount shall
be treated by the parties as a loan by the Executive to the Business. Planet
agrees during the Term to service said loan at the minimum monthly payment
required by the terms of the credit card contract, reserving the right in
Planet's discretion
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to pay down the loan in one or more payments. The Executive agrees not to incur
any additional charges on said credit card, except charges for which the
Executive would be entitled to reimbursement under the provisions of his
employment contract.
(d) Planet hereby agrees to issue to Owners 100,000 shares of common
stock of Planet, in exchange for all of the outstanding shares of stock of
Onstage, which exchange of shares is intended by the parties to be a tax-free
exchange. Such shares shall be issued as shown in Exhibit B.
4. OPTION TO PURCHASE. Owners hereby grant to Planet an option,
exercisable at any time during the Term of the Lease granted hereunder (the
"Option"), to purchase the Premises upon the following terms and conditions:
(a) The Option may be exercised so long as Planet is not in default in
payment of Rent or under any other terms of the Lease granted in Section 1
above.
(b) The purchase price for the Premises shall be ten dollars ($10.00)
and the assumption or discharge by Planet of the obligations of Owners on the
Mortgages, which assumption shall be evidenced by either (i) the recognition of
Planet and the release of Owners as obligor on the Mortgages, (ii) the
refinancing of the Mortgages with Planet as obligor thereon, or (iii) the
extinguishment by Planet of the Mortgages.
(c) The Option may be exercised by written notice to Owners setting
forth the date and time at which the closing (the "Closing") of the purchase
pursuant to the Option shall occur, which date shall be not less than 30 nor
more than 60 days after the giving of such notice. Such purchase shall take
place at the offices of Owners' attorneys.
(d) Owners shall deliver or cause to be delivered to Planet or Planet's
agent, not less than 5 days prior to the Closing, a title commitment for an
owner's title insurance policy issued by a nationally recognized title insurance
company in the amount of principal balance of the Mortgages, covering title to
the Premises on or after the date hereof, showing title in Owners subject only
to (1) the general exceptions contained in the policy, (2) the title exceptions
set forth in Section 4(h) below, and (3) title exceptions pertaining to liens or
encumbrances of a definite or ascertainable amount which may be removed by the
payment of money at or prior to Closing and which Owners shall so remove at
their expense (all of which are herein referred to as the "Permitted
Exceptions"). The title commitment shall be conclusive evidence of good title as
therein shown as to all matters insured by the policy, subject only to the
exceptions as therein stated. Owners also shall furnish Planet an affidavit of
title in customary form covering the date of closing and showing title in Owners
subject only to the Permitted Exceptions in foregoing items (2) and (3) and
unpermitted exceptions, if any, as to which the title insurer commits to extend
insurance in the manner specified in Section 4(e) below.
(e) If the title commitment discloses unpermitted exceptions, Owners
shall have 30 days from the date of delivery thereof to have the exceptions
removed from the commitment or to have the title insurer commit to insure
against loss or damage that may be occasioned by such exceptions, and, in such
event, the time of closing shall be 35 days after delivery of the commitment or
the time specified in Section 4(c) above, whichever is later. If Owners fail to
have the exceptions removed, or in the alternative, to obtain the commitment for
title insurance specified in the preceding sentence as to such exceptions,
within the specified time, Planet may elect, upon
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notice to Owners within 10 days after the expiration of the 30-day period, to
rescind the exercise of the Option and cancel the purchase of the Premises, and
may terminate the Lease granted herein, whereupon this Agreement shall become
null and void without further actions of the parties.
(f) As a condition to Closing, Planet may require Owners to produce
evidence satisfactory to Planet's attorney that there does not exist any
condition on the Premises which would expose Planet to any liability under any
federal, state or local laws, regulations or ordinances pertaining to air and
water pollution, waste management, pesticides, radiation, noise or other similar
environmental matter.
(g) At the Closing existing assignable insurance policies, if any,
shall then be assigned to Planet. Owners shall pay the amount of any stamp
imposed by State law on the transfer of the title, and shall furnish any
declaration signed by Owners or Owners' agent or meet other requirements as
established by any local ordinance with regard to a transfer or transaction tax,
which tax shall be paid by Owners.
(h) At the Closing Owners shall convey to Planet title to the Premises
by a recordable full warranty deed subject only to (1) covenants, conditions and
restrictions of record, (2) private, public and utility easements and roads and
highways, if any, (3) party wall rights and agreements, if any, (4) special
taxes and assessments for improvements not yet completed, (5) the Mortgages, and
(6) general taxes for the current year.
5. UNWIND PROVISIONS. (a) In the event that Planet shall be in default for
90 days in payment of any Rent hereunder, Owners may give notice to Planet of
such default, demanding that Planet cure the default or defaults specified in
such notice. If Planet shall fail to cure said default or defaults within 10
days of such notice, Owners may at any time thereafter terminate the provisions
of this Agreement, whereupon, in consideration of Owners delivering to Planet
the 100,000 shares of stock of Planet issued to Owners pursuant to Section 3(d)
above, Planet shall deliver to Owners all the outstanding shares of stock of
Onstage and/or all the Business Property (as hereinafter defined), and this
Agreement shall terminate.
(b) In the event that (i) Owners are prevented from delivering
possession of the Premises to Planet, or (ii) if Planet is prevented from
occupying the Premises and enjoying the privileges of the Lease, other than
through Planet's default hereunder, or (iii) Owners shall renegotiate or
refinance either of the Mortgages without the written consent of Planet, then
Planet may at any time thereafter terminate the provisions of this Agreement,
whereupon, in consideration of Planet delivering to Owners all the outstanding
shares of stock of Onstage and/or all the Business Property, Owners shall
deliver to Planet the 100,000 shares of stock of Planet issued to Owners
pursuant to Section 3(d) above, and this Agreement shall terminate.
(c) Upon any such termination pursuant to Section 5(a) or 5(b), the
obligation of Planet to pay Rent and to service the credit card debt set forth
in Section 3(c) shall cease, the Option granted in Section 4 shall terminate,
and the parties shall have no further liability to one another hereunder.
6. REPRESENTATIONS OF OWNERS AND ONSTAGE. Owners and Onstage hereby
jointly and severally represent and warrant to Planet as follows:
(a) Onstage is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Pennsylvania. Owners own all the
outstanding shares of stock of Onstage
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free and clear of all liens and encumbrances. All such shares are fully paid
and non-assessable. There are no outstanding subscriptions, options, warrants,
rights, preemptive rights or other contracts, commitments, understandings and
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement obligating Onstage to issue or
sell any share of capital stock of Onstage or to grant, extend or enter into any
option or other similar right with respect thereto.
(b) Onstage owns all the furniture, fixtures, equipment, customer
lists, inventory, supplies and all other property used in the Business (herein
called the "Business Property"), free and clear of all liens and encumbrances. A
schedule of the Business Property is attached as Exhibit C.
(c) Since the date of the most recent financial statements of Onstage
furnished to Planet, there has not been any material adverse change in the
business, financial condition or operations of Onstage. As of February 28, 1997,
Onstage recapitalized all its outstanding liabilities (including all mortgages,
notes and bonds payable, and obligations owing to shareholders) into paid-in or
capital surplus. As of said date, Onstage had no liabilities outstanding,
contingent or otherwise, including liabilities under guarantees or endorsements.
(d) No action, litigation, arbitration or claim is pending against
Owners or against Onstage or any of its assets which seeks to delay or prevent
the consummation of the transactions contemplated hereby, nor is there any
order, writ, judgment, injunction, decree, determination or award which would
have such effect; and there are no actions pending or, to the best knowledge of
Owners or Onstage, threatened against Owners or against Onstage or any of its
assets before any court, arbitrator or administrator, governmental or regulatory
authority or body.
(e) Onstage has filed all tax and information returns required to be
filed by it on or before the date hereof with the appropriate authorities for
income, withholding, social security, unemployment insurance, sales and other
taxes, and has paid all taxes reflected on such returns. All real property taxes
on the Premises have been paid to date.
(f) The execution and delivery of this Agreement by Owners and Onstage
do not require any consent, approval or authorization of or other action by, or
filing with or notification to, any governmental or regulatory authority, or
either mortgagee on the Mortgages.
(g) Owners will not renegotiate or refinance either of the Mortgages
without the written consent of Planet.
7. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties with respect to the subject matter hereof, supersedes all existing
agreements between the parties concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
8. WAIVER; SUCCESSORS AND ASSIGNS. Any waiver by any party of a breach of
any provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
permitted assigns. This Agreement shall not be assigned by any party without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld.
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9. NOTICE. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt, to the party to whom it
is to be given at the address of such party set forth at the beginning of this
Agreement (or to such other address as the party shall have furnished in
accordance with the provisions of this Section 9). Notice to the estate of any
party shall be sufficient if addressed to such party as provided in this Section
9. Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address which shall be deemed given at the time of receipt thereof.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Pennsylvania, without giving effect to conflict of laws.
11. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transaction contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any such provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first written above.
OWNERS: PLANET ENTERTAINMENT
CORPORATION
By: /s/ Richard Bluestine
- ----------------------------- ------------------------------
Albert N. Albertini Name: Richard Bluestine
Title: Executive VP
/s ALBERT V. ALBERTINI
- -----------------------------
Albert V. Albertini AL ALBERTS ON STAGE, LTD.
By: /s/ Albert V. Albertini
------------------------------
Name: Albert V. Albertini
Title: Pres.
- -----------------------------
Christopher M. Albertini
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EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT, made as of this 14th day of August, 1998, by
and between Planet Entertainment Corporation, a Florida Corporation, having its
principal place of business at 222 Route 35 South, Middletown, NJ 07748
(hereinafter "Planet" or the "Company") and Wallace M. Giakas, an individual
residing at 4 Tall Oakes Court, Farmingdale, 07727 (hereinafter referred to as
"Giakas").
WITNESSETH
WHEREAS, it is deemed in the best interest of the Company that
Giakas to devote a majority of his professional time and energies to the
business of the Company;
WHEREAS, the Company seeks to be assured of the continued
special services of Giakas; and Giakas desires to be so employed; and
WHEREAS, the parties desire to set forth in writing their
prior understanding and agreement with respect to such employment;
NOW THEREFORE,
In consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. POSITION.
The Company hereby employs Giakas as the Company's Chairman
and Secretary in accordance with the powers and duties specified herein, and
generally to be responsible for the day to day management of any executive
decisions concerning the operations of the Company, direct and control its day
to day affairs, make necessary decisions commensurate with his positions in the
Company, be responsible for the financial concerns and operations of the Company
and, in general, to exercise his authority for the best long term interests of
the Company and its shareholders.
2. TERM.
Effective as of even date, the employment of Giakas shall be
for a term of ten (10) years subject to Giakas's good faith performance of the
powers and duties outlined in this Agreement.
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3. COMPENSATION.
Giakas shall be paid a salary of $125,000 for the first year
of employment hereunder with an annual increase during the following nine years,
of at least 10% per annum, each year. Said compensation will commence on the
effective date of this agreement as set forth in Paragraph 2 above.
4. BONUS.
Giakas shall participate in a management incentive plan
whereby his bonus being 2.5% of all pre-tax profits recorded by the Company in
accordance with Generally Accepted Accounting Principles ("GAAP"), and shall
also be entitled to the greater of 2% of the value of any acquisition made by
the Company, as computed by the purchase price plus the value of any additional
consideration paid by the Company in connection with any such acquisition, or 2%
of the revenue reported by any such acquisition in the preceding fiscal year by
the acquiree. In the case that any portion of such consideration shall consist
of publicly held securities, the market price of these securities shall be used
to determine value, and the value related to any option, warrant or right to
purchase these securities shall be determined by Black-Scholes. In addition,
Giakas shall be entitled to 2.5% of any capital raised for the Company. At the
option of Giakas, any compensation due under this provision may be converted
into the Company's common stock at a conversion price equal to the average
closing bid price for the Company's securities 30 days prior to any such
acquisition or capital funding.
5. ADDITIONAL COMPENSATION.
Nothing herein shall prohibit the Board of Directors from
granting additional compensation to Giakas in the form of employee stock options
and his salary shall be reviewed annually by the Board concerning appropriate
increases and/or to grant appropriate bonuses for his contributions to the
Company and he shall be included in any cash or stock bonus or stock plan hereto
fore or hereinafter adopted by the company. Under no circumstances shall the
compensation be reduced without Giakas's consent.
6. POWERS AND DUTIES.
Giakas shall be required to devote a substantial portion of
his professional time, attention and energies to the business of the Company and
particularly as it relates to his position as
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Chairman and Secretary provided, however, that he may be associated with other
companies or business entities which do not compete directly or indirectly with
the company and which activities do not materially interfere with his
responsibilities to the Company. Additionally, he shall assume and perform such
other and further responsibilities and duties as may be assigned to him from
time to time by the Board of Directors.
7. COVENANT OF NON-COMPETITION.
During the period of this Agreement, provided the Company is
not in material default of any of the provisions hereof, Giakas shall not,
directly or indirectly, engage in any activity which may be deemed competitive
or in any way in conflict with the Company's business and activities; nor shall
he engage in or be a member of any partnership or as an officer, director or
employee of any corporation or business entity, which competes directly or
indirectly with the company without the express permission of the Board of
Directors; nor shall he engage in or be actively involved in an other
consultation or advisory agreements, contracts or activities of a professional
or commercial nature, which would compete directly or indirectly with the
Company unless permitted by the Company and its Board of Directors.
8. CONFIDENTIALITY.
Giakas shall keep confidential and secret any methods,
formulations, inventions, know-how, sales and marketing techniques and other
information utilized by the Company during the course of his employment.
9. REIMBURSEMENT OF EXPENSES/EMPLOYEE BENEFITS.
During the term of Giakas's employment hereunder, the Company
shall:
(A) Promptly reimburse Giakas for all reasonable expenses
incurred in connection with the performance of his duties outlined in this
Agreement, inclusive of, but not limited to, travel, long distance telephone
charges, entertainment and administrative and miscellaneous expenses upon
presentation of an itemized list of such expenditures;
(B) Provide health, hospitalization, major medical, dental and
mental health insurance coverage, including routine visits and reimbursement for
all deductible amounts and/or uninsured expenses, it any, to Giakas and his
family or, in lieu thereof at Giakas's option, with a medical coverage allowance
of $1,000 per month;
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(C) Provide disability insurance coverage to Giakas in the
lesser of the. maximum premium amount of $3,000 per year or the maximum benefit
amount of $200,000 per year; and
(D) Provide Giakas with a Company car to be leased at a cost,
including all maintenance charges, of no more than $1,250 per month or, at
Giakas's option, with a car allowance of $1,250 per month.
10. TERMINATION.
The Company shall have the right at any time, upon not less
than sixty (60) days written notice to Giakas, to terminate the employment of
Giakas for "Cause." For purposes of this agreement "Cause" shall mean Giakas's
conviction for a crime of dishonesty, or his failure or refusal in a material
and continuing manner to perform his obligations as set forth in this agreement,
or his material breach of any provision of this Agreement, for a period of more
than twenty (20) days after receipt of written notice from the Company
specifying the failure or breach, requesting that it be cured and Giakas's
failure to cure the same or to be diligently exerting his best efforts to cure
the same. "Cause" shall not include the inability of Giakas to perform his
obligations hereunder due to mental or physical impairment, or external
circumstances of the market place, governmental regulations or policies or
adverse domestic or world conditions adversely effecting the Company's business.
It is agreed that the Company shall not discharge or terminate the services of
Giakas unless there is a material breach of this Agreement supported by a good
faith resolution of the Board of Directors based upon an opinion of Counsel to
the Company specifying in detail the basis for said termination. In the event of
termination for cause, Mr. Giakas shall receive his salary and bonus, per 4.
above, and other benefits for two (2) years from the date of discharge.
11. TERMINATION WITHOUT CAUSE.
The Company may terminate Giakas on ninety (90) days written
notice subject to the conditions set forth hereunder. In the event Giakas is
terminated without cause or his continued employment would require him to
relocate to an office in excess of fifty (50) miles from the Company's present
offices and he chooses not to relocate, then the Company, at Giakas' option
shall pay Giakas twice his salary and bonus for the prior twelve months times
the remaining number of years of this agreement.
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12. VACATION.
