<PAGE>
As filed with the Securities and Exchange Commission on April 12, 2000
Registration No. 333- 87291
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ANTRA HOLDINGS GROUP, INC.
(Name of small business issuer in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 7389-1106 22-3517670
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1515 Locust Street
Philadelphia, Pennsylvania 19102
215-732-1300
(Address and telephone number of principal executive offices and
place of business)
JOSEPH M. MARRONE, JR., President
Antra Holdings Group, Inc.
1515 Locust Street
Philadelphia, Pennsylvania 19102
215-732-1300
(Name, address and telephone number of agent for service)
---------------------
Copies to:
MICHAEL D. DIGIOVANNA, Esq.
PARKER DURYEE ROSOFF & HAFT
529 Fifth Avenue
New York, New York 10017
(212) 599-0500
---------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Maximum Maximum
of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered(1) Per Security(2) Offering Price(2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
per share ................... 6,870,000 $ 5.625 (3) $ 38,643,750(3) $ 10,742.96(5)
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value
per share ................... 400,000 $ 7.8125(4) $ 3,125,000(4) $ 868.75(6)
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 per value
per share ................... 2,896,665 $ 3.8125(7) $ 11,043,535 $ 2,915.49
- ---------------------------------------------------------------------------------------------------------------
Totals ................... 10,166,665 -- $ 52,812,285 $ 14,527.21
===============================================================================================================
</TABLE>
(1) Pursuant to Rule 416(a), the Registration Statement also relates to an
indeterminate number of additional shares of the Registrant's Common
Stock, issuable upon the conversion of notes or the exercise of warrants
pursuant to anti-dilution provisions contained therein, which shares of
Common Stock are registered hereunder.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended (the "Securities
Act").
(3) Estimated offering price based on the average of the bid and asked prices
as of September 15, 1999.
(4) Estimated offering price based on the average of the bid and asked prices
as of November 12, 1999.
(5) This part of the registration fee was paid with the original filing of this
SB-2 on September 17, 1999.
(6) This part of the registration fee was paid with Amendment No.1 to this SB-2
on November 19, 1999.
(7) Estimated offering price based on the average of the bid and asked prices
as of April 6, 2000
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement that is filed with
the Securities and Exchange Commission is declared effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION APRIL 12, 2000
PROSPECTUS
10,166,665 Shares
ANTRA HOLDING GROUP, INC.
Common Stock
---------------------
Stockholders of Antra Holdings Group, Inc. named under the caption
"Selling Security Holders" may offer and sell up to 10,166,665 shares of our
common stock.
Investing in Antra Holdings's common stock is risky. See "Risk Factors" on
page 6.
Our common stock current trades on the NASD OTC Bulletin Board under the
symbol "RECD."
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of the prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is April 12, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY .................................................................................... 3
RISK FACTORS .......................................................................................... 5
Antra Holdings has limited operating revenues and an accumulated deficit ........................... 5
Our revenues have been heavily dependent on one artist's recordings ................................ 5
We may not be able to produce a record if we are unable to secure financing for that record ....... 5
Our success will depend on our artists' performance ................................................ 5
Antra depends on the continued popularity of urban music ........................................... 5
CAPITALIZATION ........................................................................................ 6
USE OF PROCEEDS ....................................................................................... 6
SELECTED FINANCIAL DATA ............................................................................... 6
MARKET INFORMATION .................................................................................... 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..................................................... 7
BUSINESS .............................................................................................. 9
SELLING SECURITY HOLDERS .............................................................................. 16
PLAN OF DISTRIBUTION .................................................................................. 18
MANAGEMENT ............................................................................................ 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................................ 20
DESCRIPTION OF SECURITIES ............................................................................. 22
CERTAIN TRANSACTIONS .................................................................................. 22
LEGAL MATTERS ......................................................................................... 23
EXPERTS ............................................................................................... 24
ADDITIONAL INFORMATION ABOUT ANTRA HOLDINGS ........................................................... 24
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
Antra Holdings Group, Inc. is a holding company. Through our wholly owned
subsidiary, Antra Music Group, Inc., we produce, acquire, license and
distribute high-quality recorded music. Antra Music was formed in 1997 and
entered into an agreement with Ricardo Brown, the urban recording artist known
as "Kurupt". We primarily focus on urban music, the area of the industry that
includes hip-hop, rap and rhythm and blues. We believe, based on industry
sources and census data, that this area offers significant growth and profit
potential.
The music business consists of several functions: publishing, production,
manufacturing, licensing, distribution and promotion. Antra is involved in
these areas.
On September 30, 1999, Antra and Teltran International Group Ltd. formed a
joint venture, Recordstogo.com., for the sale of records on its website. The
recordstogo.com website (http://www.recordstogo.com) has been designed and
completed and may be viewed on the Internet. The joint venture contemplates
commencing commercial operations on May 1, 2000.
In December 1999, we formed a joint venture with our distributor, Artemis
Records, for the production and distribution of records. The first album
produced by this joint venture is scheduled for release in June 2000.
When we refer to "Antra," "we," "our" and "us" in this prospectus, we mean
Antra Holdings Group, Inc. including its subsidiary, Antra Music Group, Inc.,
unless otherwise indicated by the context.
Our offices are located at 1515 Locust Street, Philadelphia, Pennsylvania
19102 and our telephone number is 215-732-1300.
The Offering
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<CAPTION>
<S> <C> <C>
Shares outstanding before the
offering ....................... 12,344,620 Does not include shares subject to outstanding
convertible notes or warrants, some of which shares
may be sold under this prospectus after conversion
of these notes or the exercise of these warrants.
Maximum number of shares
offered ........................ 10,166,665 Includes shares subject to (1) outstanding
convertible notes and warrants and (2) convertible
notes and warrants that may be issued after the
effectiveness of the registration statement.
Shares to be outstanding after the
offering ....................... 22,511,285 Includes shares subject to outstanding convertible
notes and warrants that may be issued after the
effectiveness of the registration statement and sold
under this prospectus.
The terms of our notes require us to register more
shares than may be actually issued and sold under
this prospectus. The actual number of shares that
will be issued depends upon the price of Antra's
common stock at the time of conversion
Use of Proceeds .................. ---- Except upon exercise of warrants, Antra will not
receive proceeds. Any proceeds will be used for
working capital purposes.
Symbol for common stock .......... RECD
</TABLE>
3
<PAGE>
Summary Financial Information
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Income ....................................... $ 85,366 $ 20,000
Expenses ..................................... 2,146,421 1,415,107
(Loss) from operations ....................... (2,061,055) (1,395,107)
Net (loss) ................................... (1,508,276) (1,595,107)
(Loss) per share ............................. (0.14) (0.17)
Shares used in computing net
loss per share ............................... 11,118,546 9,268,030
BALANCE SHEET DATA: ..........................
Working capital (deficit) .................... $ (2,309,052) $ (75,030)
Total assets ................................. 6,396,964 122,286
Total long-term debt ......................... 1,005,514 1,217,079
Total stockholders' equity (deficit) ......... 1,286,403 (1,205,321)
</TABLE>
4
<PAGE>
RISK FACTORS
Before you decide to invest in Antra Holdings's common stock, you should
be aware that there are various risks, including those described below. You
should carefully consider these risks as well as the more detailed information
contained in this prospectus and in other documents we file with the Securities
and Exchange Commission before making your decision. You should be in a
position to risk losing your entire investment.
Antra Holdings has limited operating revenues and an accumulated deficit.
Our activities since inception have been primarily limited to development
of the artists and the joint venture and the initial release. Our accumulated
deficit at December 31, 1999 was approximately $3,283,144. We incurred a loss
in 1999 of $1,508,276 and a loss from operations of $2,061,055 in 1999. Our
accountants included a "going concern" opinion in their report on our December
31, 1999 Financial Statements. There can be no assurance that Antra will be
able to operate profitably.
Our revenues have been heavily dependent on one artist's recordings.
On November 16, 1999, we released "Tha Streetz Is A Mutha," the second
album by Kurupt and the only record we have released independent of our former
joint venture with A&M. Kurupt is Antra's best-known recording artist, and our
future plans envision other projects involving Kurupt, including another album
scheduled for release in the fourth quarter of 2000. Although we have other
artists whose recordings are in various stages of production and scheduled for
release in the first half of 2000, none are as well known as Kurupt. To date,
Antra has not marketed albums on behalf of these other artists, so it cannot
predict how these artists will be received by record buyers. Therefore, Antra
depends on the commercial success of Kurupt's current and future work and
Kurupt's continuing ability and willingness to create recordings for us. If,
for any reason, he becomes unavailable to produce new records for us, we would
have to rely on the unproven artists under contract to us and our joint venture
with Artemis. We cannot assure you that these other artists will be successful.
We may not be able to produce a record if we are unable to secure financing for
that record.
Our business plan includes the release of a series of records in calendar
year 2000. Each record we produce is financed separately. We cannot assure you
that we will be able to arrange financing on acceptable terms when we need it.
The amount of our return with respect to each record we produce depends to a
great extent on whether we obtain financing and the terms of the financing. For
example, for the record we released on November 16, 1999, our distributor has
provided some of this financing in exchange for a greater fee based on a
percentage of profits. Under our new arrangements with the distributor, the
distributor will provide some financing for some of our records and other
records will be financed under our new joint venture with the distributor.
Nevertheless, there is no assurance that we will obtain sufficient financing or
that the joint venture will be funded sufficiently to enable us to produce each
record we would like to release.
Our success will depend on our artists' performance.
Antra Music has entered into recording contracts with several artists. We
cannot assure you that we will be able to attract additional artists. We may
not be able to develop our talent successfully or in such a manner that
produces significant sales. Furthermore, each recording is an individual
artistic work, the public acceptance of which cannot be known in advance.
Accordingly, we cannot assure you as to the financial success of any particular
release, the timing of such success or the popularity of any particular artist.
Antra depends on the continued popularity of urban music.
Antra currently produces records in the urban music segment of the
industry. Antra's artists are all in this segment of the market. Although Antra
believes that this sector will continue to grow, consumer taste is
unpredictable and constantly changing. If tastes quickly move away from this
type of music and Antra does not develop any alternatives, Antra may not be
able to sell enough records to be profitable.
5
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999.
This section should be read in conjunction with the financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
Actual
------------------
<S> <C>
Long-Term Liabilities:
Subordinated Convertible Notes ................................. $ 1,000,000
Other long-term indebtedness ................................... 5,514
------------
Total long-term indebtedness ................................. $ 1,005,514
============
Preferred Stock, $.001 par value; 5,000,000 shares authorized;
none issued and outstanding .................................. $ 0
Common Stock, $.001 par value; 50,000,000 shares
authorized; 12,344,210 shares issued and outstanding ......... 12,344
Additional paid-in capital ..................................... 4,986,856
Accumulated deficit ............................................ (3,712,797)
------------
Total stockholders' equity ................................... $ 1,286,403
============
</TABLE>
USE OF PROCEEDS
Antra Holdings will not receive proceeds from the sale of the shares
offered hereby. Any proceeds received upon exercise of warrants will be
utilized as working capital.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the audited
financial statements of Antra Holdings. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS: .....................
Income ....................................... $ 85,366 $ 20,000
Expenses ..................................... 2,146,421 1,415,107
(Loss) from operations ....................... (2,061,055) (1,395,107)
Net (loss) ................................... (1,508,276) (1,595,107)
(Loss) per share ............................. (0.14) (0.17)
Shares used in computing net (loss)
per share ................................... 11,118,546 9,268,030
BALANCE SHEET DATA:
Working capital (deficit) .................... $ (2,309,052) $ (75,030)
Total assets ................................. 6,396,964 122,286
Total long-term debt . ....................... 1,005,514 1,217,079
Total stockholders' equity (deficit) ......... 1,286,403 (1,205,321)
</TABLE>
6
<PAGE>
MARKET INFORMATION
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "RECD."
Set forth below are the high and low closing bid quotations for our common
stock for the periods indicated as reflected on the electronic bulletin board.
Such quotations reflect interdealer prices without retail mark-up, mark-down or
commissions, and may not reflect actual transactions.
Period Ending High Low
- ------------- ------ ----
December 31, 1999 ........... $ 8.375 $ 3.625
September 30, 1999 .......... 7.50 4.50
June 30, 1999 ............... 4.50 1.25
March 31, 1999 .............. 3.75 1.75
December 31, 1998 ........... 5.125 1.50
September 30, 1998 .......... 5.875 4.25
June 30, 1998 ............... 5.875 5.00
March 31, 1998 .............. 6.00 4.50
As of March 31, 2000, there were approximately 93 recordholders of the our
common stock, although we believe that there are more than five hundred
beneficial owners of our common stock. There are no shares of preferred stock
currently outstanding.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere in this
prospectus.
This prospectus contains forward-looking statements.
We intend to identify forward-looking statements in this prospectus using
words such as "believes," "intends," "expects," "may," "will," "should,"
"plan," "projected," "contemplates," "anticipates," or similar statements.
These statements are based on our beliefs as well as assumptions we made using
information currently available to us. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus.
Because these statements reflect our current views concerning future
events, these statements involve risks, uncertainties and assumptions. Actual
future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section beginning
on page 5 of this prospectus. These include, among others,
o acceptance of the artist and the style of music
o ability to produce and release records
o ability to promote products
o ability to sign new artists
o need for additional financing
o the success of our Recordstogo.com joint venture.
7
<PAGE>
General
Prior to October 1998, we were essentially a development-stage company.