Giakas shall be entitled to a four (4) weeks paid vacation per
year during the term of this Agreement, which shall be taken at such time as is
convenient to the Company and Giakas. Any and all unused vacation may be carried
over to The succeeding year(s).
13. LIFE INSURANCE.
The Company shall pay premiums for the purchase key man life
insurance on the life of Giakas in the maximum amount of $3,000 per year, the
first $500,000 of any benefit from which shall be payable the Company, and the
balance to be payable to a beneficiary to be designated by Giakas. Giakas shall
have the right increase the benefit amount, at his cost and expense for any
additional premium, and designate a beneficiary for said additional benefit.
14. DIRECTOR'S AND OFFICER'S INSURANCE.
Simultaneously with the execution of this Agreement, the
Company shall secure directors and officers liability insurance with coverages
and monetary amounts of protection mutually agreed upon by the Company and
Giakas not to be less than $1 million.
15. STOCK OPTION.
Giakas shall have the right to participate in the Company's
non-qualified stock option plan, or any subsequent stock option plan adopted by
the Company.
16. STOCK SPLITS AND DIVIDENDS.
Should the stock of the company split or a stock dividend be
paid for any reason during the term of this Agreement, any unexercised stock
option or warrant, or portion thereof, shall be deemed to be subject to the
terms of the stock split or purchase the equivalent number of shares covered by
the split as if he had previously owned or received his option prior to the
stock split.
17. CHANGE OF CONTROL. In the event of a change in control,
Giakas may, at his option resign from the Company, but in any event shall be
entitled to all amounts due and owing under this Agreement for the term, which
shall be accelerate and shall be due within 10 days of any change in control. A
change of control shall be deemed to have occurred in the event of a sale or
merger of the Company to a non-affiliated third party to which Giakas does not
consent; or a change in the make up of a majority of the members of the Board of
Directors to which Giakas does not consent.
Page 5 of 7
<PAGE>
18. NOTICES.
All notices and other communications required hereunder shall
be in writing and shall be deemed to have been duly given if delivered or mailed
(registered or certified mail, postage prepaid, return receipt requested), if to
Giakas, to his residence, and if to the Company to its principal office.
19. WAIVER.
No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision. No waiver shall be
effective unless executed in writing by the parties hereto.
20. LAW GOVERNING.
This Agreement shall be construed and governed in accordance
with the laws of the State of New Jersey.
21. INDEMNIFICATION.
The Company hereby agrees to defend, indemnify and hold
harmless Giakas in connection with any legal action or administrative proceeding
filed against him as a result of any act or omission performed during the course
and scope of his employment, except as may be contrary or prohibited as a matter
of public policy and the laws of the State of Florida.
22. LEGAL EXPENSES.
Any legal expenses incurred by Giakas in connection with his
employment, this agreement and the indemnity provisions contained herein shall
be borne by the Company.
23. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the
parties and may not be modified, amended or supplemented, except by the written
agreement of the parties hereto.
24. SEVERABILITY
If any provision of this Agreement shall be determined to be
void, unenforceable, or against public policy, that provision shall be stricken
and this Agreement shall be construed as if the objectionable provision did not
exist.
Page 6 of 7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
PLANET ENTERTAINMENT CORPORATION
BY: /s/ John S. Arnone
----------------------------
NAME: JOHN S. ARNONE
TITLE: PRESIDENT
DATE: 8/14/98
WALLACE M. GIAKAS
By: /s/ Wallace Giakas
----------------------------
DATE: 8/14/98
BE IT RESOLVED that at a duly constituted meeting of the Board
of Directors of Planet Entertainment Corporation, the foregoing agreement was
accepted and ratified, and was authorized to be entered into by the Company.
BY: /s/ Joseph Venerri
----------------------------
DATE: 8/14/98
Page 7 of 7
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
PLANET ENTERTAINMENT CORPORATION
BE IT RESOLVED that on August 14, 1998, notice having been
given telephonically of a meeting of the Board of Directors on August 14, 1998,
and a quorum of Directors physically being present at said meeting, it was fully
resolved by a majority of those Directors present and voting that the executive
Compensation Agreement between the Company and Wallace M. Giakas was accepted
and ratified, and approved.
BY: ABSTAIN
----------------------------
Wallace M. Giakas
Chairman, Secretary
BY: /s/ John S. Arnone
----------------------------
John S. Arnone
President, CEO
BY: /s/ Joseph Venneri
----------------------------
Joseph Venneri
Director
BY:
----------------------------
Richard Bluestine
Director
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT, made as of this 14th day of August 1998, by
AND between Planet Entertainment Corporation, a Florida Corporation, having its
principal place of business at 222 Route 35 South, Middletown, NJ 07748
(hereinafter "Planet" or the "Company") and John S. Arnone, an individual
residing at 30 Penbrooke Court, Shrewsbury, NJ 07702 (hereinafter referred to as
"Arnone").
WITNESSETH
WHEREAS, it is deemed in the best interest of the Company that
Arnone to devote a majority of his professional time and energies to the
business of the Company;
WHEREAS, the Company seeks to be assured of the continued
special services of Arnone; and Arnone desires to be so employed; and
WHEREAS, the parties desire to set forth in writing their
prior understanding and agreement with respect to such employment;
NOW THEREFORE,
In consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. POSITION.
The Company hereby employs Arnone as the Company's President
and Chief Executive Officer in accordance with the powers and duties specified
herein, and generally to be responsible for the day to day management of any
executive decisions concerning the operations of the Company, direct and control
its day to day affairs, make necessary decisions commensurate with his positions
in the Company, be responsible for the financial concerns and operations of the
Company and, in general, to exercise his authority for the best long term
interests of the Company and its shareholders.
2. TERM.
Effective as of even date, the employment of Arnone shall be
for a term often (10)
Page 1 of 7
<PAGE>
years subject to Arnone's good faith performance of the powers and duties
outlined in this Agreement.
3. COMPENSATION.
Arnone shall be paid a salary of $125,000 for the first year
of employment hereunder with an annual increase during the following nine years,
of at least 10% per annum, each year. Said compensation will commence on the
effective date of this agreement as set forth in Paragraph 2 above.
4. BONUS.
Arnone shall participate in a management incentive plan
whereby his bonus being 2.5% of all pre-tax profits recorded by the Company in
accordance with Generally Accepted Accounting Principles ("GAAP"), and shall
also be entitled to the greater of 2% of the value of any acquisition made by
the Company, as computed by the purchase price plus the value of any additional
consideration paid by the Company in connection with any such acquisition, or 2%
of the revenue reported by any such acquisition in the preceding fiscal year by
the acquiree. In the case that any portion of such consideration shall consist
of publicly held securities, the market price of these securities shall be used
to determine value, and the value related to any option, warrant or right to
purchase these securities shall be determined by Black-Scholes. In addition,
Arnone shall be entitled to 2.5% of any capital raised for the Company. At the
option of Arnone, any compensation due under this provision may be converted
into the Company's common stock at a conversion price equal to the average
closing bid price for the Company's securities 30 days prior to any such
acquisition or capital funding.
5. ADDITIONAL COMPENSATION.
Nothing herein shall prohibit the Board of Directors from
granting additional compensation to Arnone in the form of employee stock options
and his salary shall be reviewed annually by the Board concerning appropriate
increases and/or to grant appropriate bonuses for his contributions to the
Company and he shall be included in any cash or stock bonus or stock plan hereto
fore or hereinafter adopted by the company. Under no circumstances shall the
compensation be reduced without Arnone's consent.
Page 2 of 7
<PAGE>
6. POWERS AND DUTIES.
Arnone shall be required to devote a substantial portion of
his professional time, attention and energies to the business of the Company and
particularly as it relates to his position as President and Chief Executive
Officer provided, however, that he may be associated with other companies or
business entities which do not compete directly or indirectly with the company
and which activities do not materially interfere with his responsibilities to
the Company. Additionally, he shall assume and perform such other and further
responsibilities and duties as may be assigned to him from time to time by the
Board of Directors.
7. COVENANT OF NON-COMPETITION.
During the period of this Agreement, provided the Company is
not in material default of any of the provisions hereof, Arnone shall not,
directly or indirectly, engage in any activity which may be deemed competitive
or in any way in conflict with the Company's business and activities; nor shall
he engage in or be a member of any partnership or as an officer, director or
employee of any corporation or business entity, which competes directly or
indirectly with the company without the express permission of the Board of
Directors; nor shall he engage in or be actively involved in an other
consultation or advisory agreements, contracts or activities of a professional
or commercial nature, which would compete directly or indirectly with the
Company unless permitted by the Company and its Board of Directors.
8. CONFIDENTIALITY
Arnone shall keep confidential and secret any methods,
formulations, inventions, know-how, sales and marketing techniques and other
information utilized by the Company during the course of his employment.
9. REIMBURSEMENT OF EXPENSES/EMPLOYEE BENEFITS.
During the term of Arnone's employment hereunder, the Company
shall:
(A) Promptly reimburse Arnone for all reasonable expenses
incurred in connection with the performance of his duties outlined in this
Agreement, inclusive of; but not limited to, travel, long distance telephone
charges, entertainment and administrative and miscellaneous expenses upon
presentation of an itemized list of such expenditures;
(B) Provide health, hospitalization, major medical, dental and
mental health insurance
Page 3 of 7
<PAGE>
coverage, including routine visits and reimbursement for all deductible amounts
and/or uninsured expenses, it any, to Arnone and his family or, in lieu thereof
at Arnone's option, with a medical coverage allowance of $1,000 per month;
(C) Provide disability insurance coverage to Arnone in the
lesser of the maximum premium amount of $3,000 per year or the maximum benefit
amount of $200,000 per year; and
(D) Provide Arnone with a Company car to be leased at a cost,
including all maintenance charges, of no more than $1,250 per month or, at
Arnone's option, with a car allowance of $1,250 per month.
10. TERMINATION.
The Company shall have the right at any time, upon not less
than sixty (60) days written notice to Arnone, to terminate the employment of
Arnone for "Cause." For purposes of this agreement "Cause" shall mean Arnone's
conviction for a crime of dishonesty, or his failure or refusal in a material
and continuing manner to perform his obligations as set forth in this agreement,
or his material breach of any provision of this Agreement, for a period of more
than twenty (20) days after receipt of written notice from the Company
specifying the failure or breach, requesting that it be cured and Arnone's
failure to cure the same or to be diligently exerting his best efforts to cure
the same. "Cause" shall not include the inability of Arnone to perform his
obligations hereunder due to mental or physical impairment, or external
circumstances of the market place, governmental regulations or policies or
adverse domestic or world conditions adversely effecting the Company's business.
It is agreed that the Company shall not discharge or terminate the services of
Arnone unless there is a material breach of this Agreement supported by a good
faith resolution of the Board of Directors based upon an opinion of Counsel to
the Company specifying in detail the basis for said termination. In the event of
termination for cause, Mr. Arnone shall receive his salary and bonus, per 4.
above, and other benefits for two (2) years from the date of discharge.
11. TERMINATION WITHOUT CAUSE.
The Company may terminate Arnone on ninety (90) days written
notice subject to the conditions set forth hereunder. In the event Arnone is
terminated without cause or his continued employment would require him to
relocate to an office in excess of fifty (50) miles from the Company's present
offices and he chooses not to relocate, then the Company, at Arnone' option
shall
Page 4 of 7
<PAGE>
pay Arnone twice his salary and bonus for the prior twelve months times the
remaining number of years of this agreement.
12. VACATION.
Arnone shall be entitled to a four (4) weeks paid vacation per
year during the term of this Agreement, which shall be taken at such time as is
convenient to the Company and Arnone. Any and all unused vacation may be carried
over to The succeeding year(s).
13. LIFE INSURANCE.
The Company shall pay premiums for the purchase key man life
insurance on the life of Arnone in the maximum amount of $3,000 per year, the
first $500,000, of any benefit from which shall be payable to the Company with
the balance to be paid to a beneficiary to be designated by Arnone. Arnone shall
have the right increase the benefit amount, at his cost and expense for any
additional premium, and designate a beneficiary for said additional benefit.
14. DIRECTOR'S AND OFFICER'S INSURANCE.
Simultaneously with the execution of this Agreement, the
Company shall secure directors and officers liability insurance with coverages
and monetary amounts of protection mutually agreed upon by the Company and
Arnone not to be less than $1 million.
15. STOCK OPTION.
Arnone shall have the right to participate in the Company's
non-qualified stock option plan, or any subsequent stock option plan adopted by
the Company.
16. STOCK SPLITS AND DIVIDENDS.
Should the stock of the company split or a stock dividend be
paid for any reason during the term of this Agreement, any unexercised stock
option or warrant, or portion thereof; shall be deemed to be subject to the
terms of the stock split or purchase the equivalent number of shares covered by
the split as if he had previously owned or received his option prior to the
stock split.
17. CHANGE OF CONTROL. In the event of a change in control,
Arnone may, at his option resign from the Company, but in any event shall be
entitled to all amounts due and owing under this Agreement for the term, which
shall be accelerate and shall be due within 10 days of any change in control. A
change of control shall be deemed to have occurred in the event of a sale or
merger of the Company to a non-affiliated third party to which Arnone does not
consent; or a change
Page 5 of 7
<PAGE>
in the make up of a majority of the members of the Board of Directors to which
Arnone does not consent.
18. NOTICES.
All notices and other communications required hereunder shall
be in writing and shall be deemed to have been duly given if delivered or mailed
(registered or certified mail, postage prepaid, return receipt requested), if to
Arnone, to his residence, and if to the Company to its principal office.
19. WAIVER.
No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision. No waiver shall be
effective unless executed in writing by the parties hereto.
20. LAW GOVERNING.
This Agreement shall be construed and governed in accordance
with the laws of the State of New Jersey.
21. INDEMNIFICATION.
The Company hereby agrees to defend, indemnify and hold
harmless Arnone in connection with any legal action or administrative proceeding
filed against him as a result of any act or omission performed during the course
and scope of his employment, except as may be contrary or prohibited as a matter
of public policy and the laws of the State of Florida.
22. LEGAL EXPENSES.
Any legal expenses incurred by Arnone in connection with his
employment, this agreement and the indemnity provisions contained herein shall
be borne by the Company.
23. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the
parties and may not be modified, amended or supplemented, except by the written
agreement of the parties hereto.
24. SEVERABILITY
If any provision of this Agreement shall be determined to be
void, unenforceable, or against public policy, that provision shall be stricken
and this Agreement shall be construed as if the objectionable provision did not
exist.
Page 6 of 7
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE executed this
Agreement the day and year first above written.
PLANET ENTERTAINMENT CORPORATION
BY: /s/ Joseph Venneri
----------------------------
NAME:
TITLE: Exec. VP & Director
DATE: 8/14/98
JOHN S. ARNONE
By: /s/ John S. Arnone
----------------------------
DATE: 8/14/98
BE IT RESOLVED that at a duly constituted meeting of the Board
of Directors of Planet Entertainment Corporation, the foregoing Agreement was
accepted and ratified, and was authorized to be entered into by the Company.
BY: /s/ Wallace Giakas
----------------------------
Page 7 of 7
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
PLANET ENTERTAINMENT CORPORATION
BE IT RESOLVED that on August 14, 1998, notice having been
given telephonically of a meeting of the Board of Directors on august 14, 1998,
and a quorum of Directors physically being present at said meeting, it was fully
resolved by a majority of those Directors present and voting that the executive
Compensation Agreement between the Company and John S. Arnone was accepted and
ratified, and approved.
BY: /s/ Wallace M. Giakas
----------------------------
Wallace M. Giakas
Chairman, Secretary
BY: ABSTAIN
----------------------------
John S. Arnone
President, CEO
BY: /s/ Joseph Venneri
----------------------------
Joseph Venneri
Director
BY:
----------------------------
Richard Bluestine
Director
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT, made as of this 14th day of August 1998, by
and between Planet Entertainment Corporation, a Florida Corporation, having its
principal place of business at 222 Route 35 South, Middletown, NJ 07748
(hereinafter "Planet" or the "Company") and Joseph J. Venerri, an individual
residing at 336 East Pleasant Grove Road, Jackson, NJ 08527(hereinafter referred
to as "Venerri").
WITNESSETH
WHEREAS, it is deemed in the best interest of the Company that
Venerri to devote a majority of his professional time and energies to the
business of the Company;
WHEREAS, the Company seeks to be assured of the continued
special services of Venerri; and Venerri desires to be so employed; and
WHEREAS, the parties desire to set forth in writing their
prior understanding and agreement with respect to such employment;
NOW THEREFORE,
In consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. POSITION.
The Company hereby employs Venerri as the Company's Executive
Vice President and President of PNEC Records in accordance with the powers and
duties specified herein, and generally to be responsible for the day to day
management of any executive decisions concerning the operations of the Company's
Entertainment Division and studios, direct and control its day to day affairs,
make necessary decisions commensurate with his positions in the Company, be
responsible for the financial concerns and operations of the Company's
Entertainment Division and Studios and, in general, to exercise his authority
for the best long term interests of the Company and its shareholders.
Page 1 of 7
<PAGE>
2. TERM.
Effective as of even date, the employment of Venerri shall be
for a term often (10) years subject to Venerri's good faith performance of the
powers and duties outlined in this Agreement.
3. COMPENSATION.
Venerri shall be paid a salary of$ 125,000 for the first year
of employment hereunder with an annual increase during the following nine years,
of at least 10% per annum, each year. Said compensation will commence on the
effective date of this agreement as set forth in Paragraph 2 above.
4. ADDITIONAL COMPENSATION.
Mr. Venerri shall also be entitled to 2.5% of the pre-tax
profits from the Company's Entertainment Division as computed in Generally
Accepted Accounting Principles. Nothing herein shall prohibit the Board of
Directors from granting additional compensation to Venerri in the form of
employee stock options and his salary shall be reviewed annually by the Board
concerning appropriate increases and/or to grant appropriate bonuses for his
contributions to the Company and he shall be included in any cash or stock bonus
or stock plan hereto fore or hereinafter adopted by the company. Under no
circumstances shall the compensation be reduced without Venerri's consent.
5. POWERS AND DUTIES.
Venerri shall be required to devote a substantial portion of
his professional time, attention and energies to the business of the Company and
particularly as it relates to his position as Executive Vice President and
President of PNEC Records provided, however, that he may be associated with
other companies or business entities which do not compete directly or indirectly
with the company and which activities do not materially interfere with his
responsibilities to the Company. Additionally, he shall assume and perform such
other and further responsibilities and duties as may be assigned to him from
time to time by the Board of Directors.
7. COVENANT OF NON-COMPETITION.
During the period of this Agreement, provided the Company is
not in material default of any of the provisions hereof, Venerri shall not,
directly or indirectly, engage in any activity which may be deemed competitive
or in any way in conflict with the Company's business and activities; nor
Page 2 of 7
<PAGE>
shall he engage in or be a member of any partnership or as an officer, director
or employee of any corporation or business entity, which competes directly or
indirectly with the company without the express permission of the Board of
Directors; nor shall he engage in or be actively involved in an other
consultation or advisory agreements, contracts or activities of a professional
or commercial nature, which would compete directly or indirectly with the
Company unless permitted by the Company and its Board of Directors.
8. CONFIDENTIALITY.
Venerri shall keep confidential and secret any methods,
formulations, inventions, know-how, sales and marketing techniques and other
information utilized by the Company during the course of his employment.
9. REIMBURSEMENT OF EXPENSES/EMPLOYEE BENEFITS.
During the term of Venerri's employment hereunder, the Company
shall:
(A) Promptly reimburse Venerri for all reasonable expenses
incurred in connection with the performance of his duties outlined in this
Agreement, inclusive of; but not limited to, travel, long distance telephone
charges, entertainment and administrative and miscellaneous expenses upon
presentation of an itemized list of such expenditures;
(B) Provide health, hospitalization, major medical, dental and
mental health insurance coverage, including routine visits and reimbursement for
all deductible amounts and/or uninsured expenses, it any, to Venerri and his
family or, in lieu thereof at Venerri's option, with a medical coverage
allowance of $1,000 per month;
(C) Provide disability insurance coverage to Venerri in the
lesser of the maximum premium amount of $3,000 per year or the maximum benefit
amount of $200,000 per year; and
(D) Provide Venerri with a Company car to be leased at a cost,
including all maintenance charges, of no more than $750 per month or, at
Venerri's option, with a car allowance of $750 per month.
10. TERMINATION.
The Company shall have the right at any time, upon not less
than sixty (60) days written notice to Venerri, to terminate the employment of
Venerri for "Cause." For purposes of this agreement "Cause" shall mean Venerri's
conviction for a crime of dishonesty, or his failure or refusal
Page 3 of 7
<PAGE>
in a material and continuing manner to perform his obligations as set forth in
this agreement, or his material breach of any provision of this Agreement, for a
period of more than twenty (20) days after receipt of written notice from the
Company specifying the failure or breach, requesting that it be cured and
Venerri's failure to cure the same or to be diligently exerting his best efforts
to cure the same. "Cause" shall not include the inability of Venerri to perform
his obligations hereunder due to mental or physical impairment, or external
circumstances of the market place, governmental regulations or policies or
adverse domestic or world conditions adversely effecting the Company's business.
It is agreed that the Company shall not discharge or terminate the services
of Venerri unless there is a material breach of this Agreement supported by a
good faith resolution of the Board of Directors based upon an opinion of Counsel
to the Company specifying in detail the basis for said termination. In the event
of termination for cause, Mr. Venerri shall receive his salary and bonus, per 4.
above, and other benefits for two (2) months from the date of discharge.
11. TERMINATION WITHOUT CAUSE.
The Company may terminate Venerri on ninety (90) days written
notice subject to the conditions set forth hereunder. In the event of Venerri's
death or disability, this agreement shall terminate. In the event Venerri is
terminated for any other reason without cause or if his continued employment
would require him to relocate to an office in excess of fifty (50) miles from
the Company's present offices and he chooses not to relocate, then the Company,
at Venerri's option shall pay Venerri his salary and bonus for the prior twelve
months times the remaining number of years of this agreement.
12. VACATION.
Venerri shall be entitled to a four (4) weeks paid vacation
per year during the term of this Agreement, which shall be taken at such time as
is convenient to the Company and Venerri. Any and all unused vacation may be
carried over to The succeeding year(s).
13. LIFE INSURANCE.
The Company shall pay premiums for the purchase key man life
insurance on the life of Venerri in the maximum amount of $3,000 per year, the
first $500,000, of any benefit from which shall be payable to the Company, and
the balance to a beneficiary to be designated by Venerri. Venerri shall have the
right increase the benefit amount, at his cost and expense for any additional
Page 4 of 7
<PAGE>
premium, and designate a beneficiary for said additional benefit.
14. DIRECTOR'S AND OFFICER'S INSURANCE.
Simultaneously with the execution of this Agreement, the
Company shall secure directors and officers liability insurance with coverages
and monetary amounts of protection mutually agreed upon by the Company and
Venerri not to be less than $1 million.
15. STOCK OPTION.
Venerri shall have the right to participate in the Company's
non-qualified stock option plan, or any subsequent stock option plan adopted by
the Company.
16. STOCK SPLITS AND DIVIDENDS.
Should the stock of the company split or a stock dividend be
paid for any reason during the term of this Agreement, any unexercised stock
option or warrant, or portion thereof; shall be deemed to be subject to the
terms of the stock split or purchase the equivalent number of shares covered by
the split as if he had previously owned or received his option prior to the
stock split.
17. NOTICES.
All notices and other communications required hereunder shall
be in writing and shall be deemed to have been duly given if delivered or mailed
(registered or certified mail, postage prepaid, return receipt requested), if to
Venerri, to his residence, and if to the Company to its principal office.
18. WAIVER.
No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision. No waiver shall be
effective unless executed in writing by the parties hereto.
19. LAW GOVERNING.
This Agreement shall be construed and governed in accordance
with the laws of the State of Jersey.
20. INDEMNIFICATION.
The Company hereby agrees to defend, indemnify and hold
harmless Venerri in connection with any legal action or administrative
proceeding filed against him as a result of any act or omission performed during
the course and scope of his employment, except as may be contrary
Page 5 of 7
<PAGE>
or prohibited as a matter of public policy and the laws of the State of Florida.
22. LEGAL EXPENSES.
Any legal expenses incurred by Venerri in connection with his
employment, this agreement and the indemnity provisions contained herein shall
be borne by the Company.
23. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the
parties and may not be modified, amended or supplemented, except by the written
agreement of the parties hereto.
24. SEVERABILITY.
If any provision of this Agreement shall be determined to be
void, unenforceable, or against public policy, that provision shall be stricken
and this Agreement shall be construed as if the objectionable provision did not
exist.
Page 6 of 7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
PLANET ENTERTAINMENT CORPORATION
BY: /s/ John S. Arnone
----------------------------
NAME: JOHN S. ARNONE
TITLE: PRESIDENT
DATE: 8/14/98
JOSEPH J. VENNERI
BY: /s/ Joseph Venneri
----------------------------
DATE: 8/14/98
BE IT RESOLVED that at a duly constituted meeting of the Board
of Directors of Planet Entertainment Corporation, the foregoing Agreement was
accepted and ratified, and was authorized to be entered into by the Company.
BY: /s/ Wallace M. Giakas
----------------------------
Page 7 of 7
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
PLANET ENTERTAINMENT CORPORATION
BE IT RESOLVED that on August 14, 1998, notice having been
given telephonically of a meeting of the Board of Directors on August 14, 1998,
and a quorum of Directors physically being present at said meeting, it was
fully resolved by a majority of those Directors present and voting that the
Executive Compensation Agreement between the Company and Joseph J. Venerri was
accepted and ratified, and approved.
BY: /s/ Wallace M. Giakas
----------------------------
Wallace M. Giakas
Chairman, Secretary
BY: /s/ John S. Arnone
----------------------------
John S. Arnone
President, CEO
BY: ABSTAIN
----------------------------
Joseph Venneri
Director
BY:
----------------------------
Richard Bluestine
Director
STOCK PURCHASE AGREEMENT,
EMPLOYMENT AGREEMENT,
AND AGREEMENT NOT TO COMPETE
THIS AGREEMENT, made this 31st day of August, 1998, between Planet
Entertainment Corporation, a corporation organized under the laws of the State
of Florida, with it's principal place of business at 222 Highway 35, Middletown,
New Jersey 07748 (hereinafter referred to as "Purchaser" or "Planet") and Louis
J. Delsignore (hereinafter referred to as "Del Signore" or the "Seller"), and
North East One Stop, Inc., a corporation organized under the laws of the State
of New York, with its principal place of business at 7 Northway Lane, Latham,
New York 12110 (hereinafter referred to as "NEOS" or the "Company").
WHEREAS, NEOS is a business engaged in all lawful business, including
the ownership of a "one stop" record and entertainment products distribution
facility, and operating business, located at 7 Northway Lane, Latham, New York.
NEOS also operates or maintains a sales office in Grand Rapids, Michigan,
operating under the name Summit Entertainment.
WHEREAS, the Seller is the sole owner of all the issued and outstanding
capital stock of NEOS; and
WHEREAS, Purchaser wishes to purchase the business and acquire all of
the issued and outstanding shares of the capital stock of NEOS from Seller, and
obtain Seller's employment and covenant not to compete, in exchange for the
terms and conditions stated herein;
/s/ WG /s/ LJD
- --------------------Initials -------------------Initials
Page 1 of 20
<PAGE>
NOW THEREFORE, in consideration for the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 NEOS has only one class of capital stock, in the form of common
stock, issued an outstanding, and NEOS has only one stockholder, the Seller,
holding one hundred percent of NEOS Common Stock. NEOS is a corporation duly
organized and in good standing under the laws of the State of New York, and
which has duly authorized all of the capital stock that is the subject of this
Agreement and which is validly issued, fully paid and nonassessable. The shares
of NEOS capital stock to be sold and delivered to Purchases at the closing, as
set forth below will be free clear on any and all security interest, pledges,
claims, liens, equities or encumbrances whatsoever and, upon the consummation of
the transactions herein contemplate, Purchaser will have acquired the stock and
good and marketable title thereto shall vest in Purchaser, free and clear of any
and all claims, lines, security interests, pledges, equities or encumbrances.
1.2 Seller has complied in all material respects, and is in compliance
in all material respects, with all applicable federal, state and local laws,
statutes, franchise and licensing requirements, rules and regulations, and
judicial or administrative decisions pertaining to the Business. Seller has been
granted all licenses, permits, authorizations and approvals from all applicable
federal, state and local government regulatory bodies necessary for the conduct
of the business, all of which are currently valid and in full force and effect,
nor are there any proceedings pending or threatened which question the existence
or continuation of any of the foregoing. There are no lawsuits, proceedings,
judgements or orders pending or threatened against NEOS or any of its respective
officers or directors in their official capacities as officers of directors of
NEOS before any court or
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NEOS of any shares of Common Stock or rights warrants or options to purchase
Common Stock or evidence of indebtedness of NEOS.
1.5 All tax returns with Federal, State and local, governments required
to be filed by NEOS will have been filed as of the closing date. The taxes
reported on all such returns are, and will be, true and correct based on the
information reasonably available to the Seller and the NEOS, and all taxes
(including penalties or interest) imposed by any government or other taxing
authority in respect to income or with respect to the operation of ownership of
property by NEOS up to and including the date hereof have been paid in full by
NEOS. No taxing agency or authority is engaged in any audit or examination of
NEOS and any deficiencies which have been brought to the attention of NEOS
resulting from any audits of its tax returns have been paid in full prior to the
date of this Agreement.
1.6 All corporate action required to be taken by Seller or NEOS to
authorize it to sell, convey, transfer and delivers the Stock of NEOS to
Purchaser has been taken or will be taken as of the date of closing. Seller has
full power and authority to sell and deliver the Stock and to execute and
perform this Agreement. Prior to the Closing, seller shall obtain the consent of
Congress Financial Corporation to this transaction and the transfer of the
Capital stock as set forth herein. Subject to the foregoing agreement with
Congress Financial Corporation, the execution and performance of this Agreement
and the sale and delivery of the Stock of NEOS will not violate any provision of
law or any contract or agreement by which NEOS is bound. This Agreement has been
duly executed and delivered by NEOS and constitutes the valid and legally
binding obligation of Seller enforceable in accordance with its terms. No
approval or authorization of, or filing with any Federal, State, municipal or
other governmental commission, board or agency is required in connection with
the sale, conveyance transfer and delivery of the Stock.
1.7 No action or proceeding has been instituted by or before any court
or other governmental body, nor has such action or proceeding been threatened,
to restrict, prohibit or invalidate the transaction contemplated by this
Agreement or otherwise affect
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the rights of any party to the Agreement.
1.8 Seller represents and warrants that the execution and performance
of this Agreement will not violate any provision of law applicable to Seller or
any contract or agreement by which Seller is bound. This Agreement constitutes a
legally valid and binding obligation of Purchaser enforceable in accordance with
its terms. Seller and NEOS will use their respective best efforts to assure that
all of its representations and warranties contained herein are true in all
material respects as of the date of Closing as if repeated at and as of such
time, and that no material breach or default occurs with respect to any of its
covenants contained herein that have not been cured by the Closing Date.
1.9 Seller understands that the securities, or option to purchase the
Purchaser's securities, has not been registered under applicable state and
federal securities laws. The Seller represents that the Seller, and his agents,
have had access to all material documentation with respect to the Purchase that
it has requested, and that it has had the opportunity to ask questions of and
has received answers from the chief executive officer and the attorneys for the
Purchaser respecting any such information, and that Seller is an "accredited
investor" as that term is defined under applicable securities laws, rules and
regulations. Seller hereby represents that is acquiring an option to purchase
the common stock provided for herein for investment purposes only with no
present intention of reselling or otherwise distributing same, except in
compliance with the registration requirements under the act or an exemption
therefrom.
ARTICLE II
CONSIDERATION,
PURCHASE AND CLOSING
2.1 In consideration for the delivery of the sum of $3,000,000, which
shall be paid as set forth below, the Seller hereby agrees to sell and deliver
to Purchaser at the Closing all of the common stock of NEOS.
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2.2 The closing for the purchase, sale and exchange of the Stock shall
take place at the offices of DAGOSTINO, HOBLOCK, GRIESLER & SEIGAL, 39 North
Pearl Street, Albany, New York 12207 on September 14, 1998, and shall be
effective as of midnight 12:01 a.m. September 1, 1998, (the "Closing Date").