Therefore comparisons between 1999 and 1998 are of limited value.
On November 16, 1999 we released Kurupt's latest album, "Tha Streetz Iz A
Mutha." The album was the first album we released independent of our former
joint venture with A&M. Our plan of operation for 2000 is to release another 6
to 8 records, both independently and through our new Antra Records LLC joint
venture. On March 21, 2000, we released a single, "Things I've Seen," by
Spooks. Through the joint venture, we expect to release the original soundtrack
to the upcoming motion picture "Once in the Life," in June 2000. Our next
independent release is the debut album by Sheeba Black, which is expected to be
in June 2000. The joint venture plans to release an album by Spooks in June
2000. Later in the year, we expect to release albums by Crush, El-Drex, Baby S
and Kurupt and the soundtrack to the motion picture "O," a Miramax film.
We also plan to continue to sign new artists, to produce and release
additional records, to operate our Recordstogo.com joint venture, and to
develop our music-publishing business.
Our cash needs have been greatly reduced as a result of our new Antra
Records LLC joint venture. Accordingly, we expect to be able to satisfy our
cash requirements for approximately 6 months, but may have to raise additional
funds if our existing projects do not produce revenue consistent with our
current expectations.
Fiscal year 1999 compared to fiscal year 1998
Our revenue was $85,366 for 1999 while we received revenue of
approximately $20,000 for all of 1998. We derived substantially all of our
revenues in 1999 from the release of Kurupt's album.
We had a net loss during 1999 of $1,508,276, compared to a net loss in
1998 of $1,595,107. The decrease in loss was primarily a result of the $725,000
payment we received as part of the settlement of our joint venture with A&M.
Our net loss from operations for 1999 was $2,061,055, compared to a net loss
from operations of $1,395,107 in 1998.
Our operating expenses during 1999 were approximately $2,146,421, compared
to approximately $1,415,107 during the prior year. However, a significant
amount of overhead expenses were reimbursed in 1998. Factoring out these
reimbursed expenses, operating expenses would have been less in 1999, primarily
as a result of reduced salaries, promotional costs and consulting expenses.
Other expenses incurred in 1999, for example $357,378 for mechanical royalties,
were higher than in 1998.
In 1998, we incurred expenses in setting up our joint venture with A&M.
The A&M joint venture incurred expenses in connection with the signing of the
artist, Kurupt, and with the recording, production, promotion and distribution
of his album, "Kuruption." All expenses were written off as incurred, in
accordance with industry practice.
Liquidity
Antra had a working capital deficit of $2,309,052 at December 31, 1999,
compared to a working capital deficit of $75,030 at December 31, 1998. The
decrease in working capital resulted almost entirely from prepayments of
expenses and recording costs. In July 1999, Antra received $2,766,666 in gross
proceeds from the sale of secured convertible notes. Antra used net cash of
$2,311,514 in its operating activities for 1999, compared with net cash used in
operating activities of $1,441,633 in 1998. Antra has used cash primarily to
fund the recording, production, promotion and distribution of its first record.
We require significant working capital to produce, manufacture, promote
and distribute our music. To date we have satisfied our working capital
requirements through borrowing including our borrowing through the private
placement in July 1999. We believe we will require additional working capital
in connection with our album to be released in June 2000 and our other albums
to be released thereafter. We anticipate that we will receive additional
funding by exercising our option to require the investors in the July private
placement to lend additional amounts.
8
<PAGE>
In November 1999, holders of our secured convertible notes permitted us to
accelerate part of our option to require them to lend us additional funds. As a
result, we received $800,000 in gross proceeds from the private placement of
additional secured convertible notes to these investors. In March 2000, these
investors permitted us to accelerate the balance of this option, and agreed to
purchase a number of secured convertible notes over and above the amount
specified in their original agreement. As a result, we received $1,300,000 in
gross proceeds from the private placement of these additional secured
convertible notes to these investors.
Our need for working capital for the recently released Kurupt album and
for up to 8 records per year has been reduced somewhat by services and funding
provided by our distributor, Artemis Records, under our revised distribution
agreement. Under this agreement, the distributor advanced $800,000 to Antra
against future prospects under the agreement and agreed to advance funds for
the manufacture and promotion of our records. While we have benefitted from
these terms, our percentage participation in revenues derived from these albums
is reduced by the degree to which the distributor advances additional funding.
Unless our working capital position improves, we may be compelled to rely on
our relationship with the distributor.
Our need for working capital has also been reduced somewhat as a result of
our new joint venture arrangement. Under this arrangement, the joint venture
will produce albums for at least 3 artists in each year. The annual budget for
the joint venture will be funded by Artemis, which will also provide necessary
services to the venture. The joint venture will now produce the soundtrack
album for the motion picture "Once in the Life," which is scheduled for release
in June 2000, and an album by Spooks, also scheduled for release in June 2000.
Artemis will reimburse Antra for $150,000 of expenses incurred in connection
with the soundtrack album and all out-of-pocket expenses in connection with the
Spooks album.
BUSINESS
Introduction
Antra Holdings Group, Inc. is a holding company. Through our wholly owned
subsidiary, Antra Music Group, Inc., we produce, acquire, license and
distribute high-quality recorded music. Antra Music was formed in 1997 to
promote urban contemporary music. Also in 1997, Antra Music entered into an
agreement with Ricardo Brown, the urban recording artist known as "Kurupt". We
primarily focus on urban music, the area of the industry that includes hip-hop,
rap and rhythm and blues. We believe, based industry sources and census data,
that this area offers significant growth and profit potential.
Hip-Hop or Urban Music was the most dynamic segment of the contemporary
music industry in 1997. The Recording Industry Association of America (RIAA)
figures, compiled by Chilton Research Services, show Hip-Hop or Urban with the
largest percentage increase in consumer record purchases, accounting for 10.1%
of total shipments or $1.23 billion. This figure represents an increase of more
than 250% over ten years.
Through a joint venture with A&M Records, we released our first recording
in October 1998. This was a two-CD set by our primary artist, Kurupt, entitled
"Kuruption." Kuruption sold approximately 400,000 copies. A&M terminated the
joint venture after its parent company, Polygram Holding Group, merged with
Seagrams. A&M transferred to us all of its rights in the former joint venture's
agreements with Kurupt and Baby S, but retained exclusive ownership of all
rights to recordings made prior to the termination.
We entered into an agreement with Artemis Records on July 28, 1999, which
was amended in December 1999. The distribution agreement replaces our former
joint venture and enables us to retain exclusive ownership of all of our master
recordings.
We have recording contracts and co-publishing contracts with several other
artists including El-Drex, Crush, Baby S, Sheeba Black and Spooks.
Antra plans to enter into or has commenced several different ancillary
businesses:
o We have established a publishing subsidiary to receive revenues generated
from the publication of our artists.
o We are in the process of establishing a "Recordstogo.com" joint venture.
See page 12 below.
o We may in the future produce and sell music videos.
9
<PAGE>
Structure of the Music Industry
The music business consists of several functions: publishing, production,
manufacturing, licensing, distribution and promotion.
Publishing. The process begins when a songwriter writes a piece of music
and agrees with a publishing company to market the work to the industry. By
contracting for the rights to music written by different songwriters, the
publishing company builds a library of music, known as a catalog. The
publishing company markets its music catalog to producers, artists and record
companies, and collects royalties on each recording of the music that is sold.
Antra currently has co-publishing agreements with several artists. Under
these publishing agreements, Antra and the artist jointly own certain
compositions, in equal shares. Antra can exploit the compositions in any
commercial manner. Antra is entitled to all gross receipts earned by a
composition, but must pay fifty percent (50%) of the net income to the artist.
Antra recently established a publishing subsidiary.
Production. Once the record company decides to record a song with a
performing artist, the record company underwrites the costs associated with
producing a market-ready recording (master recording) of the song. This entails
paying for recording studio time, hiring studio musicians and paying sound
mixers to edit the tape. The artist is responsible for delivering satisfactory
master recordings to the record company.
Antra's joint venture with A&M produced Kurupt's initial album,
"Kuruption." Antra released "Tha Streetz Iz A Mutha," Kurupt's second album
with tracks produced by Daz Dillinger and Dr. Dre, on November 16, 1999. We
released Spooks' single, "Things I've Seen," in the first quarter of 2000 and
expect to release 6-8 albums during the balance of 2000.
Manufacturing. Once a master is completed, the record company contracts
with a manufacturer or duplicator of recording formats to make multiple copies.
Antra contracts with others to manufacture its records or arranges for
manufacturing through an agreement with its distributor. Amounts advanced by
the distributor for the manufacture of Antra's next album will be repaid out of
the revenues from the sale of this album.
Licensing. Antra, like many other recorded music ventures, will license
the musical works it intends to sell. This means that Antra will purchase the
right to reproduce and sell the musical works in exchange for royalties paid to
the music publisher and artist.
Distribution. Once copies have been completed, the record company's
distribution system stocks, sells or markets, takes orders for and delivers the
copies of the recording to distribution outlets. In many ways, distribution is
the most critical function in the record business, since distributors provide
the access to, and thereby control, the marketplace. Distribution can be
divided into two distinct categories: Traditional and Non-traditional.
Traditional outlets include small independent record stores, leased
departments of large retail stores, and large chain record stores.
Non-traditional outlets are also known as alternative distribution.
Independent retail outlets not served by traditional distributors, direct
response marketing and Internet sales comprise the bulk of non-traditional
sales. Non-traditional outlets are a rapidly growing area of distribution.
Antra has agreements for the distribution of Kurupt's album "Tha Streetz
Iz A Mutha" in Europe, Australia and New Zealand. Antra will receive royalties
from the sale of the album under these agreements at rates between 20 and 24
percent.
Promotion. Once the record is ready for market it must be promoted to
ensure sales upon distribution. The traditional and most effective means of
promoting recorded music is by radio airplay. Obtaining radio air play for a
new release is an extremely competitive process. As radio stations increasingly
focus on specific music formats, it is becoming easier for independent
producers to target the stations that are most likely to air a particular new
recording. In a number of markets, hiring independent regional promoters can be
quite effective in gaining airplay for a release. Public and college radio
stations are useful venues for promoting lesser-known artists. Music video air
play on MTV or VH-1, or other video stations or programs, is essential to the
commercial success of recording music artists and their records. Promoting
urban contemporary music may involve more-direct promotional efforts in urban
communities. For example, albums may be promoted at local dance clubs.
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Songs that are aired on a major radio station are chosen by the program
director, often in conjunction with a format consultant. Once a recording is
aired, the amount of repeat play it receives depends on listener requests and
feedback, as well as actual sales data. Since listener response and sales
depend in large measure how often a release is aired, building a commercial hit
depends on an ongoing cycle of air play and sales. Nurturing this cycle
requires constant marketing attention and careful coordination with
advertising, concert schedules and other promotional activities. Other
promotional tools include print advertising, retail promotions and concert
tours.
The key to finding an audience for new for new artists is to properly
coordinate all these promotional activities to maximize awareness and exposure.
Antra will, where possible, use its in-house expertise to direct, coordinate or
assist with the promotional activities of its artists in order to keep its
costs down. In conjunction with its first release with its distributor,
Artemis, Antra will utilize the promotional and marketing personnel of Artemis
and its affiliates. By coordinating or providing assistance with these
activities, to the extent practicable, in-house, costs will be further kept
under control.
The recorded-music industry has special considerations.
As a recent entrant into the recorded-music business, we will be subject
to all the factors involved in establishing a new business. Additionally, there
are particular risks common in the recorded music industry. For example:
o Changes in the timing of new releases can cause significant fluctuations
in quarterly operating results. We cannot assure you that we will be able
to generate sufficient revenues from successful releases to cover the
costs of unsuccessful releases.
o It is industry practice to sell recorded music products on a returnable
basis. We will primarily follow this practice in the future. We may have
to establish reserves for future returns of products based on our return
policies and return experience. If more of our product gets returned that
we anticipate in these reserves, it could adversely affect our results of
operations.
o The business of manufacturing records can be transformed as new
technologies affect the formats used to make copies of recordings. The
development of new formats often positively impacts growth. Sales of
vinyl LP records have been nearly extinguished by cassettes and CDs. We
expect that new formats employing digital technology -- for example,
digital audiotape and downloadable MP3 -- will gain wider acceptance in
the near future. Digital formats offer the ability to make nearly perfect
copies of recordings. Therefore, while we believe the development of
these formats should have a positive overall effect on our industry, we
are concerned that unauthorized reproduction of recordings using these
technologies could have a negative effect.
Talent development has special considerations.
o To secure the services of music artists, we will have to pay advances
consistent with industry standards. If an artist's album does not sell
well, or if the artist fails to produce an album, a producer generally
cannot recover the amount of the advance already paid to the artist. We
cannot assure you that any of the artists to whom we make advances will
produces sales revenues for us. Even if they do, the revenue may not be
sufficient to recoup any advances we have made to them.
o Any artist developed by Antra Music might request a release from his or
her agreement with us. The artist's contractual obligations are highly
personal and creative in nature, so it is not feasible to force an
unwilling artist to perform the terms of his or her contract. If we sign
an artist and later lose that artist, it could have a materially adverse
effect on Antra's business.
Our joint venture with A&M and its termination
On March 13, 1998, Antra Music and A&M Records, a division of Polygram,
formed a joint venture called Wall Street Records LLC. A&M and Antra each owned
50% of the joint venture. The joint venture was
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<PAGE>
intended to be a vehicle by which Antra Music and A&M could produce,
manufacture and distribute recordings and related materials through Polygram's
worldwide distribution channels. However, in April 1999 A&M terminated the
joint venture after Polygram merged with Seagrams.