Said date may be extended upon the mutual agreement of the parties but not later
than September 30, 1998.
2.3 On the Closing Date, Seller shall deliver to the Purchaser
certificates representing all the issued and outstanding capital stock duly
endorsed for transfer. Seller shall cause new certificates of stock of NEOS to
be issued to the Purchaser for such shares of NEOS Common Stock in the name of
the Purchaser. At the Closing, Seller will cause to deliver to Purchaser:
(i) the corporate book of the Company, together with true and
correct copies of the Articles of Incorporation, all corporate
minutes and resolutions, the corporate sea, and the corporate
By-laws, together with all amendments thereto (Closing Exhibit
A);
(ii) a Closing Schedule of all assets, including all furniture,
fixtures, inventory and supplies (Closing Schedule A);
(iii) a Closing Schedule of all liabilities, and all financing
statements and security agreements relating to any asset owned
or leased by the Company (Closing Schedule B);
(iv) true and exact copies of all lease agreements, security
agreements, financing statements or other contracts relating to
the Company, and the operation of its business (Closing Exhibit
B);
(v) a resolution of the Board of Directors of the Company consenting
to the acquisition of Seller's securities (Closing Exhibit C);
(vi) Seller's written resignation from the Board of Directors of the
Company, effective at the time of closing and subject to this
Agreement as provided in Article VI herein (Closing Exhibit D);
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(vii) written notice of a meeting of the Company's shareholder and
Board of Directors for the date of closing (Closing Exhibit E);
(viii) the resignation of all other members of the Company's Board of
Directors, effective at the time of closing and subject to this
Agreement as provided in Article 5 herein (Closing Exhibit F);
(ix) the identity, location and account number of all bank accounts
or other accounts as maintained by the Company (Closing Schedule
C);
(x) the necessary resolutions by the Company through its Board of
Directors granting the Purchaser full and unfettered access and
authority to all bank accounts or other accounts maintained by
the Company (Closing Exhibit G);
(xi) all keys, combinations, and written authorization to permit the
Purchaser full and unfettered access to the Company, its
facilities and its books and records.
2.4 On the Closing Date, Purchaser shall deliver to Seller the sum of
Two Million One Hundred Fifty Thousand Dollars ($2,150,000) in the form of a
check drawn on cleared funds and made payable to the Seller, and shall authorize
the disbursement of the sum of One Hundred Thousand Dollars ($100,000) delivered
to Seller's counsel on or about July 20, 1998 from Seller's counsel to Seller.
2.5 At the Closing, Purchaser shall deliver to Seller an option to
purchase 250,000 shares of the Purchaser's common stock, exercisable at a price
equal to the lesser of $5.25 per share or Closing Bid Price for the Purchaser's
common stock, as shown and reported on the OTC Bulletin Board (OTC: BB) on the
Closing Date. These stock options shall be valid and exercisable for a term of
two years from the date of closing.
2.6 At the Closing, as evidence of the remaining debt, Purchaser shall
also deliver to Seller a Promissory Note in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000), which shall be payable in the amount of Three
Hundred Seventy Five
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Dollars ($375,000) within six months from the date of Closing, and of which the
remaining Three Hundred Seventy Five Dollars ($375,000) shall be payable within
one year from the date of Closing (the "Promissory Note"). The Promissory Note
shall be secured by a sufficient number of shares of the Purchaser's common
stock, at prevailing market prices, that are equivalent to the principal amount
outstanding under the Promissory Note. These certificates, together with
endorsements shall be delivered to DAGOSTINO, HOBLOCK, GRIESLER & SEIGAL, to be
held in escrow, and which shall be released only upon ten (10) days written
notice to Purchaser's failure to pay any sums due under the Promissory Note. In
the event that the Purchaser's common stock decreases in value for any twenty
(20) day period, upon ten (10) days notice, the Purchaser agrees to deposit
sufficient additional shares of the Purchaser's common stock to secure payment
of the Promissory Note as provided for herein. The Promissory Note shall also be
secured by the common stock of the Seller sold to the Purchaser, which, at the
Seller's election, upon thirty (30) day written notice to the Purchaser of
Purchaser's default and failure to cure, shall be released to the Seller.
2.7 NEOS has delivered to Purchaser a true and complete list, as of the
date of this Agreement, certified by Secretary, showing the names of NEOS
directors and officers, and Purchaser will receive at closing a Certificate
verifying that Seller is the sole shareholder of NEOS. At the Closing, Seller
shall deliver to Purchaser, employment agreements with William Castle and Ron
Nicks, which are acceptable to the Purchaser as to their compensation, term of
employment, duties, and covenants not to compete.
2.8 At the Closing, Seller shall have obtained any required consent
from any of the Seller's secured creditors, along with all appropriate federal,
state, municipal, or other governmental or administrative bodies or courts all
such approvals, certificates, clearances, or consents, if any, as may be
required to permit the change of ownership of the shares herein provided for.
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2.9 At the closing, Seller shall deliver to Purchaser the favorable
opinion of Seller's counsel in form, scope and substance satisfactory to
Purchaser's counsel, dated as of the Closing Date (Closing Exhibit H), that to
the best of counsel's knowledge neither (i) the execution and delivery of this
Agreement, nor compliance with the terms and provisions hereof, including
without limitation, (ii) the consummation of the transactions contemplated
hereby, will violate any statue, regulation or ordinance of any governmental
authority, or will conflict with or result in the breach of any term, condition
or provision of the certificate or articles of incorporation or by laws of
Seller or, to the best of such counsel's knowledge, constitute a material breach
of any agreement, deed, contract, mortgage, indenture, writ, order, decree,
legal obligation or instrument to which Seller is a party or by which it or any
of the Assets are or may be bound, or constitute a material default (or an event
which, with the lapse of time or the giving of notice, or both, would constitute
a material default) thereunder, or result in the creation or imposition of any
lien, charge or encumbrance, or restriction of any nature whatsoever, or give to
others any interest or rights, including rights of termination, acceleration or
cancellation in or with respect to the operation of the business of Seller,
(iii) NEOS is a Corporation in good standing and the stock certificates issued
as stated herein are authorized acts of the Company; (iv) that the
representations and warranties as set forth herein are true, and (v) that such
counsel does not know or have any reasonable grounds to know of any litigation,
proceedings or governmental investigation pending or threatened against or
relating to NEOS, its property or business.
ARTICLE III
LIMITED ASSUMPTION OF OBLIGATIONS
3.1 Purchaser shall not, by the execution, delivery and performance of
this Agreement, assume, be bound by, or otherwise be responsible for any
liability or obligation or Seller of any kind or nature, known, unknown,
accrued, absolute, contingent
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or otherwise, whatsoever whether arising out of occurrences prior to the Closing
not disclosed to the Purchaser and set forth in Closing Schedule B hereto.
Without limiting the foregoing, it is understood that Purchaser does not assume,
undertake or accept any obligations, duties, responsibilities or liabilities of
Seller in excess of $20,000 that now exist or may arise in the future with
respect to the matters occurring on or prior to the Closing with respect to (i)
any income, profits, property, excise or similar taxes (it being understood that
the Company shall pay and be responsible for any and all taxes related to the
operations of the Business through the Closing), or (ii) in connection with this
Agreement and the transactions provided for herein, including transfer and other
taxes, and expenses pertaining to the performance by Seller of its obligation
hereunder.
3.2 Seller and NEOS hereby agree to indemnify, save and hold harmless
Purchaser and it successors and assigns, of and from any damage, liability,
claim, loss or deficiency (including, without limitation reasonable attorney's
fees and expenses incident to a suit, action or proceeding), provided seller and
NEOS have been given notice and an opportunity to defend any matter arising out
of or resulting from any damage, liability, claim, loss or deficiency, in
connection with the terms of this Agreement and will pay to the Purchaser and
its successors and assigns, on thirty (30) days notice, the full amount of any
and all sums which Purchaser or any successor or assign, may pay or become
obligated to pay on account of (i) any material inaccuracies in any
representation or the breach of any covenant or warranty made by Seller or NEOS
hereunder, (ii) any material failure of Seller or NEOS to duly perform or
observe any term, provision, covenant, agreements or condition hereunder on the
part of Seller to be performed or observed. Except as provided herein, at the
Closing, Seller shall forgive all notes, loans or other payments made to the
Company from inception, including payments made for capital stock, notes or
other amounts payable to the Seller, or entitles controlled by the Seller, by
the Company, except for a Note payable to Seller in the amount of approximately
$374,000, and in consideration
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therefore, the Seller shall agree to accept a Note for such amount, which shall
bear interest at the rate of 9% per year, and which shall be payable on or
before April 21, 1999.
3.3 Notwithstanding any investigation conducted at any time with regard
to this Agreement by or on behalf of Purchaser or Seller, all representations,
warranties, covenants and agreements (collectively, "Representations") of Seller
and Purchaser in this Agreement, in any Closing Exhibit, in any Closing
Schedule, or in any document delivered on the Closing shall survive the closing
and the execution, delivery and performance of this Agreement.
3.4 For purposes of this Article, with respect to either party
"Damages" shall mean any and all losses, liabilities, damages, demands, claims,
suit, actions, judgements or causes of action, assessments, costs, expenses,
interest, and penalties in connection with any indemnifiable Claims below,
including all reasonable attorney's fees and all costs and expenses incurred in
investigating, preparing or defending against any litigation. For purposes of
this Article, all damages shall be computed net of any insurance coverage with
respect thereto which reduces the Damages that would otherwise be sustained:
provided, however, that, in all cases, the timing of the receipt or realization
of insurance proceeds shall be taken into account in determining the amount of
reduction of Damages. Purchaser and Seller shall be deemed to have suffered
Damages arising our of or resulting from the matters referred to herein.
3.5 For purposes for this Article, "Purchasers' Indemnifiable Claims"
and "Seller's indemnifiable Claims", when referred to generally, shall be
referred to as "indemnifiable Claims." If a determination is made to seek
indemnification under this article with respect to Indemnifiable Claims (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party.") Indemnified Party shall give notice to
the Indemnifying Party within ninety (90) days of the
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Indemnified party becoming aware of any such indemnifiable Claim or of facts
upon which any such Indemnifiable Claim will be based; the notice shall set
forth such material information with respect thereto as is then reasonably
available to the Indemnified Party. In case any such liability is asserted
against the Indemnified Party, and the Indemnified Party notifies the
Indemnifying Party thereof, the Indemnifying Party will be entitled, if it so
elects by written notice delivered to the Indemnified Party within 20 days after
receiving an Indemnifiable Claim hereunder, to assume the defense thereof with
counsel satisfactory to the Indemnified party at the expense of the Indemnifying
Party. Notwithstanding the foregoing. (i) the Indemnified Party shall also have
the right to employ separate counsel in such Indemnifiable claim and to
anticipate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless (1) the employment of
separate counsel shall have been specifically authorized by the Indemnifying
Party in writing, or (2) the named parties in such Indemnifiable Claim include
both the Indemnifying Party and the Indemnified Party, and the Indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Indemnifying Party, and (ii) the Indemnified Party shall not
have any obligation to file any notice of any assertion of liability by a third
party unless such assertion is in writing.
3.6 In the event that the Indemnifying Party, within twenty (20) days
after receipt of the aforesaid notice of an Indemnifiable Claim, fails to assume
the defense of the Indemnified Party and employ counsel against such
Indemnifiable Claim, the Indemnified Party shall have the right to employ
counsel and undertake the defense, compromise or settlement of such
Indemnifiable Party and the Indemnifying Party will pay all the costs, fees and
expenses of such defense, counsel, compromise and settlement as incurred.
Notwithstanding anything herein, the Indemnifying Party shall not, without the
Indemnified Party's written consent, settle or compromise any Indemnifiable
Claim or
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consent to entry of any judgment in respect thereof unless such settlement,
compromise or consent includes as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified party a release from all
liability in respect of such Indemnifiable Claim.
3.7 The rights, powers and remedies of any party hereto shall being
addition to all rights, powers and remedies given to such party by virtue of any
statute or rule of law, all of which rights, powers and remedies shall be
cumulative and may be exercised successively, concurrently or in any other
order.
ARTICLE IV
LEASE AGREEMENT
4.1 Seller represents that he is the sole shareholder of L&P Feed, Inc.
and that L&P Feed, Inc. owns, in fee simple, the land, along with all
improvements and facilities appurtenant thereto upon which the Company's
operations are located in Latham, New York (the "Facilities"). Seller, through
L&P Feed, Inc., hereby grants to the purchaser for the term of five (5) years
from the date of Closing, the option to purchase these facilities at fair market
value less ten (10) percent. Fair market value shall be determined by an
appraiser jointly selected by the Seller and Purchaser.
4.2 Seller, through L&P feed, Inc., agrees to lease the Facilities to
the Purchaser at the present rate paid by the Company for a term of one year
from the Closing date. After the initial term of one year, the Purchaser shall
have the right to lease the Facilities for a additional term of five (5) years
for $15,000 per month, and such option shall renew at the end of this five (5)
year term for an additional five (5) year term at the rate of $17,500 per month.
4.3 During the term of any lease, the Purchaser shall have the right of
first refusal to purchase the Facilities from the Seller, through L&P Feed,
Inc., and the Seller shall communicate to the purchaser in writing any offer to
purchase the Facility, along with the terms and conditions of any such offer.
Thereafter, for a period of twenty
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(20) days from the date of receipt of any such notice, the Purchaser shall have
the right to accept or reject any offer including the same or substantially
similar terms. Seller agrees that in the event that the property is sold by L&P
Feed, Inc., that such sale shall be subject any lease with the purchaser or the
Company.
ARTICLE V
EMPLOYMENT OF SELLER
AGREEMENT NOT TO COMPETE
5.1 The Purchaser hereby agrees to continue to employ the Seller, Louis
J. Del Signore, for a term of twelve months from the date of Closing at the rate
of One Hundred Forty-Five Thousand (145,000), payable at least monthly over the
term of employment.
5.2 The Seller agrees to accept such employment and to exercise the
powers and duties specified herein, and generally to be responsible for the day
to day management of any executive decisions concerning the operations of the
Company, direct and control its day to day affairs, make necessary decisions
commensurate with his positions in the Company, be responsible for the financial
concerns and operations of the Company and, in general, to exercise his
authority for the best long term interests of the Company.
5.3 This employment shall be subject to Seller's good faith performance
of the powers and duties outlined in this Agreement. Seller shall be required to
devote a portion of his professional time, attention and energies to the
business of the Company and shall assume and perform such other and further
responsibilities and duties as may be assigned to him from time by the Board of
Directors.
5.4 During the period of five (5) years following the Closing, within
1,500 miles from miles from any facility from which the Company currently
conducts business, the
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Seller shall not, directly or indirectly, engage in any activity which may be
deemed competitive or in any way in conflict with the Company's business and
activities; nor shall he engage in or be a member of any partnership or as an
officer, director or employee of any corporation or business entity, which
competes directly or indirectly with the company without the express permission
of the Board of Directors; nor shall he engage in or be actively involved in an
other consultation or advisory agreements, contracts or activities of a
professional or commercial nature, which would compete directly or indirectly
with the Company unless permitted by the Company and its Board of Directors.
5.5 The Seller acknowledges that he is in receipt of certain customer
names, identities, addresses, associations, methods, formulations, inventions,
sales and marketing techniques, know-how, trade secrets, and other information
utilized by the Company, and which provide, or may provide the Company with a
competitive advantage in the marketplace (the "trade secrets"). Seller agrees to
keep these trade secrets confidential and not to disclose them to any person at
any time without the express written consent of the Company through its Board or
Directors.
5.6 The company shall have the right at any time, upon not less than
sixty (60) days written notice to Seller to terminate the employment of Seller
for "Cause," For purposes of this Section, "Cause" shall mean Seller's failure
or refusal in a material and continuing manner to perform his obligations as set
forth in this agreement, or his material and continuing manner to perform his
obligations as set forth in this agreement, or his material breach of any
provision of this Agreement, for a period of more than twenty (20) days after
receipt of written notice from the Company specifying the failure or breach,
requesting that it be cured and Seller's failure to cure the same or to be
diligently exerting his best efforts to cure the same. "Cause" shall not include
the inability of Seller to perform his obligations hereunder due to mental or
physical impairment, or external circumstances of the market place, governmental
regulations or policies or adverse domestic or world conditions adversely
effecting the Company's business.