A&M was to be responsible for significant periodic contributions towards
the joint venture's operating budget for expenses associated with new recording
albums produced by the joint venture's recording artists. The joint venture was
to cover significant costs of promotion and production that Antra would
otherwise have to bear alone.
In accordance with the agreement that terminated the joint venture:
o Antra transferred to A&M all of its interest in the joint venture's
limited liability company;
o A&M paid Antra $725,000;
o A&M transferred to us all of its rights in the former joint venture's
agreements with Kurupt and Baby S, but retained exclusive ownership of
all rights to recordings made prior to the termination;
o A&M disclaimed any rights to several artists previously submitted to the
joint venture by Antra.
New Distribution Agreement
On July 29, 1999 Antra Music entered into a three-year distribution
agreement with Artemis Records. The distribution agreement replaces Antra's
former joint venture and enables it to retain exclusive ownership of all of its
master recordings. Artemis further distributes records though RED Distribution,
Inc., a division of Sony. In December 1999 and January 2000, Artemis advanced
to Antra an aggregate of $800,000 against moneys payable under the distribution
agreement.
The distribution agreement makes Artemis the exclusive distributor of one
album by Kurupt and one other album by Sheeba Black. Antra may submit up to 8
albums under the agreement in any contract year. Kurupt's album (Tha Streetz iz
a Mutha" has already been released under the distribution agreement. Artemis
advanced funds for the manufacture of the "The Streetz" under this agreement.
The advance will be repaid out of the proceeds of the sale of the record. To
secure the repayment of these advances, Antra has granted Artemis a security
interest in inventory, production parts and components and accounts receivable
from Artemis under the agreement.
During each contract year, Artemis will advance independent promotion
costs (usually radio promotion) for up to 4 albums designated by Antra. The
distributor will advance up to $50,000 for albums that are categorized as "pop"
or "urban" and up to $75,000 for albums categorized as "crossover," meaning
they are also popular in more than one category. .
In general, Artemis will receive a distribution fee based upon a
percentage of total sales under the agreement, less returns, credits, rebates
and reserves. The percentage is reduced if net sales exceed $10,000,000 in any
given contract year. The percentage is further reduced if net sales exceed
$20,000,000 in any given contract year
Under our distribution agreement, manufacturing costs are administered and
advances by Artemis on our behalf. Antra will not have any out-of-pocket costs
for manufacturing. While we have benefitted from these terms, our percentage
participation in revenues derived from these albums is reduced by the degree to
which the distributor advances additional funding.
Artemis will warehouse Antra's inventory of these records and will fulfill
orders and distribute these records through the industry's normal retail
channels in the United States. Artemis will also handle all returns of the
applicable records.
Recordstogo.com
On September 30, 1999, Antra Holdings and Teltran International Group Ltd.
formed a joint venture, Recordstogo.com. The joint venture is a corporation
formed to establish and operate a website for the sale of music recordings.
Both the website and the joint venture corporation are named Recordstogo.com.
The board
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<PAGE>
of directors of the corporation consists of two members, one nominated by each
of Teltran and Antra. We and Teltran have each contributed at least $75,000 to
the joint venture and each now owns 49% of the joint venture corporation's
stock. Each of us have provided services to the venture, which will be
reimbursed from the funds of the joint venture. We and Teltran are each
obligated, if requested upon unanimous decision of the board of directors, to
contribute an additional $175,000 to this venture. We and Teltran may also make
additional voluntary contributions to the joint venture from time to time. The
remaining two (2%) percent of the shares are owned by one of the joint
venture's suppliers who is not affiliated with either Teltran or Antra.
Recordstogo.com, Inc. has entered into two agreements with distributors of
music recordings for the distribution of records owned by these entities over
the Internet and through the website. The records in each case are not being
currently marketed by their original producer or distributor.
The Recordstogo.com website (http://www.recordstogo.com/) has been
designed and completed and may be viewed on the Internet. Recordstogo.com.,
Inc. has retained an agency to further develop the joint venture's marketing
strategy and has been actively seeking relationships with a variety of
different businesses that can provide content for or direct potential customers
to the Recordstogo.com website. The joint venture corporation is also in the
process of completing the appropriate databases and fulfillment capabilities at
the warehouse of one of its suppliers. The joint venture contemplates
commencing commercial operations on May 1, 2000.
We expect Recordstogo.com to generate revenues through the sale of
records, advertisements and music merchandise. Additionally, visitors to the
website can:
o Buy records and CDs from a database of music titles ranging from the
early days of vinyl recordings to present-day CDs. At first this database
will contain approximately 360,000 titles, although we expect it to grow
significantly by year-end 2000;
o Download music in MP3 and other formats;
o Purchase "hard-to-find" records and CDs and sell used records and CDs to
others in our auction house;
o Buy music memorabilia and possibly other entertainment products,
including videos;
o Listen to interviews with musical artists from all generations; and
o Discuss music and the music industry in our interactive chat rooms.
New Antra Records LLC Joint Venture
In December 1999, Antra Music and Artemis Records agreed to form a
Delaware Limited Liability Company, named "Antra Records LLC," of which they
will each be 50/50 co-owners. This joint venture vehicle will operate out of
Antra Holdings' current offices in Philadelphia. It will initially run for 3
years and will be automatically extended for an additional two years unless
Artemis terminates the agreement.
Antra Music will select artists to submit to Antra Records for production
and distribution. Antra Music will have sole discretion to determine which
artists it will furnish under the joint venture agreement and which it will
furnish under the distribution agreement. Antra must submit no fewer than 5
artists to the joint venture during the term. Artemis can accept or reject
these artists, but Artemis must accept at least 3 artists in each year. Antra
can submit any artist rejected by the joint venture under the distribution
agreement with Artemis.
Artemis is obligated to fund the joint venture, to the extent the venture
does not fund itself from operations, based on an annual budget that has been
approved by both Antra Music and Artemis for each year of the term. Artemis'
obligation takes the form of a line of credit that Artemis will make available
for Antra Record to draw upon. The joint venture will pay interest on drawings
under the line of credit at 1% over Citibank's prime rate. Neither Antra Music
nor Joseph Marrone has an obligation to repay these loans.
Artemis will also reimburse Antra for $150,000 of expenses in connection
with the soundtrack album for the motion picture "Once in the Life," which is
scheduled for release in June 2000, and will reimburse all out-of-pocket
expenses in connection with the Spooks album, also scheduled for release in
June 2000.
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Recording Agreements
Antra has recording agreements with six artists: Kurupt, Spooks, Sheeba
Black, Crush, Baby S and El-Drex. Antra assigned its contract with Spooks to
its Antra Records LLC joint venture. These provide for initial terms of twelve
months, with additional twelve-month options exercisable by Antra. The
Recording Agreement provides that during the term of the agreements, Antra owns
all right, title and interest in all musical recordings recorded under the
agreements. Antra's rights under these agreements will survive even after they
terminate. Under these agreements, Antra also has the right to use and publish
each artist's name and likeness in connection with video and commercial
purposes. According to the agreements, the artist receives a royalty for sales
of recording albums and singles in line with industry norms, which typically
range from five to ten percent.
Exclusive Production Recording Agreements
Antra currently has exclusive production recording agreements with Kurupt.
Kurupt has agreed to provide Antra with his exclusive personal services as a
phonograph-recording artist for a period of twelve (12) months. Antra has the
option to extend the contract by additional one-year options, subject to
certain terms and conditions. Antra is required by the agreement to seek
agreements with third-party record companies who will manufacture and
distribute the artist's recordings. Antra has the right to select the producer
and musical composition for any albums produced by the artist under the
recording agreement. Antra also has the exclusive right to the artist's name
and likeness and owns all right, title and interest in all recordings produced
under the agreement.
Relationship with Artists
Our plan is to sign and develop new or emerging urban or hip-hop oriented
music artists and, to the extent practicable, sign established artists. We
intend to recruit new and emerging artists and to enter into exclusive,
long-term recording contracts (expected to cover an initial album, with options
to record four to seven additional albums, at Antra's discretion). Antra will
concentrate its resources on a small number of artists, developing a tailored
marketing and promotion plan for each. There can be no assurance that Antra
will be able to attract new and emerging music talent or established artists,
or, if Antra is able to attract such talent, that Antra will be able to develop
that talent successfully or in such a manner so as to commercially exploit.
If Antra develops commercially successful music artists, there can be no
assurance that Antra will be able to maintain its relationships with such
artists even if it has entered into exclusive recording contracts with them.
Furthermore, performing artists occasionally request releases form their
exclusive recording agreements. Among the reasons that may cause an artist to
engage in so-called "label jumping" are expectations of greater income,
advances or promotional support by a competing label. There can be no assurance
that any given artist developed by Antra will not determine to request a
release form his or her agreement with Antra. Because of the highly personal
and creative nature of the artist's contractual obligations to Antra, it is not
feasible to force an unwilling artist to perform the terms of his or her
contract with Antra.
Copyrights
Antra's recorded music business, like that of other companies involved in
recorded music, will primarily rest on ownership and or control and
exploitation of musical works and sound recordings. Antra's music products,
including its commercial music, are and will be protected under applicable
domestic and international copyright laws.
Although circumstances vary from case to case, rights and royalties
relating to a particular recording typically operate as follows: When a
recording is made, copyright in that recording vests either in the recording
artist (and is licensed to the record company) or in the record company itself,
depending on the terms of the agreement between them. Similarly, when a musical
composition is written, copyright in the composition vests either in the writer
(and is licensed to a music publishing company) or in a publishing
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company. A public performance of a record will result in money being paid to
the writer and publisher. The rights to reproduce songs on sound carriers
results in mechanical royalties being payable by the record company to the
recording artists for the use of the recording. Antra operates in an industry
which revenues are adversely affected by the unauthorized reproduction of
recordings for commercial sale, commonly referred to as "piracy", and by home
taping for personal use.
Potential publishing revenues may be derived from Antra's ownership
interest in musical compositions, written in whole or in part by artists.
Management anticipates securing an ownership position in the copyright to any
compositions written by its recording artists, where such rights are available
and have not been previously sold or assigned. Generally, revenues from
publishing are generated in the form of: (1) mechanical royalties, paid by the
record company to the publisher for the mechanical duplication of the copyright
to a particular composition (as distinct from the copying of the artist's
performance of that composition); (2) performance royalties, collected and paid
by performing rights entities such as ASCAP and BMI for the actual public
performance of the composition as represented by radio airplay, Musak, or as a
theme or jingle broadcast in synchronization with a visual image via
television; (3) sub-publishing revenues derived from copyright earnings in
foreign territories, and publishers in those territories acting as designated
collection agents for Antra; and (4) licensing fees derived from printed sheet
music, uses in synchronization with images as in video or film scores, computer
games and other software applications, and any other use involving the
composition.
Competition
Antra will face intense competition for discretionary consumer spending
from numerous other record companies and other forms of entertainment offered
by film companies, video companies and others. Antra will compete directly with
other recorded music companies, including the major recorded music companies,
which distribute contemporary music, as well as with other record companies for
signing artists and acquiring music catalogs. Many of these competitors have
significantly longer operating histories, greater financial resources and
larger music catalogs than Antra. Antra's ability to compete successfully in
the recorded music business will be largely dependent upon its ability to sign
and retain artists who will prove to be successful and to introduce music
products which are accepted by consumers.
Employees/Independent Contractors
As of March 31, 2000 Antra had 17 employees, all of whom were located at
our Philadelphia offices. None of our employees is represented by a labor
union. We have not experienced any work stoppage and considers relations with
our employees to be good.
As is customary in the music business, Antra also utilizes the services of
artists, performers, producers, engineers, roadies, booking agents and others
who are independent contractors. These independent contractors hire out their
services on an as needed basis and receive a set fee from Antra per assignment.
Independent contractors are utilized because the individuals providing these
services do so only on this basis, the services performed by these independent
contractors are less expensive than having full time employees perform these
services.
Properties
Antra's executive offices are located at 1515 Locust Street, Philadelphia,
Pennsylvania 19102, where it subleases approximately 10,400 square feet. This
sublease expires on September 30, 2003. The annual base rental for this space
is approximately $104,000.
Dividends
We have not paid any dividends on our common stock since the formation of
our company and we do not expect to pay any cash or other dividends in the
foreseeable future. If we have any earnings in the future
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from our operations, we plan to retain those earnings to help finance our
future operations and growth. Any decision on the future payment of dividends
is solely at the discretion of the board of directors and will depend on
various factors including the results of our operations and our financial
condition.
Legal Proceedings
Antra and some of its stockholders are defendants in a legal action
brought in the Third Judicial District Court in and for Salt Lake County, Utah
in October 1997. Plaintiffs allege that Antra or the stockholders failed to
convey 100,000 shares of Antra's common stock. However, the transaction alleged
involves only the plaintiffs and those stockholders. The complaint does not
allege that Antra participated in the transaction in any way. Although it was
shares of Antra that were involved in the alleged transaction, Plaintiffs do
not allege that Antra itself was a party to the transaction. Therefore, Antra
believes that it was incorrectly named as a party to this lawsuit and denies
any liability.
However, Antra's motion to dismiss the action was denied by the court. If
the outcome of this case is unfavorable, Antra's exposure would depend on the
price of its stock. Assuming $5 per share is the price of the stock, the
liability could be approximately $500,000. If treble damages were to be
awarded, Antra's exposure could be approximately $1,500,000.
Organizational History
Antra Music was formed in 1997 as a New Jersey corporation named Wall
Street Records, Inc. On April 24, 1998, it changed its name to Antra Music.
Antra Holdings was formerly known as Opell, Inc. Opell was formed as a
Utah corporation on October 7, 1981 with the name "Summit Race Horse, Inc." In
January 1995, it merged with Opell, Inc., a Nevada corporation, solely to
change its domicile to Nevada. Opell had no operations or substantial assets
until it acquired all the outstanding shares of Antra Music in June 1997. In
January 1998, Opell was reincorporated in Delaware by merger into its wholly
owned subsidiary, Wall Street Records, Inc., a Delaware corporation. In April
1998, Wall Street Records, Inc. changed its name to Antra Holdings.
SELLING SECURITY HOLDERS
The shares of common stock being registered for the account of selling
security holders may be sold by those security holders or their transferees
commencing on the date of this prospectus. These shares may only be sold if the
holder of a convertible note first converts it into shares or a holder of a
warrant first exercises it to purchase shares.
The following table sets forth, as of March 31, 2000, certain information
with respect to the beneficial ownership of our common stock by each selling
security holder. The table assumes that all of the shares being offered will be
sold. Because the selling security holders may sell all, some or none of the
shares that he, she or it holds, the actual number of shares held by the
selling security holder before or after this offering may vary.
The column under the heading "Before the Offering -- Shares Beneficially
Owned" includes all shares currently outstanding, shares issuable upon
conversion of convertible notes currently outstanding and shares issuable upon
exercise of warrants currently outstanding.
The number of shares in the columns entitled "Before the Offering --
Shares Beneficially Owned"and "Shares Offered" reflect the maximum number of
shares Antra is required to register under its agreement with the holders of
the convertible notes and warrants. Depending on the price of Antra's common
stock at the time of conversion, the actual number of shares that Antra will
issue to holders of convertible notes is expected to be lower than as reflected
in these columns.
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<TABLE>
<CAPTION>
Before the Offering After the Offering
--------------------- -----------------------------
Shares Shares Percent of
Identity of Stockholder or Beneficially Shares Beneficially Shares
Group (and relationship, if any) Owned Offered Owned Outstanding
- -------------------------------- --------------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Austost Anstalt Schaan ....................... 2,022,940 2,022,940 0 0
Balmore S.A. ................................. 2,022,940 2,022,940 0 0
Berkeley Group Ltd. .......................... 351,821 351,821 0 0
Castlebay Ltd. ............................... 400,000 400,000 0 0
Coastal Provinces Ltd. ....................... 407,240 407,240 0 0
Craighouse Limited ........................... 192,760 192,760 0 0
Ellis Enterprises, Ltd. ...................... 107,245 107,245 0 0
Nesher, Inc. ................................. 234,547 234,547 0 0
United Securities Services, Inc. ............. 175,846 175,846 0 0
Libra Finance S.A. ........................... 3,338,555 3,338,555 0 0
Hyett Capital Ltd. ........................... 292,048 292,048 0 0
Talbiya B. Investments Ltd. .................. 380,723 380,723 0 0
International Global Communications, Inc...... 220,000 220,000 0 0
</TABLE>
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PLAN OF DISTRIBUTION
Sales of shares of the common stock may be made from time to time by the
selling security holders, or, subject to applicable law, by pledgees, donees,
distributees, transferees or other successors in interest. These sales may be
made on the over-the-counter market or foreign securities exchanges, in
privately negotiated transactions or otherwise or in a combination of
transactions at prices and at terms then prevailing or at prices related to the
then current market price, or at privately negotiated prices. In addition, any
shares covered by this prospectus which qualify for sale pursuant to Section
4(1) of the Securities Act or Rule 144 under the Securities Act may be sold
under those provisions rather than by this prospectus. Without limiting the
generality of the foregoing, the shares may be sold in one or more of the
following types of transactions:
o a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of such exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the
selling security holders may arrange for other brokers or dealers to
participate in the resales.
In connection with distributions of the shares or otherwise, the selling
security holders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered under this prospectus in the course of hedging the
positions they assume with the selling security holders. The selling security
holders may also sell shares short and deliver the shares to close out such
short positions. The selling security holders may also enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares registered under this prospectus, which the
broker-dealer may resell by this prospectus. The selling security holders may
also pledge the shares registered hereunder to a broker or dealer and upon a
default, the broker or dealer may effect sales of the pledged shares by this
prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling security holders in
amounts to be negotiated in connection with the sale. These brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
Information as to whether underwriters who may be selected by the selling
security holders, or any other broker-dealer, is acting as principal or agent
for the selling security holders, the compensation to be received by
underwriters who may be selected by the selling security holders, or any
broker-dealer, acting as principal or agent for the selling security holders
and the compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
prospectus. Any dealer or broker participating in any distribution of the
shares may be required to deliver a copy of this prospectus, including a
prospectus supplement, if any, to any person who purchases any of the shares
from or through such dealer or broker.
Each of the selling security holders have executed an agreement in which
they confirm the method of distribution described in this section and agree not
to sell the shares if the registration statement is not current.
Antra Holdings has advised the selling security holders that if at any
time they may be engaged in a distribution of the shares, they are required to
comply with Regulation M under the Exchange Act. The selling security holders
have acknowledged such advice by separate agreement and also agreed in that
agreement to comply with the regulation. In general, Regulation M precludes the
selling security holders, any affiliated purchasers and any broker-dealer or
other person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the
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distribution until the entire distribution is complete. A "distribution" is
defined in the rules as an offering of securities that is distinguished from
ordinary trading activities and depends on the "magnitude of the offering and
the presence of special selling efforts and selling methods." Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
It is anticipated that the selling security holders will offer all of the
shares for sale. Further, because it is possible that a significant number of
shares could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the common stock.
MANAGEMENT
The following are the officers and directors of Antra Holdings:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Chairman of the Board,
Joseph M. Marrone, Jr. ......... 34 Chief Executive Officer and Director
Thomas R. Kessler .............. 61 Director
Arthur G. Rosenberg ............ 61 Director
</TABLE>
Joseph M. Marrone, Jr. formed Antra Music in 1997 and now devotes
substantially all of his time to Antra's business. He has been engaging in
private law practice in the Philadelphia area since 1993, although his practice
is no longer accepting new matters. He previously served as a City Solicitor
for the City of Philadelphia and worked as a campaign strategist for Mayor Ed
Rendell in the 1991 election. Mr. Marrone successfully negotiated the release
of Kurupt from his previous contract and has since managed Kurupt's career. He
has been a director of Antra Holdings since 1997.
Thomas R. Kessler has extensive experience in the banking and securities
businesses. From 1961 to 1993, Mr. Kessler held various positions at Euro
Canadian Bank, Continental Bank International, and Compass Bank & Trust Company
Ltd,. Since 1994, he has been a managing director of Montaque Securities
International Limited. Mr. Kessler received his law degree from Cleveland
Marshall College of Law, Cleveland State University. He has been a director of
Antra Holdings since 1998.
Arthur G. Rosenberg has been a principal of The Associated Companies, a
real estate development firm, since 1987 and became a principal of Millennium
Development Group LLC in 1998. Prior to that, Mr. Rosenberg was a practicing
lawyer in Huntington, New York and served as general counsel for ITT Levitt &
Sons, Inc., an international builder. Mr. Rosenberg currently serves on the
boards of directors of Mike's Original, Inc. and Phar Mor Inc. He has been a
director of Antra Holdings since 1997.
Directors are elected to serve until the next annual meeting of
stockholders of Antra Holdings or until their successors are elected and
qualified. There are no audit, compensation or other committees of the board of
directors.
Executive Compensation
The following table sets forth information concerning compensation paid or
accrued by Antra Holdings or its subsidiaries for services rendered during
fiscal years 1999, 1998 and 1997 to our chief executive officer. No other
executive officer's compensation exceeded $100,000 during any of these fiscal
years.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Year Salary
- --------------------------- ------ ----------
<S> <C> <C>
Joseph M. Marrone, Jr., Chairman and Chief Executive Officer .......... 1999 $ 65,200
1998 $130,769
1997 $ 0
</TABLE>
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Employment Agreement
Antra Holdings entered into an employment agreement with Joseph M. Marrone
on March 12, 1998. The agreement expires on March 29, 2001, which will be
automatically renewed annually unless terminated by either party. Mr. Marrone
is required by the agreement to oversee, develop, produce and manage music
products for Antra Music and to participate and oversee all entertainment
projects of Antra Music. Mr. Marrone agreed to act as an executive of Antra
Music and Antra Holdings and to provide services to other affiliates of ours.
Mr. Marrone's base salary for the first year of his employment agreement
is $200,000. He may be awarded an increase in base salary or a bonus, in either
case solely at the discretion of the board of directors based upon a review of
Antra's performance in the prior year. He is also entitled to all benefits
generally offered to Antra's other executives, if any, and to an automobile
allowance. Since November 1998, all of Mr. Marrone's salary payments and
accruals ceased with his consent. Based upon Antra's performance and Mr.
Marrone's waiver of his salary, the board of directors, in its sole discretion,
may award Mr. Marrone a bonus in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this
prospectus regarding the ownership of Antra Holdings's common stock by: each
person we know owns 5% or more of our outstanding shares; each of our
directors; and all officers and directors of Antra Holdings as a group. Each
owner of the common stock has sole voting and investment power for all shares
listed below, except as otherwise indicated.
Three selling security holders, Austost Anstalt Schaan, Balmore S.A. and
Libra Finance S.A., technically own beneficially in excess of ten percent (10%)
of Antra's common stock prior to the offering. The bulk of these security
holders' apparent ownership is in the form of convertible notes and/or
warrants. Under an agreement with Antra, each of these security holders is not
allowed to convert notes or exercise warrants if its total ownership of shares
at any time would exceed 4.99% of Antra's outstanding shares. Therefore,
despite what appears to be the ownership of over ten percent (10%) of Antra's
common stock, each of these holders is actually a holder of less than 5%.
Antra has been advised that Balmore S.A has changed its name from Balmore
Funds S.A. and that Matityahu Kaniel, who is a citizen of Israel, is the
beneficial owner of 100% of the shares of Balmore S.A.
Austost Anstalt Schaan is a bank formed under the laws of Austria. Antra
has not been able to obtain any information about Libra Finance S.A.
The column "Percent of Class" includes shares that may be acquired by that
holder upon exercise of warrants or conversion of convertible notes held by
that holder.
20
<PAGE>
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ----- ------------ --------
<S> <C> <C> <C>
Common Stock, $.001 par Joseph M. Marrone, Jr. 1,900,000 15.4%
value per share Antra Holdings Group, Inc.
1515 Locust Street
Philadelphia, Pennsylvania 19102
Teltran International Group, Ltd. 2,800,000 22.7%
One Penn Plaza, Suite 4430
New York, New York 10119
Autost Anstalt Schaan 2,022,940 14.1%
7440 Fuerstentum
Lichenstein, Landstrasse 163
Balmore S.A. 2,022,940 14.1%
P.O. Box 4603
Zurich, Switzerland
Libra Finance S.A. 3,338,555 21.3%
P.O. Box 4603
Zurich, Switzerland
All directors and officers 1,900,000 15.4%
as a group (3 persons)
</TABLE>
21
<PAGE>
DESCRIPTION OF SECURITIES
Antra Holdings is currently authorized to issue 50,000,000 shares of
common stock, $.001 par value and 5,000,000 shares of preferred stock, par
value $.001 per share.
Common Stock
Each share of common stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of common
stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of the directors of Antra Holdings and holders
of the remaining shares by themselves cannot elect any directors. The holders
of common stock do not have preemptive rights or rights to convert their common
stock into other securities. In the event of a liquidation, dissolution or
winding up of Antra Holdings, holders of the common stock have the right to a
ratable portion of the assets remaining after payment of liabilities. All of
the outstanding shares of common stock are duly authorized, validly issued,
fully paid and non-assessable.
The holders of shares of common stock are entitled to dividends when and
as declared by the board of directors from funds legally available therefor.
Antra Holdings has never declared or paid cash dividends on its common stock.
Antra Holdings intends to retain its net income, if any, to increase its
capital base and, accordingly, does not currently anticipate paying cash
dividends.
Preferred Stock
Antra Holdings's certificate of incorporation authorizes the issuance of
"blank check" preferred stock with whatever designation, rights and preferences
as may be determined by the board of directors. Accordingly, the board is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of common stock. The
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of Antra. Although we
do not currently intend to issue any shares of preferred stock, there can be no
assurance that we will not do so.
Secured Convertible Notes
The secured convertible notes bear interest at 10% per annum. The secured
convertible notes mature on July 20, 2002, unless accelerated to any date after
July 20, 2000 at the option of the holder of the note. Under limited conditions
and at limited times, Antra Holdings may redeem the secured convertible notes.
The secured convertible notes are convertible into shares of our common
stock. The conversion price is equal to 50% of the average of the closing bid
prices for shares of our common stock over the preceding 5 trading days, but is
limited to $3.25 per share. For example, if a note holder elects to convert
$500,000 of notes into shares and the average closing bid price of our common
stock is $6.25, the converting holder will receive 160,000 shares. The shares
of our common stock that are issuable upon exercise of the secured convertible
notes are being registered in this registration statement.