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ARTICLE VI
NOMINATION OF BOARD MEMBERS
6.1 Until all payments are made to Seller, pursuant to this Agreement,
Seller shall have the right to nominate three (3) individuals to the Purchaser's
Board of Directors, which shall not consist of more than six (6) directors.
Seller agree to abstain in voting as a member of the Purchaser's Board of
Directors in any matter involving or relating to capital fund raising, or the
issuance of debt, convertible debt, preferred stock, common stock, or any other
capital securities of the Company.
6.2 These directors nominated by the Seller, must be of full age, of
sound moral integrity and character, and must not suffer from any legal
disability, bar, or administrative order, which may affect their ability to
serve on the Board of Directors of a public company, or require the disclosure
of past or present adverse information regarding that individual, including but
not limited to, by way of example, and not by way of limitation, the arrest or
conviction for any crime or misdemeanor involving dishonesty, fraud or the
wrongful taking of property, any unsatisfied judgment, or any civil proceeding
involving fraud, dishonesty or the wrongful taking of property.
6.3 The term for directors nominated by the Seller shall be a term of
one year. The members of Purchaser's Board of Directors nominated by the Seller
shall resign upon the payment of all monies due the Seller pursuant to the terms
of this agreement and the removal of the Seller from any personal guaranty with
respect to the Company's debt financing from Congress Financial Corporation.
ARTICLE VIII
NOTICES
7.1 All notices hereunder shall be in writing and will be deemed to
have been given if delivered personally or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as respectively
indicated below or by a notice
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Hereunder:
(a) If addressed to Seller:
Louis J. Del Signore
c/o Northeast One Stop, Inc.
7 Northway Lane
Latham, New York 12110.
(b) If addressed to Purchaser:
Wallace M. Giakas
Planet Entertainment Corporation
222 Highway 35
Middletown, New Jersey 07748
ARTICLE VIII
MISCELLANEOUS
8.1 The Agreement, the Closing Exhibits and Closing Schedule hereto,
and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
8.2 This Agreement and the various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon Seller and its
successors and permitted assigns, and Purchaser, and its successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by any party hereto without the prior written consent of Purchaser
and Seller, except that Purchaser may assign any or all of its rights, interests
to subsidiaries or affiliates or Purchaser without the consent of Seller,
provided that each such subsidiary or affiliate agrees in writing to be bound by
all of the terms, conditions and provisions contained herein and Purchaser
unconditionally guarantees to
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Seller in writing all of the obligations of the assignee which are so assigned,
which written guarantee shall be in form and substance satisfactory to Seller.
8.3 The article and section headings of this Agreement are inserted for
convenience only and shall constitute a part of this Agreement in construing or
interpreting any provision hereof.
8.4 Purchaser and Seller shall each be responsible for the payment of
their respective financial adviser and accounting fees, and any other costs or
expenses incurred by them in connecting with this Agreement and the transactions
contemplated hereby.
8.5 This Agreement may not be changed, amended, terminated, augmented,
rescinded or discharged (other than by performance), in whole or in part, except
by the agreement in writing of the parties hereto, and no waiver of any of the
provisions or conditions of this Agreement or any of the rights of a party
hereto shall be effective or binding unless such waiver shall be in writing and
signed by the Party claimed to have given or consented thereto. Except to the
extent that a party hereto may have otherwise agreed in writing, no waiver by
that party of any condition of this Agreement or document delivered on the
Closing or breach by any other party of any of its obligations or
representations hereunder or thereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation by such other party, nor shall any forbearance by
the a party to seek a remedy for any noncompliance or breach by such other Party
be deemed to be a waiver by that party of its rights and remedies with respect
to such noncompliance or breach.
8.6 Nothing herein, expressed or implied, is intended or shall be
construed to confer upon or give to any person, firm, corporation or legal
entity, other than the parties hereto and their shareholders, any rights,
remedies or other benefits under or by reason of this Agreement.
/s/ WG /s/ LJD
- --------------------Initials -------------------Initials
Page 18 of 20
<PAGE>
8.7 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
8.8 Whenever the context requires, words used in the singular shall be
construed to means or include the plural and vice versa, and pronouns of any
gender shall be deemed to include and designate the masculine, feminine or
neuter gender.
8.9 This Agreement shall in all respects by construed in accordance
with and governed by the laws of the State of New York. With respect to any
provision of this Agreement finally determined by a court of competent
jurisdiction to be reform such provision so that it is enforceable to the
maximum extent permitted by law, and the parties agree to abide by such court's
determination. In the event that any provision of this Agreement cannot be
reformed, such provision shall be deemed to be severed from this Agreement, but
every other provision of this agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
NORTHEAST ONE STOP, INC. LOUIS J. DEL SIGNORE
/s/ Louis J. Del Signore /s/ Louis J. Del Signore
- --------------------------------- -----------------------------
By: By:
Title: President Date: Sept. 8, 1998
Date: Sept. 8, 1998
PLANET ENTERTAINMENT CORPORATION
/s/ Wallace M. Giakas
- ---------------------------------
By:
Title: Chairman
Date: Sept. 8, 1998
Page 19 of 20
<PAGE>
BE IT RESOLVED at a duly constituted meeting of the Board of Directors
of Northeast One Stop, Inc. Louis J. Del Signore was authorized to enter into
this agreement on behalf of Northeast One Stop, Inc.
/s/ Jane Niekarz
-----------------------------
Name:
Secretary
Date: 9/8/98
BE IT RESOLVED at a duly constituted meeting of the Board of Directors
of Planet Entertainment Corporation, Wallace Giakas was authorized to enter into
this agreement on behalf of Planet Entertainment Corporation.
/s/ Wallace Giakas
-----------------------------
Name:
Secretary
Date: 9/8/98
Page 20 of 20
[LETTERHEAD]
DAVIS PFAHL & FIX, P.C.
661 Madison Avenue
New York, NY 10010
August 25, 1998
BY TELEFAX
Mr. Wally Giakis
Planet Entertainment Corporation
222 Highway 35
Middletown, New Jersey 07748
Re: GULF COAST MUSIC, L.L.C.
Dear Wally:
This letter will confirm that the parties have agreed as follows:
1. Planet Entertainment Corporation ("Planet") shall, upon the
execution of this letter of agreement, release without condition
the sum of $150,000 presently held in escrow by Evelina, Davis &
Phillips, attorneys for Gulf Coast Music, L.L.C. ("Gulf Coast").
2. Planet shall, upon the execution of this letter of agreement,
cause to be paid without condition to the escrow account of Davis,
Pfahl & Fix, P.C., as attorneys for Gulf Coast, the sum of
$100,000 for immediate release to Gulf Coast.
3. Planet shall:
a. by September 9, 1998, enter into formal written agreements as
provided in the Reorganization Plan in the Sehorn
consolidated bankruptcy proceeding and execute any and all
documents required thereby, including a restated Promissory
Note, provided, however, that Planet's power to license
rights relating to the master recordings acquired
non-exclusively thereby shall be limited in that Planet shall
agree not to permit its licensees to sublicense rights in
such matters. The restated agreements shall further provide
that, by December 31, 1998,
/s/ Jeffrey P. Kranzdorf
<PAGE>
DAVIS PFAHL & FIX, P.C.
Mr. Wally Giakis
August 25, 1998
Page 2
Planet shall receive clear and unencumbered title to
approximately 7,500 master recordings. In the event that
Planet is unable to obtain such title to such number of
master recordings, Gulf Coast shall identify and replace any
disputed master recordings and/or supplement the master
recordings in Planet's possession with comparable master
recordings of substantially similar commercial value, within
90 days thereafter.
b. by September 15, 1998, enter into a further agreement
pursuant to which:
i. Planet agrees to pay the sum of $2,550,000 to Gulf Coast
and, in the event such sum is not paid prior to
September 17, 1998, to pay $250,000 to the escrow
account of Davis, Pfahl & Fix, P.C., as attorneys for
Gulf Coast, with the balance to be paid as soon as
practicable thereafter but, in any event, within ninety
days of the date of this letter of agreement.
ii. Planet's payment of the total sum of $2,800,000, as set
forth above, shall be for the purpose of redeeming the
694,000 shares of Planet common stock presently issued
to Upbeat Music, L.L.C. and shall constitute full and
complete satisfaction of promissory notes now
outstanding in favor of Pep Music, Inc., Upbeat Music,
L.L.C, and Hallelujah Music, Inc. or such restated
promissory note as may be made in replacement of such
notes as provided forth in the Reorganization Plan.
iii. The parties shall consult in order to establish a
mechanism for the consummation of this transaction so
that Gulf Coast shall be neither a seller nor an issuer
of Planet common stock and shall have no potential
liability to any party in connection with the
transaction(s) contemplated herein.
/s/ Jeffrey P. Kranzdorf
<PAGE>
DAVIS PFAHL & FIX, P.C.
Mr. Wally Giakis
August 25, 1998
Page 3
c. The transactions contemplated herein shall not be contingent
upon the resolution of any disputes that may exist between
Planet, on the one hand, and William Valenziano, J. Jake,
Inc. and Music Marketers, Inc. on the other.
If the foregoing accurately represents the terms of the understanding
between the parties, please execute this letter and one copy where indicated
below. Upon execution, please telefax and send one copy by overnight mail to the
undersigned.
Yours very truly,
/s/ BRANDON T. DAVIS
-------------------------------
Brandon T. Davis
BTO:mm
AGREED AND ACCEPTED:
PLANET ENTERTAINMENT CORPORATION
BY: /s/ WALLACE GIAKIS
- ---------------------------------
ITS:
- ---------------------------------
GULF COAST MUSIC, LLC.
BY: /s/ JEFFREY P. KRANZDORF
- ---------------------------------
ITS: GENERAL MANAGER
- ---------------------------------
JEFFREY P. KRANZDORF
ARTICLES OF INCORPORATION
OF
REPUBLIC GOLD & SILVER, INCORPORATED
(A FLORIDA CORPORATION)
I, the undersigned, hereby make, subscribe, acknowledge and file these
Articles of Incorporation for the purpose of becoming a corporation for profit
under the laws of the State of Florida and do hereby further certify that I have
become such corporation under and pursuant to the following Articles of
Incorporation:
ARTICLE I
The name of the corporation is:
REPUBLIC GOLD & SILVER, INCORPORATED
ARTICLE II
This corporation may engage in any activity or business permitted under
the laws of the United States and of the State of Florida.
ARTICLE III
The maximum number of shares of stock that this corporation is
authorized to have outstanding at any one time is: fifty Million (50,000,000)
Shares having $.001 par value per share.
ARTICLE IV
The amount of capital with which this corporation shall and does hereby
begin business, shall be and is the sum of Five Hundred Dollars ($500.00).
<PAGE>
ARTICLE X
The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Corporation Service Company 1201 Hays Street
Tallahassee, Florida 32301
ARTICLE XI
The officers of this corporation shall be a President, a Secretary, a
Treasurer and such other officers, agents and factors as may be deemed
necessary, including one or more Vice Presidents. All officers, agents and
factors shall be chosen in such manner, hold their offices for such terms and
have such powers and duties as may be prescribed by the By-laws or determined by
the Board of Directors.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders therein
are granted subject to this reservation.
IN WITNESS WHEREOF, I the undersigned, incorporator has hereunto set my
hand and seal this 22nd day of June, 1992, for the purpose of forming this
corporation under the office of the Secretary of State of the State of Florida,
those Articles of Incorporation and certify that the facts herein stated are
true.
By: /s/ Mark A. Rosser
-------------------------------------
Mark A. Rosser, Vice President of
Corporation Service Company
<PAGE>
ACCEPTANCE OF REGISTERED AGENT DESIGNATED
IN ARTICLES OF INCORPORATION
Corporation Service Company, a Delaware corporation authorized to
transact business in this State, having a business office identical with the
registered office of the corporation named above, and having been designated as
the Registered Agent in the above and foregoing Articles, is familiar with and
accepts the obligation of the position of Registered Agent under Section
607.0505, Florida Statutes.
By: /s/ Mark A. Rosser
-------------------------------------
Mark A. Rosser, Vice President of
Corporation Service Company
<PAGE>
================================================================================
STATE OF FLORIDA
[LOGO]
Department of State
I certify the attached is a true and correct copy of the Amended and Restated
Articles of Incorporation, filed on June 5, 1998, for PLANET ENTERTAINMENT
CORPORATION, a Florida corporation, as shown by the records of this office.
The document number of this corporation is V45173.
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Fifth day of June, 1998
/s/ Sandra B. Mortham
----------------------------
[LOGO] Sandra B. Mortham
CRE022 (2-95) Secretary at State
================================================================================
BY-LAWS
OF
PLANET ENTERTAINMENT CORP.
ARTICLE 1 - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II- MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings:
- ----------------------------
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
- -----------------------------
Special meetings of the shareholders may be called at any time by the Board of
Directors of by the President, and shall be called by the President or the
Secretary at the written request of the holders of per cent (66.7%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place of Meetings:
- ------------------------------
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings:
- -------------------------------
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
- -------------------
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
By-Laws - 2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at such
meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
- -------------------
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
By-Laws - 3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III- BOARD OF DIRECTORS
Section 1 - Number Election and Term of Office:
- -----------------------------------------------
(a) The number of the directors of the Corporation shall be three, unless and
until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders permitted by statute.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the share
holders next succeeding his election, and until his successor is elected and
qualified, or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
- ------------------------------
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings: Notice:
- ------------------------------------------------
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
By-Laws - 4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings Notice:
- ------------------------------------
(a) Special meetings of the Board of Directors shall be held by a majority of
the Board of Directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Except as otherwise required by stature, notice of special meeting shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of the Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
- ---------------------
At all meetings of the Board of Directors the Chairman of the board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
By-Laws - 5
<PAGE>
Section 6 - Quorum and Adjournments:
- ------------------------------------
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
- -----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8- Vacancies:
- ---------------------
Any vacancy in the Board of Directors occurring by reason of an increase in
the number of directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a director
by the shareholders shall be filled by the shareholders at the meeting at which
the removal was effected) or inability to act of any director, or otherwise,
shall be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
- ------------------------
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE>
Section 10 - Removal:
- ---------------------
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for caused by action of
the Board.
Section 11 - Salary:
- --------------------
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
- -----------------------
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
By-Laws - 7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
- ------------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
- ----------------------------------------------------------------
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
- ------------------------
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
By-Laws - 8
<PAGE>
Section 3 - Removal:
- --------------------
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
- ----------------------
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
- -------------------------------
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as may be set forth in these
By-laws, or may from time to time be specifically conferred or imposed by the
Board of Directors.
Section 6 - Sureties and Bonds:
- -------------------------------
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
- -----------------------------------------
Whenever the Corporation is the holder of shares of any other Corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the Chairman or his designee.
ARTICLE V - SHARES OF STOCK
SECTION 1 - CERTIFICATE OF STOCK:
(a) The certificates representing shares of the Corporation shall be in such
form as shall
By-Laws - 9
<PAGE>
be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
- -------------------------------------------
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws - 10
<PAGE>
Section 3 - Transfers of Shares:
- --------------------------------
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
- ------------------------
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
By-Laws - 11
<PAGE>
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII- FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII- CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
- ----------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
- -------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
By-Laws - 12
<PAGE>
ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein that such office,
director or employee is liable for negligence of misconduct in the performance
of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant o then existing rules of the American Arbitration
Association.
The undersigned Secretary certifies that he has adopted the foregoing
by-laws as the first by-laws of the Corporation.
Dated: 11/20/96
--------
/s/ WALLACE M. GIAKAS
---------------------
Wallace M. Giakas
Secretary
ARTICLES OF AMENDMENT TO
&
RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
PLANET ENTERTAINMENT CORPORATION
PURSUANT TO THE PROVISIONS OF SECTION 607.1006, FLORIDA STATUTES, THIS
FLORIDA PROFIT CORPORATION ADOPTS THE FOLLOWING ARTICLES OF AMENDMENT TO AND
RESTATEMENT OF ITS ARTICLES OF INCORPORATION:
FIRST: The name of the corporation is:
PLANET ENTERTAINMENT CORPORATION
SECOND: Its registered office in the State of Florida is located at 1201 Hays
Street, Tallahassee, Florida, 32301. The registered agent in charge
thereof is Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful activity for
which corporations may be organized under the Florida Business
Corporation Act.