Subordinated Convertible Notes
The currently outstanding subordinated convertible notes bear interest at
10% per annum and mature on January 15, 2002. The subordinated convertible
notes may be prepaid, in whole or in part, at any time without penalty. The
subordinated convertible notes are convertible into shares of our common stock
at the same conversion price as the secured convertible notes described in the
previous section. The shares of our common stock that are issuable upon
exercise of the subordinated convertible notes are being registered in this
registration statement.
CERTAIN TRANSACTIONS
Teltran
In April 1999, we exchanged 2,000,000 of our shares for 2,000,000 shares
of Teltran International Group Ltd. Teltran is a publicly traded company
engaged in the telecommunications business. As a result of the transaction
Teltran may be deemed a principal stockholder of Antra. Teltran paid two stock
dividends of 5% in 1999, so we now own 2,205,000 shares of Teltran.
22
<PAGE>
We made the exchange because we intended to enter into ventures with
Teltran and because we thought that their stock was of comparable value. To
protect each party, the parties agreed that there would be an adjustment in the
number of shares owned by an entity if there was a disparity in the relative
market value of the two entities on January 1, 2000. As a result we issued to
Teltran an additional 800,000 shares of Antra's common stock.
With Teltran, we formed our Recordstogo.com joint venture. See "Business
- -- Recordstogo.com" for more information about the joint venture and our plans
for its operations.
Teltran's president owns 100% of International Global Communications,
Inc., one of the selling security holders. International Global received
warrants to purchase 220,000 shares of Antra and approximately $248,333 as
finder's fees in connection with the secured convertible notes described below.
Secured Convertible Notes
On July 20, 1999, Antra sold $2,766,666 of secured convertible notes.
As security for our obligations under the notes, we deposited 1,000,000 of
our Teltran shares with a collateral agent.
Antra Holdings paid an aggregate of $343,999 as cash commissions to
several placement agents in connection with the issuance of the notes. Some of
these placement agents also received warrants to purchase an aggregate of
1,146,666 shares of our common stock at $2.00 per share. If we exercise the Put
Option, these placement agents will receive $172,000 in cash and an additional
573,334 warrants.
Antra Holdings agreed to file a registration statement on Form SB-2 with
the Securities and Exchange Commission by September 18, 1999 to register the
shares that can be acquired by the conversion of the notes and the exercise of
the warrants.
As part of the same transaction, Antra Holdings was granted the option to
require all of the holders of secured convertible notes to purchase up to
$1,383,334 of additional notes (the "Put Option"). In November 1999, Antra and
the holders of the secured convertible notes agreed to accelerate a portion of
the Put Option. As a result, we received gross proceeds of $800,000 and issued
secured convertible notes in the same principal amount. Antra paid $108,800 in
fees and expenses, including $96,000 as cash commissions. Antra also issued to
some of the placement agents warrants to purchase an aggregate of 720,000
shares of Antra's common stock at $2.00 per share. 400,000 of these warrants
were issued as consideration for the partial acceleration of the Put Option. In
March 2000, these investors permitted us to accelerate the balance of the Put
Option, and agreed to purchase a number of secured convertible notes over and
above the amount specified in their original agreement. As a result, we
received gross proceeds of $1,300,000 and issued secured convertible notes in
the same principal amount. Antra paid $176,813 in fees and expenses, including
$156,000 as cash commissions. Antra also issued to some of the placement agents
warrants to purchase an aggregate of 2,433,333 shares of Antra's common stock
at $2.00 per share. The shares issuable upon the exercise of these warrants and
the conversion of the notes sold upon Antra's exercise of the Put Option are
being registered in this registration statement.
The conversion price of the notes and the exercise price of the warrants
were determined in arm's-length negotiations between representatives of Antra
Holdings and the investors. These prices are not based on Antra Holdings's net
worth or any other established valuation criteria.
Refinancing of Subordinated Convertible Notes
On July 31, 1999, Antra refinanced $1,000,000 of its outstanding
subordinated convertible notes. In addition to the features of the subordinated
convertible notes described above in "Description of Securities," these notes
also have registration rights similar to those of the secured convertible
notes. Therefore, the registration statement filed in connection with this
prospectus also covers the shares that can be acquired by the conversion of the
subordinated convertible notes.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock being
offered hereby will be passed upon for Antra Holdings by Parker Duryee Rosoff &
Haft, P.C., New York, New York.
23
<PAGE>
EXPERTS
The financial statements included in this prospectus have been audited by
Liebman Goldberg & Drogin LLP, Garden City, New York, independent certified
public accountants, as indicated in their report.
ADDITIONAL INFORMATION ABOUT ANTRA HOLDINGS
Antra Holdings has filed with the Securities and Exchange Commission
("SEC") a registration statement on Form SB-2 with respect to the common stock
being offered. Antra Holdings has also filed with the SEC a Form 10-SB. In the
future, Antra Holdings will file with the SEC our annual, quarterly and special
reports, proxy statements and other information that the SEC requires.
This prospectus is only part of the registration statement and does not
contain all of the information included in the registration statement. Whenever
a reference is made in this prospectus to any contract or other document , the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
You may read and copy any of the information on file with the SEC at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. Filed documents are also available to the
public at the SEC's website at http://www.sec.gov.
24
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Auditors' Report ............................................................................ 1
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and 1998 ................................ 2
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 ..... 3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999
and 1998 ................................................................................ 4
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 ..... 5
Notes to Consolidated Financial Statements ............................................... 6 - 13
</TABLE>
<PAGE>
The Board of Directors
Antra Holdings Group, Inc.
We have audited the accompanying consolidated balance sheets of Antra Holding
Group, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations and stockholders' equity, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Antra Holding
Group, Inc. as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has a working capital deficiency, which raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Notes 2 and 8. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Liebman Goldberg & Drogin, LLP
Garden City, New York
February 2, 2000
F-1
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Assets
Current Assets:
Cash in bank ................................................. $ 343,399 $ 13,121
Loan receivable .............................................. 14,009 --
Prepaid expenses ............................................. 6,166 22,377
Prepaid recording costs ...................................... 1,432,421 --
------------ ------------
Total current assets ....................................... 1,795,995 35,498
Property and Equipment, Net ................................... 109,185 67,777
Other Assets:
Investment ................................................... 4,000,000 --
------------ ------------
Advances to joint venture .................................... 45,347 --
------------ ------------
Security deposits ............................................ 14,943 13,024
Deferred financing costs ..................................... 425,507 --
Other ........................................................ 987 987
Goodwill ..................................................... 5,000 5,000
------------ ------------
Total assets ............................................... $ 6,396,964 $ 122,286
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Convertible debentures payable ............................... $ 3,566,666 $ 110,528
Accrued expenses payable ..................................... 138,381 --
Deferred income .............................................. 400,000 --
------------ ------------
Total current liabilities .................................. 4,105,047 110,528
------------ ------------
Long-Term Liabilities:
Loan payable ................................................. 5,514 388,505
Loan payable - subordinated .................................. 1,000,000 807,240
Officer loan payable ......................................... -- 21,334
------------ ------------
Total long-term liabilities ................................ 1,005,514 1,217,079
------------ ------------
Total liabilities .......................................... 5,110,561 1,327,607
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized;
none issued and outstanding ................................ -- --
Common stock, $.001 par value; 50,000,000 shares authorized
12,344,210 and 9,544,210 shares issued and outstanding,
respectively ............................................... 12,344 9,544
Additional paid in capital ................................... 4,986,856 989,656
Accumulated deficit .......................................... (3,712,797) (2,204,521)
------------ ------------
Total stockholders' equity ................................. 1,286,403 (1,205,321)
------------ ------------
Total liabilities and stockholders' equity ................. $ 6,396,964 $ 122,286
============ ============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Income:
Show income .................................................... $ 10,044 $ 20,000
Royalties ...................................................... 75,322 --
------------- -------------
85,366 20,000
------------- -------------
Cost of Production:
Recording and production expenses .............................. 410,235 476,199
Bodyguards ..................................................... -- 32,750
Studio expenses ................................................ 20,826 14,163
Mechanical royalties ........................................... 357,378 --
------------- -------------
Total cost of production ..................................... 788,439 523,112
------------- -------------
Selling Expenses:
Publicity and promotion ........................................ 115,316 342,302
Consulting expenses ............................................ 60,725 159,765
Equipment lease ................................................ 36,272 --
Auto expenses .................................................. 38,751 208,279
Travel and entertainment ....................................... 142,338 298,728
------------- -------------
Total selling expenses ....................................... 393,402 1,009,074
------------- -------------
General and Administrative Reimbursed Expenses:
Professional fees .............................................. 274,870 246,210
Salaries ....................................................... 163,936 331,239
Payroll taxes .................................................. 17,025 24,055
Rent ........................................................... 109,241 29,623
Telephone ...................................................... 63,989 53,423
Office ......................................................... 16,262 49,329
Miscellaneous expenses ......................................... 25,714 32,040
Insurance expense .............................................. 85,240 40,530
Repairs and maintenance ........................................ 24,455 2,143
Internet ....................................................... 46,744 --
Dues and subscriptions ......................................... 2,164 434
Postage and delivery ........................................... 37,873 24,608
Contributions .................................................. 2,620 16,320
Depreciation expense ........................................... 22,092 10,939
Amortization ................................................... 60,293 --
Registration expense ........................................... 12,062 18,950
Reimbursed overhead ............................................ -- (996,922)
------------- -------------
Total general and administrative reimbursed expenses ......... 964,580 (117,079)
------------- -------------
Total expenses ............................................... 2,146,421 1,415,107
------------- -------------
Net loss from operations ........................................ (2,061,055) (1,395,107)
Other income (expense):
Interest income ................................................ 12,146 --
Interest expense ............................................... (79,714) --
Equity in (loss) of unconsolidated joint venture ............... (104,653) (200,000)
Settlement of Joint Venture .................................... 725,000 --
------------- -------------
Net (loss) ...................................................... $ (1,508,276) $ (1,595,107)
============= =============
Net loss per share of common stock based upon 11,118,546 and
9,268,030 weighted average shares .............................. $ (0.14) $ (0.17)
============= =============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ ---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 1998 ........... 7,824,210 $ 7,824 $ 131,276 $ (609,414) $ (470,314)
Shares issued as repayment ........... 1,720,000 1,720 858,380 -- 860,100
Net (loss) for the period ............ -- -- -- (1,595,107) (1,595,107)
--------- ------- ---------- ------------ ------------
Balance -- December 31, 1998 ......... 9,544,210 $ 9,544 $ 989,656 $ (2,204,521) $ (1,205,321)
Investment ........................... 2,800,000 2,800 3,997,200 -- 4,000,000
Net (loss) for the period ............ (1,508,276) (1,508,276)
---------- ------- ---------- ------------ ------------
Balance -- December 31, 1999 ......... 12,344,210 $12,344 $4,986,856 $ (3,712,797) $ 1,286,403
========== ======= ========== ============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ANTRA HOLDINGS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) ............................................................. $ (1,508,276) $ (1,595,107)
------------ ------------
Adjustments to Reconcile Net (loss) to Net Cash (used in) Operating
Activities:
Equity in (loss) of joint venture ..................................... 104,653 --
Depreciation .......................................................... 82,385 10,939
Changes in Assets and Liabilities:
(Increase) decrease in prepaid expenses and recording costs ......... (1,416,210) 43,255
(Increase) in other assets .......................................... (1,918) (10,354)
Increase in accrued expenses ........................................ 27,852 109,634
Increase in deferred income ......................................... 400,000 --
------------ ------------
Total adjustments .................................................. (803,238) 153,474
------------ ------------
Net cash (used in) operating activities ............................ (2,311,514) (1,441,633)
------------ ------------
Cash Flows from Investing Activities:
Acquisition of property and equipment ................................. (63,500) --
Investment in and advances to joint venture ........................... (150,000) (41,668)
Loan receivable ....................................................... (14,009) --
------------ ------------
Net cash (used in) investing activities ............................ (227,509) (41,668)
------------ ------------
Cash Flows from Financing Activities:
Borrowings from stockholders' and related parties (net of
repayment) .......................................................... (211,565) 1,479,846
Sale of secured convertible notes ..................................... 3,566,666 ---
Deferred financing costs .............................................. (485,800) --
------------ ------------
Net cash provided by financing activities .......................... 2,869,301 1,479,846
------------ ------------
Net increase (decrease) in cash ....................................... 330,278 (3,455)
Cash -- January 1 ..................................................... 13,121 16,576
------------ ------------
Cash -- December 31 ................................................... $ 343,399 $ 13,121
============ ============
Non-Cash Investing and Financing Activities:
Non-cash issuance of common stock ..................................... $ 4,000,000 $ 860,100
============ ============
Supplemental Disclosures:
Income tax ............................................................ $ -- $ --
============ ============
Interest expense ...................................................... $ 7,249 $ --
============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ANTRA HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 1 -- Operations:
Opell, Inc., now known as Antra Holdings Group, Inc. ("the Company"), was
formed as a Nevada Corporation and through June 1997 was not engaged in any
business activity and had nominal assets. On June 10, 1997, the Company
acquired all the shares of Wall Street Records, Inc. a New Jersey Corporation
("the Subsidiary"). The Subsidiary was formed on March 20, 1997 to engage in
various aspects of the music business, including the production and
distribution of recorded music. In connection with the acquisition of the
Subsidiary, the Company issued 5,000,000 shares of its Common Stock to
stockholders of the Subsidiary, who then owned a majority of the outstanding
shares of the Company. The acquisition was treated as a purchase and as a
reverse acquisition so that the historical financials of the Subsidiary
represent the financials of the Company. The Company reincorporated in Delaware
and in April 1998, the Company changed its name to Antra Holdings Group, Inc.
and the Subsidiary changed its name to Antra Music Group, Inc. The Subsidiary's
activities, consisted of negotiating agreements and arrangements with artists,
and thereby incurred substantial expenses.
Note 2 -- Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary. Intercompany balances and transactions have
been eliminated.
Revenue Recognition:
The Company produces licenses and distributes recorded music. It
recognizes revenues as follows:
Production and Distribution -- As a producer and distributor, the Company
will recognize revenue upon the sale of a completed album. Also upon completion
of an album, the Company will recognize any costs recoverable from the artist.
License Agreements -- Revenues will be recognized when the licensor signs
a noncancelable contract, agrees to a fixed fee, delivers the rights and meets
all significant obligations to furnish a record or music.
Prepaid Recording Costs:
In accordance with FASB Statement No. 50, "Financial Reporting in the
Record and Music Industry", advances to artists and producers are capitalized
as an asset when the current popularity and past performance of the artist or
producer provides a sound basis for estimating the probable future recoupment
of such advances from earnings otherwise payable to the artist or producer. Any
portion of such advances not deemed to be recoupable from future royalties is
reserved at the balance sheet date. All other significant advances which do not
meet the above criteria are expensed as incurred.
The Company in anticipation of completion of record production makes
various advances and payments on behalf of the recording artist. These payments
are prepaid and will be expensed when the record production is completed and
the record issued. The Company anticipates to amortize prepaid recording costs
within twelve months upon the release of a completed record.
Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, which range from five to seven
years. Leasehold improvements are amortized over the shorter of the lease term
or the useful life of the asset.
F-6
<PAGE>
ANTRA HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Note 2 -- Summary of Significant Accounting Policies: -- (Continued)
Development Stage Activities and Operations:
The Company was a development stage enterprise prior to October, 1998.
Ability to continue as a Going Concern:
The Accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the company as a going concern. The Company, as shown in the
accompanying consolidated financial statements, has a working capital
deficiency of $2,309,052 in 1999 and an accumulated deficit of $3,712,797 at
December 31, 1999.
The Company has relied upon debt and equity funding from stockholders and
other sources since inception. Additional equity is planned to be raised by
private-placement sales of common stock to new and existing stockholders in
order to fund operations until the Company is consistently profitable. While
management believes that such funding will be available, the adequacy of such
funding, if any, is uncertain. Management has not determined the amount of
funding necessary to support its sales at current levels or the amounts needed
for increased sales. This uncertainty, combined with the Company's recurring
losses, raises substantial doubt about the entity's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Income Taxes:
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
Loss Per Common Share:
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement establishes standards for
computing and presenting earnings per share (EPS). It replaced the presentation
of primary EPS with a presentation of basic EPS and also requires dual
presentation of basic and diluted EPS on the face of the income statement. The
Statement was retroactively applied to the 1998 loss per share but did not have
any effect.
Basic loss per share was computed by dividing the company's net loss by
the weighted average number of common shares outstanding during the period.
There is no presentation of diluted loss per share as the effect of common
stock options, warrants and convertible debt amounts are antidilutive. The
weighted average number of common shares used to calculate loss per common
share during 1999 and 1998 was 11,118,546 and 9,268,030 shares, respectively.
In 1998, the Company issued 1,250,000 shares and 470,000 shares
respectively of common stock as repayment of $860,100 loans previously
received.
Use of Estimates:
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those amounts.
F-7
<PAGE>
ANTRA HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Note 2 -- Summary of Significant Accounting Policies: -- (Continued)
Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value information, whether or not recognized in
the balance sheet, where it is practicable to estimate that value. The carrying
value of cash, cash equivalents and accounts receivable approximates fair
value.
Impairment of Long-Lived Assets:
The Company has not completed it's evaluation of the adoption of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." However, management believes any such effect will not be
material.
Accounting Pronouncements:
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for financial statements
with fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
The FASB issued SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information", issued by FASB, which is effective for financial
statements with fiscal years beginning after December 31, 1998. This statement
establishes standards for the way that public entities report selected
information about operating segments, products, and services, geographic areas,
and major customers in interim and annual financial reports. The Company does
not expect adoption of SFAS No. 131 to have a material effect, if any, on its
financial position or results of operations.
Note 3 -- Convertible Debentures Payable and Deferred Financing Costs:
During 1999, the Company sold $3,566,666 of secured convertible notes
receiving $3,080,866 in net proceeds after commissions and other expenses of
the sale. As security for these obligations under the notes, Antra deposited
1,000,000 of its Teltran shares with a collateral agent. The secured
convertible notes bear interest at 10% per annum and mature on July 20, 2002.
These notes can be accelerated to any date after July 20, 2000 at the option of
the holder of the note and, therefore, is shown as a current liability. The
Company had incurred $485,800 in deferred financing costs in connection with
the transaction which is being amortized over the life of the notes. As of
December 31, 1999, the unamortized deferred financing costs are $425,507.
Note 4 -- Loan Payable:
During the period July 15, 1997 to December 31, 1998, the Company received
various loans totaling $2,055,845. In 1998, 1,720,000 shares of common stock
were issued as repayment of $860,100 of these loans.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Note payable, Millport, Ltd. Currently no set
maturity date and interest is forgiven ........... $ 5,514 $ 388,505
Note payable, originally due to Millport, Ltd. and
subordinated to Coastal Provinces, Ltd., terms as
above ............................................ 1,000,000 807,240
Loan payable, officer, currently no interest due and
no maturity date ................................. -- 21,334
---------- ----------
1,005,514 1,217,079
---------- ----------
Less: current portion .............................. -- --
---------- ----------
$1,005,514 $1,217,079
========== ==========
</TABLE>
F-8
<PAGE>
ANTRA HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Note 4 -- Loan Payable: -- (Continued)
As of December 31, 1999 the Company received loans from Millport Limited
amounting to $1,005,514. Of this amount, the Company has agreed to subordinate
$1,000,000 and $807,240 as of December 31, 1999 and 1998 to Coastal Provinces
Ltd., a company managed by Millport Limited.
Note 5 -- Income Taxes:
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The deferred tax assets and liabilities as of
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred Tax Assets
Net operating loss carryforwards ......... $ 919,020 $ 542,300
Deferred Tax Liabilities:
-- --
---------- ----------
919,020 542,300
Valuation allowance ...................... (919,020) (542,300)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
At December 31, 1999, the Company has approximately $3,000,000 of net
operating loss carryforwards for income tax purposes, which expire in the years
2016 through 2019.
At December 31, 1999, the Company's net deferred tax assets are fully
offset by a valuation allowance. The Company will continue to assess the
valuation allowance and to the extent it is determined that such allowance is
no longer required the tax benefit of the remaining net deferred tax assets
will be recognized in the future.
Note 6 -- Commitments and Contingencies:
The Company entered into an agreement with its chairman and chief
executive officer on March 12, 1998. The agreement expires on March 29, 2001,
which will be automatically renewed annually unless terminated by either party.
The officer is required by the agreement to oversee, develop, produce and
manage music products for Antra Music and to participate and oversee all
entertainment projects of Antra Music.
The base salary for the first year of his employment agreement is
$200,000. The agreement allows for an increase in base salary or a bonus, in
either case solely at the discretion of the board of directors based upon a
review of Antra's performance in the prior year. The officer is also entitled
to all benefits generally offered to Antra's other executives, if any, and to
an automobile allowance. Since November 1998, the officer's salary payments and
accruals ceased with his consent.
The Company and certain stockholders are defendants in a legal action,
whereby plaintiffs allege the failure of the Company or those stockholders to
convey 100,000 shares of the Company's common stock. Attorneys for the Company
filed a motion to dismiss the action on behalf of the Company which was denied
by the court. The Company denies any liability and does not expect this action
to have any significant impact on the results of operations, liquidity or
financial condition.
The Company subleases office space expiring September 30, 2003. Rent
expense for the years ended December 31, 1999 and 1998 amounted to $109,241 and
$29,623, respectively. The annual rental commitments are as follows:
2000 .................. $107,942
2001 .................. 120,947
2002 .................. 127,449
2003 .................. 101,439
--------
$457,777
========
F-9
<PAGE>
ANTRA HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Note 7 -- Investment in Joint Venture:
In April 1998, the Subsidiary and A & M Records formed an LLC (Limited
Liability Corporation) (the "Joint Venture") for the purpose of promoting,
recording and distributing records or videos of certain of the Subsidiary's
recording artists. The Joint Venture released its first recording in October
1998 and commenced amortizing prepaid recording cost over the estimated future
revenues. During 1998, the Company received overhead reimbursements relating to
production and other costs of $873,515.
During December 31, 1998, the Company realized a loss of $200,000 on its
investment in the joint venture.
In April 1999, the Company agreed to terminate the joint venture agreement
with A & M Records in exchange for the future rights to the artists that were
assigned to the LLC, release of all liability and debt incurred by the LLC and
payment to the Company of $725,000.
In July 1999, the Company entered into a three year distribution agreement
with Artemis Records. Such agreement replaces the A & M Records distribution
agreement. The distribution agreement was amended in December 1999 and Artemis
Records advanced the Company $400,000 against monies payable under the
distribution agreement. In January 2000, Artemis advanced an additional
$400,000.
In December 1999, Antra Music and Artemis Records agreed to form a
Delaware Limited Liability Company, named "Antra Records LLC," of which they
will each be 50/50 co-owners. The LLC will initially operate for three years
and will be automatically extended for an additional two years unless Artemis
terminates the agreement.
Artemis is obligated to fund the joint venture, to the extent the venture
does not fund itself from operations, based on an annual budget that has been
approved by both Antra Music and Artemis for each year of the term.
On July 26, 1999, Antra invested $75,000 and advanced an additional
$75,000 for working capital as their initial investment in a joint venture with
Teltran International Group, Ltd. The joint venture, known as Recordstogo.Com
will be utilized as a vehicle to sell records belonging to unaffiliated third
parties. Revenues may also be generated from numerous sources that are part of
the joint venture website. As of December 31, 1999, Antra's share of the joint
ventures loss was $104,653.
Note 8 -- Investment:
In April 1999, the Company acquired 2,000,000 shares of Teltran
International Group Ltd.'s ("Teltran") common stock in exchange for 2,000,000
shares of the company stock. The agreement contains a provision for additional
shares of stock to be issued by either party based on the change in the market
price as of December 31, 1999. In January 2000, the Company issued Teltran and
additional 800,000 shares. The financial statements give effect to such
adjustment. At December 31, 1999, the Company adjusted its investment in
Teltran by $2,000,000 to give effect to the non-liquidity and thin market of
the shares originally issued.
F-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Articles Sixth and Seventh of the Certificate of Incorporation of the
Company provides with respect to the indemnification of directors and officers
that the Company shall indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law, as amended from time
to time, each person that such Sections grant the Company the power to
indemnify. Article Seventh of the Certificate of Incorporation of the Company
also provides that no director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of
the corporation's directors to the corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of Delaware General Corporation
Law, as amended from time to time.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering. Other than
the SEC registration fee amounts set forth below are estimates:
SEC registration fee ..................... $14,527
Blue sky legal fees ...................... 0
Printing and engraving expenses. ......... 10,000
Legal fees ............................... 40,000
Accounting fees. ......................... 10,000
Miscellaneous expenses ................... 2,500
-------
$77,027
=======
Item 26. Recent Sales of Unregistered Securities
The following sets forth information relating to all unregistered
securities of the Company sold by it in the last 3 years. There were no
reportable transactions prior to June 1997.
On June 10, 1997, Opell, Inc. ("Opell"), a Nevada corporation, issued
5,000,000 shares to the stockholders of Wall Street Records, Inc. ("Wall
Street"), a New Jersey corporation, in exchange for all of the outstanding
capital stock of Wall Street. Opell subsequently merged with a subsidiary
corporation formed in Delaware and the surviving entity changed its name to
Antra Holdings Group, Inc. The former holders of Wall Street were directors,
officers and promoters of Wall Street and their families, so the Company
believes the transaction is exempt from the registration requirements pursuant
to Section 4(2) of the Securities Act. Because Opell had an accumulated
stockholders' deficit at the time of the transaction, the shares issued to the
holders of Wall Street were valued at their par value ($.001 per share), or
$5,000 in the aggregate.
On July 11, 1997, the Company issued 2,500,000 shares to a limited number
of foreign entities in a transaction in accordance with Regulation 504 of the
Securities Act of 1933 for $100,000.
Between January 9, 1998 and March 3, 1998, the Company issued 1,720,260
shares to a limited number of foreign entities in a transaction in accordance
with Regulation 504 of the Securities Act of 1933 for $860,130.
On October 2, 1998, the Company issued a Subordinated Convertible Note in
exchange for existing indebtedness in the amount of $807,240. The note was
issued to a single, accredited investor. Therefore, the Company believes the
issuance of such note is exempt from the registration requirements pursuant to
Section 4(2) of the Securities Act.
II-1
<PAGE>
In November 1998, the Company issued an additional Subordinated
Convertible Note in exchange for existing indebtedness in the amount of
$192,760. The note was issued to a single, accredited investor. Therefore, the
Company believes the issuance of such note is exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act.