ARTICLE FOURTH SHALL BE RESTATED AND AMENDED TO AUTHORIZE THE CREATION
OF SERIES A, SERIES B, AND SERIES C PREFERRED STOCK OUT OF THE PREVIOUSLY
AUTHORIZED PREFERRED STOCK OF THE COMPANY AND DESCRIBES THE CHARACTERISTICS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF SERIES A CONVERTIBLE PREFERRED
STOCK. ARTICLE FOURTH SHALL READ AS FOLLOWS:
FOURTH: The total number of shares of stock which the corporation is authorized
to issue is 50,000,000 shares of common stock having a par value of
$0.0001 per share and
<PAGE>
10,000,000 shares of preferred stock having a par value of $0.0001 per
share, designated as Series A Convertible Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. Series A Convertible
Preferred Stock shall consist of 500 shares of the heretofore
authorized preferred stock and shall have the following
characteristics, preferences, limitations, and relative rights:
Section 1. DESIGNATION. AMOUNT AND PAR VALUE. The series of preferred
stock shall be designated as 7% Series A Convertible Preferred Stock (the
"Series A Preferred Stock") and the number of shares so designated shall be 500
(which shall not be subject to increase without the consent of the holders of
the Series A Preferred Stock (each, a "Holder" and collectively, the "Holders");
Each share of Series A Preferred Stock shall have a par value of$.00O1 and a
stated value of $10,000 (the "Stated Value").
Section 2. DIVIDENDS.
(a) Holders shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 7% per annum, payable on a quarterly basis on
March 31, June 30, September 30 and December 31 of each year during the term
hereof (each a "Dividend Payment Date"), commencing on June 30, 1998, in cash or
shares of Common Stock (as defined in Section 8) at, subject to the terms and
conditions set forth herein, the option of the Company. Dividends on the Series
A Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Any dividends not paid on any
Dividend Payment Date shall continue to accrue and shall be due and payable upon
conversion of the Series A Preferred Stock. A party that holds shares of Series
A Preferred Stock on a Dividend Payment Date will be entitled to receive such
dividend payment and any other accrued and unpaid dividends which accrued prior
to such Dividend Payment Date, without regard to any sale or disposition of such
Series A Preferred Stock subsequent to the applicable record date. All overdue
accrued and unpaid dividends and other amounts due herewith shall entail a late
fee at the rate of 15% per annum (to accrue daily, from the date such dividend
is due hereunder through and including the date of payment). Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of the Series A Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of shares
held by each Holder. Payment of dividends on the Series A Preferred Stock is
further subject to the provisions of Section 5(c)(i). The Company shall provide
the Holders notice of its intention to pay dividends in cash or shares of Common
Stock not less than 10 Trading Days prior to the Dividend Payment Date for so
long as shares of Series A Preferred Stock are outstanding. if dividends are
paid in shares of Common Stock, the number of shares of Common Stock issuable on
account of such dividend shall equal the cash amount of such dividend on such
Dividend Payment Date divided by the Conversion Price (as defined below) on such
date.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof) on
<PAGE>
the Series A Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) such shares of Common Stock are not registered for
resale pursuant to an effective registration statement that names the recipient
of such dividend as a selling stockholder thereunder and may not be sold without
volume restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent
in the form and substance acceptable to the Holders and such transfer agent;
(iii) the Common Stock is not then Actively Traded (as defined
in Section 8), or listed for trading on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market or Nasdaq SmallCap Market (each a
"Subsequent Market");
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(v) the issuance of such shares of Common Stock would result
in the recipient thereof beneficially owning, as determined in accordance with
Rule 1 3 d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), more than 4.999% of the then issued and outstanding shares
of Common Stock.
(c) So long as any Series A Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of;
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Series A Preferred Stock, except for
repurchases effected by the Company on the open market. pursuant to a direct
stock purchase plan.
Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Series A Preferred Stock shal1 have no voting
rights. However, so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not and shall cause its subsidiaries not to,
without the affirmative vote of the Holders of all of the shares of the Series A
Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Series A Preferred Stock, (b) alter or amend
this Certificate of Designation, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise pari passu with or senior to the Series A
Preferred Stock, except for any series of Series A Preferred Stock issued and
sold in accordance with the Purchase Agreement, (d) amend its Certificate of
Incorporation, bylaws or other charter documents so as to affect adversely any
rights of any Holders, (e) increase the authorized number of shares of Series A
Preferred Stock, or (f) enter into any agreement with respect to the foregoing.
<PAGE>
Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series A Preferred Stock an
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in lull. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33% of the voting power of the Company is disposed of; or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
Holder.
Section 5. CONVERSION.
(a) (i) OPTIONAL CONVERSION. Each share of Series A Preferred Stock
shall be convertible into shares of Common Stock (subject to reduction pursuant
to Section 3.8 of the Purchase Agreement) at the Conversion Ratio (as defined in
Section 8) at the option of the Holder, at any time and from time to time, from
and after the Original Issue Date. Holders shall effect conversions by
surrendering the certificate or certificates representing the shares of Series A
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Series A Preferred Stock
to be converted and the date on which such conversion is to be effected, which
date may not be prior to the date the Holder delivers such Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that the Conversion
Notice is deemed delivered hereunder. If the Holder is converting less than all
shares of Series A Preferred Stock represented by the certificate of
certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in lull for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate for such number of shares as have not been
converted.
(ii) AUTOMATIC CONVERSION. Subject to the provisions in this
paragraph, all outstanding shares of Series A Preferred Stock for which
conversion notices have not previously been received or for which redemption has
not been made or required hereunder shall be automatically converted on the
second anniversary of the Original Issue Date at the Conversion Price on such
date. The conversion contemplated by this paragraph shall not occur if (a) (1)
an Underlying Securities Registration Statement (as defined in Section 8) that
names the Holder as a selling stockholder thereunder is not then effective or
(2) the Holder is not permitted to resell Underlying Shares pursuant to Rule
144(k) promulgated under the Securities Act, without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; (b) there are not sufficient shares of
Common Stock authorized and reserved for issuance upon such conversion; or (c)
the Company shall have defaulted on its covenants and
<PAGE>
obligations hereunder or under the Purchase Agreement or Registration Rights
Agreement. Notwithstanding the foregoing, the two-year period for conversion
under this Section shall be extended (on a day-for-day basis) for any Trading
Days that the Purchaser is unable to resell Underlying Shares under an
Underlying Securities Registration Statement due to (a) the Common Stock not
being Actively Traded or not listed for trading on any Subsequent Market, (b)
the failure of an Underlying Securities Registration Statement to be declared
effective by the Securities and Exchange Commission (the "Commission") by the
Filing Date (as defined in the Registration Rights Agreement), or (c) if an
Underlying Securities Registration Statement shall have been declared effective
by the Commission, (x) the failure of such Underlying Securities Registration
Statement to remain effective at all times thereafter as to all Underlying
Shares, or) the suspension of the Holder's ability to resell Underlying Shares
thereunder.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Series A Preferred Stock (subject to reduction pursuant to Section 3.8 of the
Purchase Agreement), (ii) one or more certificates representing the number of
shares of Series A Preferred Stock not converted, (iii) a bank check in the
amount of accrued and unpaid dividends (if the Company has elected to pay
accrued dividends in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued dividends in shares of Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(1)) of the Purchase Agreement), representing such
shares of Common Stock; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Series A Preferred Stock until certificates
evidencing such shares of Series A Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Series A Preferred Stock
or Common Stock, or the Holder of such Series A Preferred Stock notifies the
Company that such certificates have been lost, stolen or destroyed and provides
a bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof; any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the third (3rd) Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Series A
Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof; any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated
<PAGE>
damages and not as a penalty, $5,000 for each day after such third (3rd) Trading
Day until such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Series A Preferred Stock or
as payment of dividends thereon by the third (3rd) Trading Day after the
Conversion Date, the Holder may, by notice to the Company, require the Company
to issue Underlying Shares pursuant to Section 5(c), except that for such
purpose the Conversion Price applicable thereto shall be the lesser of the
Conversion Price on the Conversion Date and the Conversion Price on the date of
such Holder demand. Any such Underlying Shares will be subject to the provision
of this Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof; any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the third (3rd) Trading Day after the Conversion Date,
and if after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which tile Holder
anticipated receiving upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Holder (in addition to any remedies available to or elected
by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds the aggregate stated value of the shares of Series A Preferred
Stock for which such conversion was not timely honored. For example, if the
Holder purchases shares of Common. Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000
aggregate stated value of the shares of Series A Preferred Stock, the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(c) (i) The conversion price for each share of Series A Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) the average of the Per Share Market Values for the ten (10)
Trading Days immediately preceding the Original Issue Date (the "Initial
Conversion Price") and (b) 78% (the "Discount Rate") multiplied by the average
of the five (5) 1owest Per Share Market Values during the ten (10) Trading Days
immediately preceding the applicable Conversion Date provided, however, that
such ten (10) Trading Day period shall be extended for the number of Trading
Days during such period in which (A) trading in the Common Stock was not
Actively Traded or suspended on such Subsequent Market on which the Common Stock
is then listed, or (B) after the date declared effective by the Commission, the
Underlying Securities Registration Statement is not effective, or (C) after the
date declared effective by the Commission, the Prospectus included in the
Underlying Securities Registration Statement may not be used by the Holder for
the resale of Underlying Shares. If (a) an Underlying Securities Registration
Statement is not filed on or prior to the Filing Date (if the Company files such
Underlying Securities Registration Statement without affording the Holder the
opportunity to review
<PAGE>
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a), or
(b) the Company fails to file with the Commission a request for acceleration in
accordance with Rule 1 2d 1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the fifth
(5th Business Day after the Effectiveness Date (as defined in the Registration
Rights Agreement), or (d) such Underlying Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the "Effectiveness Period" (as defined in the Registration Rights Agreement),
without being succeeded within ten (10) days by a subsequent Underlying
Securities Registration Statement filed with and declared effective by the
Commission, or (e) the Common Stock shall fail to be Actively Traded or be
delisted or suspended from trading on any Subsequent Market on which the Common
Stock is then listed for more than three (3) Business Days (which need not be
consecutive days), (f) the conversion rights of the Holders are suspended for
any reason or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (any such failure or breach being referred to as an "Event," and for
purposes of clauses (a), (c), (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clause (d) and (g) the date which such 10 day-period is
exceeded, or for purposes of clause (e) the date on which such three (3)
Business Day-period i3 exceeded, being referred to as "Event Date"), then each
of the Initial Conversion Price and the Discount Rate shall be decreased by 2.5%
on the Event Date and each monthly anniversary thereof until the earlier to
occur of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Discount Rate would be lowered to 75.5% as
of the Event Date and 73% as of the one month anniversary of such Event Date).
Commencing on the second month anniversary after the Event Date, the Holder
shall have the option to either (x) require further cumulative 2.5% discounts to
continue or (y) require the Company to pay to the Holder 2.5% of the aggregate
Stated Values of the shares of Series A Preferred Stock then held by such
Holder. in cash, as liquidated damages and not as a penalty, on the first day of
each monthly anniversary of the Event Date, until such time as the applicable
Event is cured. Any decrease in the Initial Conversion Price and the Discount
Rate pursuant to this Section shall remain in effect not withstanding the fact
that the Event causing such decrease has been subsequently cured and further
monthly decreases have ceased. The provisions of this Section are not exclusive
and shall in no way limit the Company's obligations under the Registration
Rights Agreement.
(ii) If the Company, at any time while any shares of Series A
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock
<PAGE>
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of Series A
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Initial Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the :provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.
(iv) If the Company or any subsidiary thereof; as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any shares of Series A Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price, then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of shares of
Common Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock so
issued or issuable, provided, that for purposes hereof; all shares of Common
Stock that are issuable upon exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.
<PAGE>
(v) If the Company, at any time while shares of Series A
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Initial Conversion
Price at which each share of Series A Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Series A Preferred
Stock dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Holders of a majority in interest of
the shares of Series A Preferred Stock then outstanding; and provided, further,
that the Company, after receipt of the determination by such Appraiser shall
have the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations by
each such Appraiser. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
(vi) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case maybe.
(vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(i),(ii),(iii),(iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock, of
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions, the Holders of the Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Series A Preferred
Stock shall be entitled upon such event to receive such amount of securities,
cash or property as a holder of the number of shares of the Common Stock of the
Company into which such shares of Series A Preferred Stock could have been
converted immediately prior to such reclassification or share exchange would
have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
<PAGE>
(ix) If (a) the Company shall declare a dividend (or any
other distribution) on its Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, (c) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of Series A Preferred Stock, and
shall cause to be mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Series A Preferred
Stock during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(x) If the Company (i) makes a public announcement that it
intends to enter into a Change of Control Transaction or (ii) any person, group
or entity (including the Company, but excluding a Holder or any affiliate of a
Holder) publicly announces a bona fide tender offer, exchange offer or other
transaction to purchase 33% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert shares of Series A Preferred Stock on or following the
Announcement Date, the Conversion Price shall, effective upon the Announcement
Date and continuing through the earlier to occur of the consummation of the
proposed transaction or tender offer, exchange offer or other transaction and
the Abandonment Date (as defined below), be equal to the lower of (x) the
average Per Share Market Value on the five Trading Days immediately preceding
(but not including) the Announcement Date and (y) the Conversion Price that
would otherwise have been in effect on the Conversion Date for such Series A
Preferred Stock but for the application of this section. "Abandonment Date"
means with respect to any proposed transaction or tender offer, exchange offer
or other transaction for which a public announcement as contemplated by this
paragraph has been made, the date upon which the Company (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction or
tender offer, exchange offer or another transaction which caused this paragraph
to become operative.
<PAGE>
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Series A Preferred Stock and payment of
dividends on Series A Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of Common Stock as
shall (subject to any additional requirements of the Company as to reservation
of such shares set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(a) and Section 5(c) upon
the conversion of all outstanding shares of Series A Preferred Stock and payment
of dividends hereunder. The Company covenants that all shares of common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and freely tradeable, subject to the
legend requirements of Section 3.1(b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder of a
share of Series A Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Series A Preferred Stock shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Series A
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Series A Preferred Stock converted into Common Stock
shall be canceled. The Company may not reissue any shares of Series A Preferred
Stock.
(h) Any and all notices or other communications or deliveries to
be provided by the Holders of the Series A Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Secretary of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facs1mile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
8:00 p.m. (Eastern Standard Time), (ii) the date
<PAGE>
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
8:00 p.m. Eastern Standard Time) on any date and earlier than 11:59 p.m. Eastern
Standard Time) on such date, (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
Section 6. OPTIONAL REDEMPTION.
(a) The Company shall have the right, exercisable at any time upon 20
Trading Days' notice (an "Optional Redemption Notice") to the Holders of the
Series A Preferred Stock given at any time after the Original Issue Date to
redeem all or any portion of the shares of Series A Preferred Stock which have
not previously been converted or redeemed, at a price equal to the Optional
Redemption Price (as defined below), provided, that the Company shall not be
entitled to deliver an Optional Redemption Notice to the Holders if (i) the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all purposes is insufficient to satisfy the Company's conversion obligations
of all shares of Series A Preferred Stock then outstanding, or (ii) the
Underlying Shares then outstanding are not registered for resale pursuant to an
effective Underlying Securities Registration Statement and may not be sold
without volume restrictions pursuant to Rule 144 promulgated under the
Securities Act, as determined by counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent in the form and
substance acceptable to the Holders and such transfer agent, or (iii) the Common
Stock is not then Actively Traded or listed for trading on a Subsequent Market.
The entire Optional Redemption Price shall be paid in cash. Holders may convert
(and the Company shall honor such conversions in accordance with the terms
hereof) any shares of Series A Preferred Stock, including shares subject to an
Optional Redemption Notice) during the period from the date thereof through the
20th Trading Day after the receipt of an Optional Redemption Notice.
(b) If any portion of the Optional Redemption Price shall not be paid
by the Company by the 20th Trading Day after the delivery of an Optional
Redemption Notice, interest shall accrue thereon at the rate of 15% per annum
until the Optional Redemption Price plus all such interest is paid in full. In
addition, if any portion of the Optional Redemption Price remains unpaid after
the date due, the Holder of the Series A Preferred Stock subject to such
redemption may elect, by written notice to the Company given at any time
thereafter, to either (i) demand conversion of all or any portion of the shares
of Series A Preferred Stock for which such Optional Redemption Price, plus
interest thereof, has not been paid in full (the "Unpaid Redemption Shares"),
in which event the Per Share Market Value for such shares shall be the lower of
the Per Share Market Value calculated on the date the Optional Redemption Price
was originally due and the Per Share Market Value as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within three (3) Trading Days of its receipt
of such election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of Holder's notice of
such election, return to the Holder all of the Unpaid Redemption Shares.
<PAGE>
(c) The "Optional Redemption Price" shall equal the sum of (i) the
product of (A) the number of shares of Series A Preferred Stock to be redeemed
and (B) the product of (1) the average Per Share Market Value for the five (5)
Trading Days immediately preceding (x) the date of the Optional Redemption
Notice or (y) the date of payment in frill by the Company of the Optional
Redemption Price, whichever is greater, and (2) the Conversion Ratio calculated
on the date of the Optional Redemption Notice, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such shares of Series
A Preferred Stock.
Section 7. REDEMPTION UPON TRIGGERING EVENTS.
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law), has
the right, exercisable at the sole option of such Holder, to require the Company
to redeem all or a portion of the Series A Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions or as payment of dividends hereunder and then
held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date the redemption price hereunder is paid in
full, whichever is greater. If the Company fails to pay the redemption price
hereunder in full pursuant to this Section within seven (7) days after the date
of a demand therefor, the Company will pay interest thereon at a rate of 15% per
annum, accruing daily from such seventh day until the redemption price, plus all
such interest thereon, is paid in full. For purposes of this Section, a share of
Series A Preferred Stock is outstanding until such date as the Holder shall have
received Underlying Shares upon a conversion (or attempted conversion) thereof
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness
of the Underlying Securities Registration Statement lapses for any reason for
more than three (3) consecutive Business Days, or the Holder shall not be
permitted to resell Registrable Securities under the Underlying Securities
Registration Statement for more than (3) consecutive Business Days;
(iii) the failure of the Common Stock to be Actively Traded
or, if the Common Stock shall have become listed on a Subsequent Market, the
delisting or the suspension from trading of the Common Stock from such
Subsequent Market, in either case, for more than three (3) consecutive Business
Days;
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder,
<PAGE>
including by way of public announcement, at any time, of its intention not to
comply with requests for conversion of any Series A Preferred Stock in
accordance with the terms hereof,
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of shares of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction
of the Holders prior to the expiration of thirty (30) days from the Event Date
relating thereto;
(vii) the Company shall fail for any reason to deliver the
Buy-In payment in cash required pursuant to Section 5(b)(iii) within seven (7)
days after notice is deemed delivered hereunder; or
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder.
Section 8. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"Actively Traded" shall mean that (i) no less than twelve (12) market
makers are actively making a market in the Common Stock, and (ii) the weekly
volume of shares of Common Stock traded is no less than $400,000.
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(l) promulgated under the Exchange Act) of in
excess of 33% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 33% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Common Stock" means the Company's common stock, par value $.0001 per
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator of
which is Stated Value plus accrued but unpaid dividends (including any accrued
but unpaid late fees thereon) but only to
<PAGE>
the extent not paid in shares of Common Stock in accordance with the terms
hereof, and the denominator of which is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company.
"Mandatory Redemption Amount" for each share of Series A Preferred
Stock means the sum of (i) the product of (a) the Per Share Market Value on the
Trading Day immediately preceding (x) the date of the Triggering Event or the
Conversion Date, as the case may be, or (y) the date of payment in full by the
Company of the applicable redemption price, whichever is greater, and (b) the
Conversion Ratio calculated on the date of the Triggering Event, or the
Conversion Date, as the case may be, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such shares of Series A Preferred
Stock.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series A Preferred Stock regardless of the number of transfers of
any particular shares of Series A Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series A Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on such Subsequent Market
on which the Common Stock is then listed or quoted, or if there is no such price
on such date, then the closing bid price on such Subsequent Market on the date
nearest preceding such date, or (b) if the Common Stock is not then listed or
quoted on a Subsequent Market, the closing bid price for a share of Common Stock
in the over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of the Series A Preferred Stock.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Series A Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original Holder of the Series A Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date. by and among the Company and the
original Holder of the Series A Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on
such Subsequent Market on which the Common Stock is then listed or quoted, or
(b) if the Common Stock is not listed
<PAGE>
on a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof; then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Securities Registration Statement: means a registration
statement that meets the requirement of the Registration Rights Agreement and
requires the resale of all Underlying Shares by the recipient thereof, who shall
be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof
FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the board of directors, and the directors need
not be elected by ballot unless required by the bylaws of the
corporation.
SIXTH: This corporation shall be perpetual unless otherwise decided by a
majority of the Board of Directors.
SEVENTH: In furtherance and not in limitation of the powers conferred by the
laws of Florida, the board of directors is authorized to amend and
repeal the bylaws.
EIGHTH: The corporation reserves the right to amend or repeal any provision in
this Certificate of Incorporation in the manner prescribed by the laws
of Florida.
NINTH: The incorporator is Harvard Business Services, Inc., whose mailing
address is 25 Greystone Manor, Lewes, DE, 19958-9766. The powers of the
incorporator are to file this certificate incorporation, approve the
by-laws of the corporation and elect the initial directors.
TENTH: To the fullest extent permitted by the Florida Business Corporation Act
a director of this corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty
as a director.
The aforementioned Amendment to and Restatement of the Articles of
Incorporation was duly adopted by the Board of Directors on the 31st day of May,
1998 without shareholder action and shareholder action was not required pursuant
to section 607.0602, Florida Statutes.
<PAGE>
Signed this 31st day of May, 1998.
Signature: /s/ JOHN S. ARNONE
--------------------------
By: John Arnone, Secretary
ARTICLES OF AMENDMENT TO
&
RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
PLANET ENTERTAINMENT CORPORATION
PURSUANT TO THE PROVISIONS OF SECTION 607.1006, FLORIDA STATUTES, THIS
FLORIDA PROFIT CORPORATION ADOPTS THE FOLLOWING ARTICLES OF AMENDMENT TO AND
RESTATEMENT OF ITS ARTICLES OF INCORPORATION:
FIRST: The name of the corporation is:
PLANET ENTERTAINMENT CORPORATION
SECOND: Its registered office in the State of Florida is located at 1201 Hays
Street, Tallahassee, Florida, 32301. The registered agent in charge
thereof is The United States Corporation Company (CSC).
THIRD: The purpose of the corporation is to engage in any lawful activity for
which corporations may be organized under the Florida Business
Corporation Act.
ARTICLE FOURTH SHALL BE RESTATED AND AMENDED TO AUTHORIZE THE CREATION
OF SERIES A, SERIES B, AND SERIES C PREFERRED STOCK OUT OF THE PREVIOUSLY
AUTHORIZED PREFERRED STOCK OF THE COMPANY AND DESCRIBES THE CHARACTERISTICS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF SERIES A CONVERTIBLE PREFERRED
STOCK. ARTICLE FOURTH SHALL READ AS FOLLOWS:
FOURTH: The total number of shares of stock which the corporation is authorized
to issue is 50,000,000 shares of common stock having a par value of
$0.001 per share and
<PAGE>
10,000,000 shares of preferred stock having a par value of $0.0001 per
share, designated as Series A Convertible Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. Series A Convertible
Preferred Stock shall consist of 500 shares of the heretofore
authorized preferred stock and shall have the following
characteristics, preferences, limitations, and relative rights:
Section 1. DESIGNATION. AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as 7% Series A Convertible Preferred Stock
(the "Series A Preferred Stock") and the number of shares so designated shall be
500 (which shall not be subject to increase without the consent of the holders
of the Series A Preferred Stock (each, a "Holder" and collectively, the
"Holders")); Each share of Series A Preferred Stock shall have a par value of
$.0001 and a stated value of $10,000 (the "Stated Value").
Section 2. DIVIDENDS.
(a) Holders shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 7% per annum, payable on a quarterly basis on
March 31, June 30, September 30 and December 31 of each year during the term
hereof (each a "Dividend Payment Date"), commencing on June 30, 1998, in cash or
shares of Common Stock (as defined in Section 8) at, subject to the terms and
conditions set forth herein, the option of the Company. Dividends on the Series
A Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Any dividends not paid on any
Dividend Payment Date shall continue to accrue and shall be due and payable upon
conversion of the Series A Preferred Stock. A party that holds shares of Series
A Preferred Stock on a Dividend Payment Date will be entitled to receive such
dividend payment and any other accrued and unpaid dividends which accrued prior
to such Dividend Payment Date, without regard to any sale or disposition of such
Series A Preferred Stock subsequent to the applicable record date. All overdue
accrued and unpaid dividends and other amounts due herewith shall entail a late
fee at the rate of 15% per annum (to accrue daily, from the date such dividend
is due hereunder through and including the date of payment). Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of the Series A Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of shares
held by each Holder. Payment of dividends on the Series A Preferred Stock is
further subject to the provisions of Section 5(c)(i). The Company shall provide
the Holders notice of its intention to pay dividends in cash or shares of Common
Stock not less than 10 Trading Days prior to the Dividend Payment Date for so
long as shares of Series A Preferred Stock are outstanding. If dividends are
paid in shares of Common Stock, the number of shares of Common Stock issuable on
account of such dividend shall equal the cash amount of such dividend on such
Dividend Payment Date divided by the Conversion Price (as defined below) on such
date.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof)
<PAGE>
on the Series A Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) such shares of Common Stock are not registered for
resale pursuant to an effective registration statement that names the recipient
of such dividend as a selling stockholder thereunder and may not be sold without
volume restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent
in the form and substance acceptable to the Holders and such transfer agent;
(iii) the Common Stock is not then Actively Traded (as
defined in Section 8), or listed for trading on the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market or Nasdaq SmallCap Market (each
a "Subsequent Market");
(iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(v) the issuance of such shares of Common Stock would
result in the recipient thereof beneficially owning, as determined in accordance
with Rule 1 3d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), more than 4.999% of the then issued and
outstanding shares of Common Stock.
(c) So long as any Series A Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Series A Preferred Stock, except for
repurchases effected by the Company on the open market, pursuant to a direct
stock purchase plan.
Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Series A Preferred Stock shall have no voting
rights. However, so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not and shall cause its subsidiaries not to,
without the affirmative vote of the Holders of all of the shares of the Series A
Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Series A Preferred Stock, (b) alter or amend
this Certificate of Designation, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise pari passu with or senior to the Series A
Preferred Stock, except for any series of Series A Preferred Stock issued and
sold in accordance with the Purchase Agreement, (d) amend its Certificate of
Incorporation, bylaws or other charter documents so as to affect adversely any
rights of any Holders, (e) increase the authorized number of shares of Series A
Preferred Stock, or (f) enter into any agreement with respect to the foregoing.
<PAGE>
Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series A Preferred Stock an
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 33% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
Holder.
Section 5. CONVERSION.
(a) (i) OPTIONAL CONVERSIONS. Each share of Series A
Preferred Stock shall be convertible into shares of Common Stock (subject to
reduction pursuant to Section 3.8 of the Purchase Agreement) at the Conversion
Ratio (as defined in Section 8) at the option of the Holder, at any time and
from time to time, from and after the Original Issue Date. Holders shall effect
conversions by surrendering the certificate or certificates representing the
shares of Series A Preferred Stock to be converted to the Company, together with
the form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice"). Each Conversion Notice shall specify the number of shares of Series A
Preferred Stock to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered hereunder. If the Holder is converting
less than all shares of Series A Preferred Stock represented by the certificate
or certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate for such number of shares as have not been
converted.
(ii) AUTOMATIC CONVERSION. Subject to the provisions in
this paragraph, all outstanding shares of Series A Preferred Stock for which
conversion notices have not previously been received or for which redemption has
not been made or required hereunder shall be automatically converted on the
second anniversary of the Original Issue Date at the Conversion Price on such
date. The conversion contemplated by this paragraph shall not occur if (a) (1)
an Underlying Securities Registration Statement (as defined in Section 8) that
names the Holder as a selling stockholder thereunder is not then effective or
(2) the Holder is not permitted to resell Underlying Shares pursuant to Rule
144(k) promulgated under the Securities Act, without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; (b) there are not sufficient shares of
Common Stock authorized and reserved for
<PAGE>
issuance upon such conversion; or (c) the Company shall have defaulted on its
covenants and obligations hereunder or under the Purchase Agreement or
Registration Rights Agreement. Notwithstanding the foregoing, the two-year
period for conversion under this Section shall be extended (on a day-for-day
basis) for any Trading Days that the Purchaser is unable to resell Underlying
Shares under an Underlying Securities Registration Statement due to (a) the
Common Stock not being Actively Traded or not listed for trading on any
Subsequent Market, (b) the failure of an Underlying Securities Registration
Statement to be declared effective by the Securities and Exchange Commission
(the "Commission") by the Filing Date (as defined in the Registration Rights
Agreement), or (c) if an Underlying Securities Registration Statement shall have
been declared effective by the Commission, (x) the failure of such Underlying
Securities Registration Statement to remain effective at all times thereafter as
to all Underlying Shares, or (y) the suspension of the Holder's ability to
resell Underlying Shares thereunder.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Series A Preferred Stock (subject to reduction pursuant to Section 3.8 of the
Purchase Agreement), (ii) one or more certificates representing the number of
shares of Series A Preferred Stock not converted, (iii) a bank check in the
amount of accrued and unpaid dividends (if the Company has elected to pay
accrued dividends in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued dividends in shares of Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement), representing such
shares of Common Stock; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Series A Preferred Stock until certificates
evidencing such shares of Series A Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Series A Preferred Stock
or Common Stock, or the Holder of such Series A Preferred Stock notifies the
Company that such certificates have been lost, stolen or destroyed and provides
a bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof; any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the third (3rd) Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Series A
Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, by the third (3rd)
<PAGE>
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Series A Preferred Stock or as payment of dividends thereon by
the third (3rd) Trading Day after the Conversion Date, the Holder may, by notice
to the Company, require the Company to issue Underlying Shares pursuant to
Section 5(c), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such Underlying
Shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof; any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the third (3rd) Trading Day after the Conversion Date,
and if after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Holder (in addition to any remedies available to or elected
by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the aggregate stated value of the shares of Series A
Preferred Stock for which such conversion was not timely honored. For example,
if the Holder purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000
aggregate stated value of the shares of Series A Preferred Stock, the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(c) (i) The conversion price for each share of Series A Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(a) the average of the Per Share Market Values for the ten (10) Trading Days
immediately preceding the Original Issue Date (the "Initial Conversion Price")
and (b) 78% (the "Discount Rate") multiplied by the average of the five (5)
lowest Per Share Market Values during the ten (10) Trading Days immediately
preceding the applicable Conversion Date provided, however, that such ten (10)
Trading Day period shall be extended for the number of Trading Days during such
period in which (A) trading in the Common Stock was not Actively Traded or
suspended on such Subsequent Market on which the Common Stock is then listed, or
(B) after the date declared effective by the Commission, the Underlying
Securities Registration Statement is not effective, or (C) after the date
declared effective by the Commission, the Prospectus included in the Underlying
Securities Registration Statement may not be used by the Holder for the resale
of Underlying Shares. If (a) an Underlying Securities Registration Statement is
not filed on or prior to the Filing Date (if the Company files such
<PAGE>
Underlying Securities Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)), or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed," or not subject to further review, or (c) the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to the fifth (5th) Business Day after the Effectiveness Date (as defined in the
Registration Rights Agreement), or (d) such Underlying Securities Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities at any time prior to the
expiration of the "Effectiveness Period" (as defined in the Registration Rights
Agreement), without being succeeded within ten (10) days by a subsequent
Underlying Securities Registration Statement filed with and declared effective
by the Commission, or (e) the Common Stock shall fail to be Actively Traded or
be delisted or suspended from trading on any Subsequent Market on which the
Common Stock is then listed for more than three (3) Business Days (which need
not be consecutive days), (f) the conversion rights of the Holders are suspended
for any reason or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (any such failure or breach being referred to as an "Event," and for
purposes of clauses (a), (c), (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clauses (d) and (g) the date which such 10 day-period is
exceeded, or for purposes of clause (e) the date on which such three (3)
Business Day-period is exceeded, being referred to as "Event Date"), then each
of the Initial Conversion Price and the Discount Rate shall be decreased by 2.5%
on the Event Date and each monthly anniversary thereof until the earlier to
occur of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Discount Rate would be lowered to 75.5% as
of the Event Date and 73% as of the one month anniversary of such Event Date).