In April 1999, the Company and Teltran International Group Ltd. exchanged
shares of our respective companies. Teltran is a publicly traded company
engaged in the telecommunications business. The Company believes that the
transaction is exempt from the registration requirements pursuant to Section
4(2) of the Securities Act. The Company acquired 2,000,000 shares of Teltran's
common stock at a time when the market price of Teltran's common stock was
$3.00. As a result of two 5% stock dividends, the Company now owns 2,205,000
shares of Teltran's common stock. As a result of the transaction Teltran may be
deemed a principal stockholder of the Company. The share exchange was made at a
time when each company's market capitalization was roughly equivalent. To
protect each company from market fluctuations in the other's stock, the parties
entered into an agreement that requires an adjustment in the shares delivered
in connection with the exchange described above. On the first business day of
the year 2000, if either Teltran's shares or the Company's shares are trading
less than 20% below the market price of the other company's shares, the company
whose shares are trading lower must issue additional shares to the other. On
January 3, 2000, Antra issued 800,000 shares to Teltran. Teltran now owns
2,800,000 shares of Antra's common stock.
On July 20, 1999, the Company sold $2,766,666 of secured convertible
notes. All of the investors were accredited investors and the transaction is
exempt from the registration requirements under the Securities Act pursuant to
Rule 506. The Company paid an aggregate of $343,999 as cash commissions to
several placement agents in connection with the issuance of the notes. Some of
these placement agents also received warrants to purchase an aggregate of
1,146,666 shares of our common stock at $2.00 per share.
On July 31, 1999, the Company issued new notes to the holders of its
outstanding subordinated convertible notes. Because the new notes were issued
to accredited investors who already owned securities of the Company, the
Company believes that the transaction is exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act.
In November 1999, the investors in the July 20, 1999 transaction permitted
us to accelerate part of the put option. As a result, we received $800,000 in
gross proceeds from the private placement of additional secured convertible
notes to these investors. Antra paid $108,800 in fees and expenses, including
$96,000 as cash commissions. Antra also issued to some of the placement agents
warrants to purchase an aggregate of 720,000 shares of Antra's common stock at
$2.00 per share. 400,000 of these warrants were issued as consideration for the
partial acceleration of the put option. This transaction, involving the same
parties as the July 20, 1999 transaction, was believed to be exempt from
registration pursuant to Section 4(2).
In February 2000, the investors in the July 20, 1999 transaction permitted
us to accelerate the balance of the put option, and agreed to purchase a number
of secured convertible notes over and above the amount specified in their
original agreement. As a result, we received gross proceeds of $1,300,000 and
issued secured convertible notes in the same principal amount. Antra paid
$176,813 in fees and expenses, including $156,000 as cash commissions. Antra
also issued to some of the placement agents warrants to purchase an aggregate
of 2,433,333 shares of Antra's common stock at $2.00 per share. The
transaction, involving the same parties as the July 20, 1999 transaction, was
believed to be exempt from registration pursuant to Section 4(2).
On October 4, 1999, Antra entered into an agreement with Strategic Growth
International, Inc. ("SGII") under which SGII will provide us with consulting
services on investor relations matters. In addition to cash compensation of
$8,000 per month, Antra agreed to grant SGII options to purchase 500,000 shares
of Antra. As of the date hereof, Antra had not yet granted such options.
II-2
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation*
3.2 By-laws*
5.1 Opinion of Parker Duryee Rosoff & Haft****
10.1 Employment Agreement between Joseph M. Marrone, Jr. and Registrant*
10.2 Distribution Agreement between Sheridan Square Entertainment, L.L.C. d/b/a Artemis Records
and the Registrant*
10.2(a) Amendment, dated December 17, 1999, to Distribution Agreement***
10.3 Form of Subscription Agreement for Secured Convertible Notes and Common Stock Purchase
Warrants*
10.4 Form of Secured Convertible Notes*
10.5 Form of Common Stock Purchase Warrants*
10.6 Form of Security Agreement*
10.7 Stockholders' Agreement dated as of September 30, 1999 among Teltran International Group,
Ltd., Antra Group Holdings, Inc., and Recordstogo.com Inc.**
10.8 Exclusive Recording Agreement between Wall Street Records LLC and Ricardo Emanuel
Brown
(p/k/a "Kurupt"), dated as of March 13, 1998.**
10.9 Exclusive Production/Recording Agreement between Wall Street Records LLC and Grant
Eldridge
(p/k/a "El-Drex"), dated as of March 17, 1997.**
10.10 Co-Publishing Agreement between Wall Street Records LLC and Grant Eldridge (p/k/a
"El-Drex")**
10.11 Agreement between Wall Street Records LLC and David Ware (p/k/a "Baby S"), dated as of
August 19, 1998**
10.12 Label Agreement between Antra Music Group, Inc. and Legal Grind Entertainment, Inc., dated
as of October 28, 1999**
10.13 Co-Publishing Agreement between Antra Music Group, Inc. and Jeffrey Brown (p/k/a "Crush"),
dated as of October 1, 1999**
10.14 Agreement between Antra Music Group, Inc. and Jeffrey Brown (p/k/a "Crush"), dated as of
October 1, 1999**
10.15 Agreement between Antra Music Group, Inc. and five individuals collectively professionally
known as "Spooks", dated as of July 1, 1999**
10.16 Operating Agreement, dated December 17, 1999, by and between Sheridan Square
Entertainment, LLC d/b/a Artemis Records and Antra Music Group, Inc.***
10.17 Put Exercise Agreement, dated November 19, 1999***
10.18 Put Exercise Agreement, dated March 7, 2000.***
21.1 Subsidiary List**
23.1 Consent of Liebman, Goldberg & Drogin LLP***
23.2 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1 hereto)
24 Power of Attorney (included in the Signature page of Part II of this Registration Statement)
27 Financial Data Schedule***
</TABLE>
- ------------
* Submitted with the original filing of this SB-2 on September 17, 1999.
** Submitted with Amendment No. 1 to this SB-2 on November 19, 1999.
*** Submitted herewith
**** To be submitted.
II-3
<PAGE>
Item 28. Undertakings
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Registrant pursuant to Item 24 of this Part II to the Registration
Statement, or otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or paid by a director, officer
or controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against the public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Philadelphia, State of Pennsylvania, on the 11th day of April 2000.
ANTRA HOLDINGS GROUP, INC.
By: /s/ Joseph M. Marrone, Jr.
---------------------------------------
Chairman of the Board, Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JOSEPH M. MARRONE, JR., his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Joseph M. Marrone, Jr. Chairman of the Board, Chief April 11, 2000
- --------------------------------- Executive Officer, Director
Joseph M. Marrone, Jr. (Principal Executive Officer)
/s/Thomas R. Kessler Director April 11, 2000
- ---------------------------------
Thomas R. Kessler
/s/Arthur Rosenberg Director April 11, 2000
- ---------------------------------
Arthur Rosenberg
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
3.1 Certificate of Incorporation*
3.2 By-laws*
5.1 Opinion of Parker Duryee Rosoff & Haft****
10.1 Employment Agreement between Joseph M. Marrone, Jr. and Registrant*
10.2 Distribution Agreement between Sheridan Square Entertainment, L.L.C. d/b/a Artemis
Records and the Registrant*
10.2(a) Amendment, dated December 17, 1999, to Distribution Agreement***
10.3 Form of Subscription Agreement for Secured Convertible Notes and Common Stock
Purchase Warrants*
10.4 Form of Secured Convertible Notes*
10.5 Form of Common Stock Purchase Warrants*
10.6 Form of Security Agreement*
10.7 Stockholders' Agreement dated as of September 30, 1999 among Teltran International Group,
Ltd., Antra Group Holdings, Inc., and Recordstogo.com Inc.**
10.8 Exclusive Recording Agreement between Wall Street Records LLC and Ricardo Emanuel
Brown (p/k/a "Kurupt"), dated as of March 13, 1998.**
10.9 Exclusive Production/Recording Agreement between Wall Street Records LLC and Grant
Eldridge (p/k/a "El-Drex"), dated as of March 17, 1997.**
10.10 Co-Publishing Agreement between Wall Street Records LLC and Grant Eldridge (p/k/a
"El-Drex")**
10.11 Agreement between Wall Street Records LLC and David Ware (p/k/a "Baby S"), dated as of
August 19, 1998**
10.12 Label Agreement between Antra Music Group, Inc. and Legal Grind Entertainment, Inc.,
dated as of October 28, 1999**
10.13 Co-Publishing Agreement between Antra Music Group, Inc. and Jeffrey Brown (p/k/a
"Crush"), dated as of October 1, 1999**
10.14 Agreement between Antra Music Group, Inc. and Jeffrey Brown (p/k/a "Crush"), dated as of
October 1, 1999**
10.15 Agreement between Antra Music Group, Inc. and five individuals collectively professionally
known as "Spooks", dated as of July 1, 1999**
10.16 Operating Agreement, dated December 17, 1999, by and between Sheridan Square Entertainment,
LLC d/b/a Artemis Records and Antra Music Group, Inc.***
10.17 Put Exercise Agreement, dated November 19, 1999***
10.18 Put Exercise Agreement, dated March 7, 2000.***
21.1 Subsidiary List**
23.1 Consent of Liebman, Goldberg & Drogin LLP***
23.2 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1 hereto)
24 Power of Attorney (included in the Signature page of Part II of this Registration Statement)
27 Financial Data Schedule***
</TABLE>
- ------------
* Submitted with the original filing of this SB-2 on September 17, 1999.
** Submitted with Amendment No. 1 to this SB-2 on November 19, 1999.
*** Submitted herewith.
**** To be submitted.
<PAGE>
EXHIBIT 10.2
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1999, by and between
SHERIDAN SQUARE ENTERTAINMENT, L.L.C. D/B/A ARTEMIS RECORDS, of 130 Fifth
Avenue, 7th Floor, New York, New York 10011 ("Distributor") and Antra Music
Group, Inc., d/b/a ANTRA RECORDS, of 1515 Locust Street, 4th Floor,
Philadelphia, Pennsylvania 19102 ("you").
1. TERM.
1.01. The term of this Agreement (the "Term"), with respect to an album
by Korupt and an album by either Rosco or by Korupt and Daz (each an "Applicable
Album" and, collectively, the "Applicable Albums"), all master recordings
contained on the Applicable Albums and all Records derived in their entirety
from any Applicable Album (collectively, "Related Records") shall be a period of
three (3) years commencing on the date hereof, and unless terminated or extended
as provided herein, ending on July 27, 2002.
1.02. You shall have the right to release (or license to third parties)
up to two (2) Master Recordings embodied on each of the Applicable Albums for
inclusion in compilation albums and/or soundtrack albums, provided that such
Master Recordings shall only be used by you or your licensee within nine (9)
months after such Master Recording has commenced being commercially distributed
hereunder.
1.03 As used herein, "Contract Year" shall mean the twelve month period
commencing on the date of the initial commercial release of an Applicable Album
and ending on the same day and month of the following year.
2. APPOINTMENT.
2.01. (a) You hereby appoint Distributor as your sole and exclusive
distributor of the Applicable Albums and Related Records through all channels
and methods of distribution now or hereafter known, including, but not limited
to, Normal Retail Channels, throughout the Territory, during the Term, and grant
Distributor the exclusive right and license to distribute and sell the
Applicable Albums and Related Records through such channels and methods in the
Territory during the Term.
(b) During the Term, neither you nor any Affiliate shall,
directly or indirectly, distribute the Applicable Albums or Related Records in
the Territory, or otherwise license, authorize or permit any other Person other
than Distributor to so distribute the Applicable Albums or Related Records.
1
<PAGE>
2.02. Notwithstanding anything to the contrary contained herein,
Distributor shall not be obligated to distribute (or, if distribution has
already commenced, may cease to distribute) any Applicable Album or Related
Record embodying any Recording or other material which, in Distributor's good
faith judgment: (i) infringes upon the rights of any other Person or is in
contravention of law or advocates illegal activity; (ii) constitutes a breach by
you of any warranty, representation or covenant contained herein; (iii)
denigrates a given race, religion, ethnic background or sexual orientation in a
manner not subject to excuse or explanation by virture of the fact that the
performer shares the same race, religion, ethnic background or sexual
orientation, or (iv) is rejected for distribution by RED Distribution, Inc.
(`RED") based on any of the foregoing criteria. If Distributor so elects not to
distribute (or to cease to distribute) a Record, it shall promptly notify you
and you shall have the right to distribute, or cause a third party to
distribute, such Record; provided, however, with respect to any Record which
Distributor elects not to distribute pursuant to clauses (i) or (ii) above,
prior to distributing or authorizing a third party to distribute such Record,
you shall first make a good faith effort to remove or modify the Recording or
other material in question in order to satisfy Distributor's objections, and you
shall re-submit such Record (as modified) to Distributor hereunder.
Distributor's distribution of a Record shall not constitute approval of or a
waiver with respect to the Recordings or other material embodied therein.
2.03. During the Term, Distributor shall have the right to publicly
perform, and to authorize the public performance of, the Recordings and Records
hereunder, for the purpose of promoting and marketing such Recordings and
Records.
3. DISTRIBUTOR'S SERVICES.
3.01. During the Term, Distributor will solicit and fulfill orders and
distribute Records on your behalf through Normal Retail Channels in the
Territory. Without limiting the generality of the foregoing, Distributor's
services shall include the following: billing and collecting from Distributor's
customers, warehousing of your inventory of Records, acceptance and processing
of returns of Records distributed hereunder and such other customary
distribution services, if any, as Distributor provides for its other distributed
labels.