Commencing on the second month anniversary after the Event Date, the Holder
shall have the option to either (x) require further cumulative 2.5% discounts to
continue or (y) require the Company to pay to the Holder 2.5% of the aggregate
Stated Values of the shares of Series A Preferred Stock then held by such
Holder, in cash, as liquidated damages and not as a penalty, on the first day of
each monthly anniversary of the Event Date, until such time as the applicable
Event is cured. Any decrease in the Initial Conversion Price and the Discount
Rate pursuant to this Section shall remain in effect notwithstanding the fact
that the Event causing such decrease has been subsequently cured and further
monthly decreases have ceased. The provisions of this Section are not exclusive
and shall in no way limit the Company's obligations under the Registration
Rights Agreement.
(ii) If the Company, at any time while any shares of Series A
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price shall be
<PAGE>
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while any shares of Series A
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Initial Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.
(iv) If the Company or any subsidiary thereof; as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any shares of Series A Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price, then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of shares of
Common Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock so
issued or issuable, provided, that for purposes hereof, all shares of Common
Stock that are issuable upon exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock
<PAGE>
Equivalents are issued.
(v) If the Company, at any time while shares of Series A
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Initial Conversion
Price at which each share of Series A Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Series A Preferred
Stock dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Holders of a majority in interest of
the shares of Series A Preferred Stock then outstanding; and provided, further,
that the Company, after receipt of the determination by such Appraiser shall
have the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations by
each such Appraiser. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
(vi) All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case maybe.
(vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(i),(ii),(iii),(iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock,
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Series A Preferred
Stock shall be entitled upon such event to receive such amount of securities,
cash or property as a holder of the number of shares of the Common Stock of the
Company into which such shares of Series A Preferred Stock could have been
converted
<PAGE>
immediately prior to such reclassification or share exchange would have been
entitled. This provision shall similarly apply to successive reclassifications
or share exchanges.
(ix) If (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, (c) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of Series A Preferred Stock, and
shall cause to be mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Series A Preferred
Stock during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(x) If the Company (i) makes a public announcement that it
intends to enter into a Change of Control Transaction or (ii) any person, group
or entity (including the Company, but excluding a Holder or any affiliate of a
Holder) publicly announces a bona fide tender offer, exchange offer or other
transaction to purchase 33% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert shares of Series A Preferred Stock on or following the
Announcement Date, the Conversion Price shall, effective upon the Announcement
Date and continuing through the earlier to occur of the consummation of the
proposed transaction or tender offer, exchange offer or other transaction and
the Abandonment Date (as defined below), be equal to the lower of (x) the
average Per Share Market Value on the five Trading Days immediately preceding
(but not including) the Announcement Date and (y) the Conversion Price that
would otherwise have been in effect on the Conversion Date for such Series A
Preferred Stock but for the application of this section. "Abandonment Date"
means with respect to any proposed transaction or tender offer, exchange offer
or other transaction for which a public announcement as contemplated by this
paragraph has been made, the date upon
<PAGE>
which the Company (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this paragraph to become operative.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series A Preferred Stock and payment of dividends
on Series A Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of Common Stock as shall (subject
to any additional requirements of the Company as to reservation of such shares
set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Series A Preferred Stock and payment of
dividends hereunder. The Company covenants that all shares of common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and freely tradeable, subject to the legend
requirements of Section 3.1 (b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder of a share of
Series A Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Series A Preferred Stock shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Series A
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Series A Preferred Stock converted into Common Stock
shall be canceled. The Company may not reissue any shares of Series A Preferred
Stock.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Series A Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Secretary of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder at the facsimile
telephone
<PAGE>
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (Eastern
Standard Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 8:00 p.m. (Eastern Standard Time) on any
date and earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii)
upon receipt, if sent by a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given.
Section 6. OPTIONAL REDEMPTION.
(a) The Company shall have the right, exercisable at any time upon 20
Trading Days' notice (an "Optional Redemption Notice") to the Holders of the
Series A Preferred Stock given at any time after the Original Issue Date to
redeem all or any portion of the shares of Series A Preferred Stock which have
not previously been converted or redeemed, at a price equal to the Optional
Redemption Price (as defined below), provided, that the Company shall not be
entitled to deliver an Optional Redemption Notice to the Holders if: (i) the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all purposes is insufficient to satisfy the Company's conversion obligations
of all shares of Series A Preferred Stock then outstanding, or (ii) the
Underlying Shares then outstanding are not registered for resale pursuant to an
effective Underlying Securities Registration Statement and may not be sold
without volume restrictions pursuant to Rule 144 promulgated under the
Securities Act, as determined by counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent in the form and
substance acceptable to the Holders and such transfer agent, or (iii) the Common
Stock is not then Actively Traded or listed for trading on a Subsequent Market.
The entire Optional Redemption Price shall be paid in cash. Holders may convert
(and the Company shall honor such conversions in accordance with the terms
hereof) any shares of Series A Preferred Stock, including shares subject to an
Optional Redemption Notice, during the period from the date thereof through the
20th Trading Day after the receipt of an Optional Redemption Notice.
(b) If any portion of the Optional Redemption Price shall not be paid
by the Company by the 20th Trading Day after the delivery of an Optional
Redemption Notice, interest shall accrue thereon at the rate of 15% per annum
until the Optional Redemption Price plus all such interest is paid in full. In
addition, if any portion of the Optional Redemption Price remains unpaid after
the date due, the Holder of the Series A Preferred Stock subject to such
redemption may elect, by written notice to the Company given at any time
thereafter, to either (i) demand conversion of all or any portion of the shares
of Series A Preferred Stock for which such Optional Redemption Price, plus
interest thereof, has not been paid in full (the "Unpaid Redemption Shares"), in
which event the Per Share Market Value for such shares shall be the lower of the
Per Share Market Value calculated on the date the Optional Redemption Price was
originally due and the Per Share Market Value as of the Holder's written demand
for conversion, or (ii) invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary. If the Holder elects option (i)
above, the Company shall within three (3) Trading Days of its receipt of such
election deliver to the Holder the shares of
<PAGE>
Common Stock issuable upon conversion of the Unpaid Redemption Shares subject to
such Holder conversion demand and otherwise perform its obligations hereunder
with respect thereto; or, if the Holder elects option (ii) above, the Company
shall promptly, and in any event not later than three (3) Trading Days from
receipt of Holder's notice of such election, return to the Holder all of the
Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of (i) the
product of (A) the number of shares of Series A Preferred Stock to be redeemed
and (B) the product of (l) the average Per Share Market Value for the five (5)
Trading Days immediately preceding (x) the date of the Optional Redemption
Notice or (y) the date of payment in full by the Company of the Optional
Redemption Price, whichever is greater, and (2) the Conversion Ratio calculated
on the date of the Optional Redemption Notice, and (ii) all other amounts,
costs, expenses and liquidated damages due' in respect of such shares of Series
A Preferred Stock.
Section 7. REDEMPTION UPON TRIGGERING EVENTS.
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law), has
the right, exercisable at the sole option of such Holder, to require the Company
to redeem all or a portion of the Series A Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions or as payment of dividends hereunder and then
held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date the redemption price hereunder is paid in
full, whichever is greater. If the Company fails to pay the redemption price
hereunder in full pursuant to this Section within seven (7) days after the date
of a demand therefor, the Company will pay interest thereon at a rate of 15% per
annum, accruing daily from such seventh day until the redemption price, plus all
such interest thereon, is paid in full. For purposes of this Section, a share of
Series A Preferred Stock is outstanding until such date as the Holder shall have
received Underlying Shares upon a conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if; during the Effectiveness Period, the
effectiveness of the Underlying Securities Registration Statement lapses for any
reason for more than three (3) consecutive Business Days, or the Holder shall
not be permitted to resell Registrable Securities under the Underlying
Securities Registration Statement for more than (3) consecutive Business Days;
(iii) the failure of the Common Stock to be Actively Traded
or, if the Common Stock shall have become listed on a Subsequent Market, the
delisting or the suspension from trading
<PAGE>
of the Common Stock from such Subsequent Market, in either case, for more than
three (3) consecutive Business Days;
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Series A Preferred Stock in accordance with the
terms hereof;
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of shares of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the
satisfaction of the Holders prior to the expiration of thirty (30) days from the
Event Date relating thereto;
(vii) the Company shall fail for any reason to deliver the
Buy-In payment in cash required pursuant to Section 5(b)(iii) within seven (7)
days after notice is deemed delivered hereunder; or
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder.
Section 8. DEFINITIONS. For the purposes hereof; the following
terms shall have the following meanings:
"Actively Traded" shall mean that (i) no less than twelve (12) market
makers are actively making a market in the Common Stock, and (ii) the weekly
volume of shares of Common Stock traded is no less than $400,000.
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(l) promulgated under the Exchange Act) of in
excess of 33% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 33% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
<PAGE>
"Common Stock" means the Company's common stock, par value $.001 per
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator of
which is Stated Value plus accrued but unpaid dividends (including any accrued
but unpaid late fees thereon) but only to the extent not paid in shares of
Common Stock in accordance with the terms hereof; and the denominator of which
is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company.
"Mandatory Redemption Amount" for each share of Series A Preferred
Stock means the sum of (i) the product of (a) the Per Share Market Value on the
Trading Day immediately preceding (x) the date of the Triggering Event or the
Conversion Date, as the case may be, or (y) the date of payment in full by the
Company of the applicable redemption price, whichever is greater, and (b) the
Conversion Ratio calculated on the date of the Triggering Event, or the
Conversion Date, as the case may be, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such shares of Series A Preferred
Stock.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series A Preferred Stock regardless of the number of transfers of
any particular shares of Series A Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series A Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on such Subsequent Market
on which the Common Stock is then listed or quoted, or if there is no such price
on such date, then the closing bid price on such Subsequent Market on the date
nearest preceding such date, or (b) if the Common Stock is not then listed or
quoted on a Subsequent Market, the closing bid price for a share of Common Stock
in the over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of the Series A Preferred Stock.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Series A Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original Holder of the Series A Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the
<PAGE>
Original Issue Date, by and among the Company and the original Holder of the
Series A Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on
such Subsequent Market on which the Common Stock is then listed or quoted, or
(b) if the Common Stock is not listed on a Subsequent Market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof; then Trading Day shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other government action to close.
"Underlying Securities Registration Statement" means a registration
statement that meets the requirement of the Registration Rights Agreement and
requires the resale of all Underlying Shares by the recipient thereof, who shall
be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
FIFTH: The business and affairs of the corporation shall be managed
by or under te direction of the board of directors, and the
directors need not be elected by ballot unless required by the
bylaws of the corporation.
SIXTH: This corporation shall be perpetual unless otherwise decided
by a majority of the Board of Directors.
SEVENTH: In furtherance and not in limitation of the powers conferred
by the laws of Florida, the board of directors is authorized
to amend and repeal the bylaws.
EIGHTH: The corporation reserves the right to amend or repeal any
provision in this Certificate of Incorporation in the manner
prescribed by the laws of Florida.
NINTH: The incorporator is Harvard Business Services, Inc., whose
mailing address is 25 Greystone Manor, Lewes, DE, 19958-9766.
The powers of the incorporator are to file this certificate
incorporation, approve the by-laws of the corporation and
elect the initial directors.
TENTH: To the fullest extent permitted by the Florida Business
Corporation Act a director of this corporation shall not be
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
<PAGE>
The aforementioned Amendment to and Restatement of the Articles of
Incorporation was duly adopted by the Board of Directors on the 31st day of May,
1998 without shareholder action and shareholder action was not required pursuant
to section 607.0602, Florida Statutes.
Signed this 21st day of September, 1998.
Signature: /s/ JOHN ARNONE
---------------------------------
By: John Arnone, Secretary
FROHLING, HUDAK & McCARTHY, P.C.
COUNSELLORS AT LAW
425 EAGLE ROCK AVENUE P.O. BOX 22888
SUITE 200 NEWARK, NJ 07101
ROSELAND, NJ 07068 (201) 622-2800
(201) 226-4600
FAX (201) 226-0969 Please Reply to:
[X] Roseland
[ ] Newark
September 3, 1998
Wallace M. Giakis, Chairman
Planet Entertainment Corp.
222 Highway 35 South
Middletown, NJ 07748
Gentlemen:
We have reviewed all pertinent corporate documents and materials
required to be reviewed in connection with the status of the shares of common
stock (the "Shares") of the Company being registered with the U.S. Securities
and Exchange Commission on September 23, 1998 pursuant to Section 12(g) of the
Securities Exchange Act of 1934 on Form 10-SB (the "Registration Statement") and
in connection therewith render the following opinion:
(a) All the Shares being registered pursuant to the Registration
Statement have been validly issued, are outstanding and are non-assessable.
(b) All corporate action required to be taken by the Company in
connection with the registration of the Shares has been taken.
Very truly yours,
/s/ FROHLING HUDAK & McCARTHY P.C.
------------------------------------------
FROHLING HUDAK & McCARTHY P.C.
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE PERIOD SIX MONTHS ENDED
MAY 17, 1996 JUNE 30,
(INCEPTION TO --------------------------
DECEMBER 31, YEAR ENDED
1996 1997 1997 1998
--------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic Earnings
Net loss (52,447) (809,912) (546,901) (435,315)
Shares
Weighted average number of
common shares outstanding 3,377,255 10,211,250 10,035,917 11,776,635
Basic earnings per common share:
Net loss (0.02) (0.08) (0.05) (0.04)
=========== =========== =========== ===========
Diluted Earnings
Net loss (52,447) (809,912) (546,901) (435,315)
Shares
Weighted average number of
common shares outstanding 3,377,255 10,211,250 10,035,917 11,776,635
Diluted earnings per common share
Net loss (0.02) (0.08) (0.05) (0.04)
=========== =========== =========== ===========
</TABLE>
EXHIBIT 17
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
For the period Year ended Six months ended
May 17, 1996 (inception) December 31, June 30,
to December 31, 1996 1997 1997 1998
-------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Basic/Diluted
Net Loss $ 52,447 $ 809,912 $ 546,901 $ 414,998
Weighted Average Share
Outstanding 3,377,255 10,211,250 10,035,917 11,776,635
Basic Loss per
Common Share $ .02 $ .08 $ .05 $ .04
</TABLE>
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
3033 EAST 1ST AVENUE, SUITE 201
DENVER, COLORADO 80206
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report dated August 12, 1998 and to the reference made to our firm under caption
"Experts" included in or made part of this Form 10-SB.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
September 22, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001038284
<NAME> PLANET ENTERTAINMENT CORPORATION
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 8-MOS YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> MAY-17-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 6,998 3,670 0 4,285,124
<SECURITIES> 0 0 0 0
<RECEIVABLES> 105,000 21,026 0 12,315
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 141,808 327,453 0 4,758,013
<PP&E> 50,000 210,094 0 210,094
<DEPRECIATION> 2,500 21,009 0 31,261
<TOTAL-ASSETS> 14,057,688 14,447,835 0 18,856,393
<CURRENT-LIABILITIES> 504,110 1,306,202 0 1,406,411
<BONDS> 0 0 0 0
0 0 0 5,000,000
0 0 0 0
<COMMON> 9,826 11,422 0 11,976
<OTHER-SE> 7,943,752 7,780,211 0 7,088,006
<TOTAL-LIABILITY-AND-EQUITY> 14,057,688 14,447,835 0 18,856,393
<SALES> 0 49,883 0 33,172
<TOTAL-REVENUES> 105,000 293,428 23,326 63,464
<CGS> 0 19,052 0 11,413
<TOTAL-COSTS> 157,447 1,103,340 570,227 490,254
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 43,100 144,382 71,777 77,991
<INCOME-PRETAX> (52,447) (809,912) (546,901) (414,998)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (52,447) (809,912) (546,901) (414,998)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (52,447) (809,912) (546,901) (414,998)
<EPS-PRIMARY> (.02) (.08) (.05) (.O4)
<EPS-DILUTED> (.02) (.08) (.05) (.04)
</TABLE>