3.02. Distributor will bear the credit risk for its customers, it being
agreed that the decision as to whether or not to extend credit to any customer
(and the amount of credit so extended) shall be determined by Distributor in its
sole discretion.
3.03. At your request, Distributor will administer coop advertising for
your Records hereunder up to an amount mutually approved by you and Distributor.
You hereby request and irrevocably authorize Distributor to pay third parties on
your behalf up to four (4%) percent of Gross Sales hereunder on coop advertising
for Records hereunder. You agree to pay Distributor for all costs incurred in
connection with such coop advertising.
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3.04. (a) Distributor shall accept and store at its (or its designee's)
warehouse(s) all Records ordered by Distributor for distribution hereunder. The
risk of loss due to obsolescense for such Records shall be yours. Distributor
shall not be responsible for inventory shrinkage of up to two (2%) percent of
the number of Records received in any year of the Term (determined on an overall
basis and not on a title-by-title basis). With respect to shrinkage in excess of
that amount, Distributor's liability shall be limited to the replacement cost of
such Records.
(b) Within twenty (20) days after Distributor's request, you
shall, at your sole cost, remove from Distributor's (or its designee's)
warehouses, or order the destruction of, any "surplus" Records (i.e., that
amount of Records in excess of Distributor's then-current generally applicable
retention policy). All Records so removed shall be defaced or otherwise marked
by you, at your expense, in a manner subject to Distributor's reasonable
approval in order to ensure that they are not returned to Distributor. If you do
not timely so remove surplus Records, you shall be deemed to have ordered the
destruction of such surplus, and Distributor may so destroy such Records, at
your sole cost.
(c) During the Term, you may, at your sole cost and expense
and no more than once in any twelve-month period, conduct your own physical
inventory of Records in Distributor's (or its designee's) warehouse(s). Any such
physical inventory shall be conducted on reasonable notice to Distributor and
during Distributor's regular business hours.
3.05. During the Term, Distributor will accept and process returns of
Records in accordance with its then-current policies and practices (which you
acknowledge may include the scrapping of certain Records, such as "single"
Records within twenty (20) days after giving you notice to remove such Records
from Distributor's (or its designees) warehouses at your sole cost). Following
the expiration or earlier termination of the Term, Distributor shall not be
obligated to accept or process returns of Records distributed hereunder or
otherwise. You shall at all times during and after the Term, remain solely
financially responsible for all returns of Records distributed hereunder.
3.06. Distributor shall furnish you with monthly sales and inventory
reports regarding your Records and such other periodic reports as Distributor
generally makes available to its other distributed labels and to its own
label(s).
3.07. Intentionally deleted
3.08. You shall at all times retain title to the Records delivered
hereunder until sold. As between you and Distributor, all Recordings, artwork,
trademarks (other than Distributor's trademarks) and other material embodied on
or in the Records, including the copyrights therein, shall remain your property.
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3.09. Distributor shall have the right to cause some or all of its
services hereunder to be performed on its behalf by one or more third parties
(each, a "Subdistributor"). You hereby acknowledge that, as of the commencement
of the Term, certain of Distributor's services (including, without limitation,
fulfillment of orders, billing and collecting) are being performed on its behalf
by RED Distribution, Inc.
4. YOUR OBLIGATIONS.
4.01. You solely shall be responsible for, and shall pay all costs in
connection with, each of the following:
(a) The creation and production of all Recordings embodied in
the Records and all artwork and other materials embodied in the packaging for
all Records, and the acquisition of all rights in connection therewith.
(b) The securing, in writing, of all necessary licenses,
consents and permissions required for the distribution of Records hereunder,
including, without limitation, from recording artists, producers, other
performers, music publishers, unions and guilds, and other Persons rendering
services or granting rights in connection with the Recordings and the Records.
(c) The marketing, advertisement and promotion of the Records
and the Recordings including, without limitation, the payment of independent
promotion fees and costs related to so-called "street teams", the preparation of
all materials used in connection with such activities, and special programs in
connection with the Records hereunder.
(d) The payment of all property taxes relating to the Records,
where applicable, and any sales, use, excise, VAT or similar taxes which may now
be or hereafter become applicable to the services rendered by Distributor
hereunder or to the transactions contemplated by this Agreement. If any such
taxes are assessed to Distributor, then the amount thereof shall be added to the
charges to be paid by you.
(e) The payment and accounting of all advances and royalties
with respect to the Records hereunder.
(f) The production of any and all audiovisual recordings
related to the Records.
4.02. You will prepare and submit in a timely manner, from
time-to-time, material for inclusion in Distributor's sales publications.
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4.03. You shall, at your sole cost and expense, procure from a
nationally recognized insurance carrier and maintain in full force and effect at
all times during the Term a liability (errors and omissions) insurance policy
having a limit of at least $1,000,000 per claim and $3,000,000 in the aggregate,
covering claims arising in connection with Distributor's distribution of Records
hereunder. Such policy shall cover claims, regardless of when raised, based on
occurrences or claims made relating in any way to the Records distributed
hereunder. You shall cause Distributor to be named as an additional insured
under such policy. You shall deliver to Distributor upon execution of this
Agreement evidence satisfactory to Distributor of such coverage in the form of a
valid insurance certificate. Your failure to obtain or maintain such a policy
shall constitute a material breach hereof.
4.04. If you are not a member of the Recording Industry Association of
America ("RIAA") throughout the Term hereof and Distributor is required to pay
dues to the RIAA (or Distributor is charged by another member for a share of
such other member's dues) based on sales of the Records, then Distributor shall
have the right to charge you with a proportionate share of Distributor's dues
(or its share of such other member's dues).
5. SALE OF RECORDS.
5.01. (a) Subject to Distributor's reasonable approval, you shall
determine the retail list price (or, if with respect to a particular
configuration, Distributor does not maintain a retail list price, then the
wholesale list price) category (the "List Price Category") for each Record from
among the List Price Categories then being offered by Distributor to its
customers. You may change the List Price Category for a particular Record on at
least ninety (90) days notice to Distributor (which change shall be subject to
Distributor's reasonable approval). With respect to Records for which
Distributor does not have a standard List Price Category (such as a "box set"),
you and Distributor shall mutually determine the List Price Category.
(b) Distributor and you shall mutually determine the selling
price of Records to its customers, based upon the designated List Price
Category, which selling price shall be consistent with the selling price for
other records distributed by Distributor in the same List Price Category.
5.02. Distributor shall determine the terms of sale of Records to its
customers, including, without limitation, cash discounts, discounts and free
goods, credit and dating, returns policy and advertising allowances. Without
limiting the generality of the foregoing, Distributor shall have the right to
sell Records at such discounts as Distributor and you shall mutually determine.
Distributor shall have the right to change its discount policies from time to
time, but it shall advise you of any changes. In addition to any regular,
"standard" discount programs, Distributor shall have the right, with your
approval (such approval not to be unreasonably withheld), to offer non-standard
discount programs of limited duration, but the dollar amount of discounts
pursuant to such a discount program shall not be deducted in calculating "Net
Sales" unless you have consented to such program.
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5.03. If you and Distributor agree to extend to Distributor's customers
any "special dating" program (i.e., the granting of payment terms beyond
Distributor's then-current terms), Distributor shall charge you for the cost
thereof (which cost shall be equal to interest accrued on the aggregate Gross
Sales subject to the special dating at the rate of one (1%) percent above the
prime rate of interest as announced by Citibank, N.A. in New York City, for the
period of time that Distributor's standard payment terms are extended [the
"Interest Rate"]).
5.04. You and Distributor shall mutually determine the release date of
each title hereunder.
5.05. (a) You shall have the right, by notice to Distributor, to delete
Records from your catalog in accordance with Distributor's standard policies
relating to deletions. Distributor shall cease manufacturing any Records which
have been deleted. Any remaining inventory of Records that have been deleted may
be scrapped or sold by you as "closeouts" or "cutouts" only, and all such
Records shall be defaced at your expense in order to prevent their return to
Distributor. All costs incurred in connection with such scrapping, defacing
and/or sale shall be your sole responsibility. If you request and Distributor
agrees, Distributor shall arrange for the sale of such "closeouts" or "cutouts"
on your behalf, and Distributor shall charge you its standard fees and charges
therefor.
(b) Upon your deletion of a Record from your catalog,
Distributor may notify customers that they have sixty (60) days (or such longer
period of time as Distributor may elect) to return such deleted Records for
credit; provided, Distributor may, if it so elects, continue to accept such
returns after such date.
(c) At any time after the date of deletion of a particular
title, Distributor may, by notice to you, require you, at your sole cost, to
remove from Distributor's (or its designee's) warehouses, or order the
destruction of, your remaining inventory of such deleted Records. All Records so
removed shall be defaced or otherwise marked by you, at your expense, in a
manner subject to Distributor's reasonable approval in order to ensure that they
are not returned to Distributor. If you do not timely so remove such Records,
you shall be deemed to have ordered their destruction, and Distributor may so
destroy such Records, at your sole cost.
(d) This paragraph 5.05 will not apply: (1) to any Record
which has not been commercially distributed hereunder for at least one (1) year;
and (2) to any Record which in the six month period immediately preceding your
notice to Distributor to delete such Record from distribution has "soundscanned"
(as that term is generally understood in the record industry) at least 3,000
units.
5.06. You acknowledge that the sale and distribution of Records is
speculative and you agree that, subject to the other provisions of this
Agreement, the judgment of Distributor with respect to matters affecting the
sale and distribution of Records will be binding upon you. Distributor has not
made, and does not hereby make, any representation or warranty with respect to
the quantities of Records that may be sold or returned, or the proceeds that may
be derived therefrom. You shall not make any claim, nor shall any liability be
imposed upon Distributor based upon any claim, that more sales could or should
have been made than were made by Distributor, or that returns were excessive.
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6. DISTRIBUTOR'S FEES.
6.01. In respect of Records distributed hereunder, you shall pay to
Distributor (and Distributor may retain for its own benefit from proceeds
hereunder) a distribution fee (the "Distribution Fee") equal to twenty-five
(25%) percent of Net Sales. Notwithstanding anything in the preceding sentence,
on a Contract Year by Contract Year basis, the Distribution Fee with respect to
those cumulative Net Sales in any such Contract Year that are in excess of Ten
Million ($10,000,000) Dollars shall be twenty-three (23%) percent of those Net
Sales rather than twenty-five (25%) percent, and the Distribution Fee with
respect to those cumulative Net Sales in any such Contract Year that are in
excess of Twenty Million ($20,000,000) Dollars shall be twenty-one (21%) percent
of those Net Sales rather than twenty-three (23%) percent.
6.02. If Distributor performs additional services related to the
distribution of your Records ( including, without limitation, returns handling,
scrapping, special mailing, the distribution of your promotional copies of
Records to radio stations, reviewers and other customary recipients and the
distribution of merchandising material to retail customers, etc., but excluding
those services referred to in Article 16 below), you shall pay Distributor's
actual out-of-pocket costs incurred in connection therewith (such as freight,
postage, manufacturing costs, etc.). Subject to paragraph 16.01, such services
are provided by a Subdistributor (whether because a Subdistributor does such
services for Distributor for Distributor's Records and/or Distributor does not
customarily engage in rendering such services) and if such Subdistributor
charges a separate fee for such service, then the amount which you are required
to pay to Distributor therefor shall be equal to the amount charged to
Distributor by such Subdistributor, in lieu of any other fee. The Distributor
warrants and represents that such fees are customary and reasonable. (An example
of the fees charged by RED to Distributor is) annexed hereto as Exhibit A.)
6.03. Notwithstanding the foregoing, you shall also pay to Distributor
a "returns handling" charge equal to the "returns handling" charge payable by
Distributor to RED Distribution, Inc. ("RED") with respect to the Records;
provided, Distributor shall have the right from time to time, on notice to you,
to increase the "returns handling" charge payable by you upon RED's increase to
Distributor of such "returns handling" charge.
6.04. You shall be solely responsible for paying all "Manufacturing
Charges" in connection with the manufacture of your Records. As used herein
"Manufacturing Charges" include: (a) the actual prices paid by Distributor to
its manufacturers of your Records as well as any freight charges and any service
charges incurred by Distributor (e.g. shrinkwrapping, stickering, inserts,
etc.), collectively the "Fee"; and (b) interest on the Fee from the date the Fee
is disbursed by Distributor, at a rate per annum equal to the Interest Rate (as
defined in paragraph 5.03 above), until the Fee is paid. You shall pay
Distributor all Manufacturing Charges within ninety (90) business days after
your receipt of Distributor's invoice therefore. If you fail to so pay, then,
without limiting its rights and remedies, Distributor shall have the right to
deduct the outstanding amounts from any monies otherwise due you hereunder.
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7. PAYMENTS BY DISTRIBUTOR/ACCOUNTINGS.
7.01. (a) Distributor will account to you for Records sold hereunder no
later than ten (10) business days after Distributor's receipt of the relevant
accounting from RED. Each statement shall set forth in reasonable detail the
amount of Gross Sales, Net Sales, returns, reserves, Distributor's Distribution
Fee and other fees and charges which Distributor has deducted, as well as the
amount of Net Proceeds payable to you. In general net proceeds are payable by
RED to Distributor ninety (90) days after the last day of the calendar month
during which the record(s) from which such net proceeds are derived are shipped
to customer.
(b) Distributor, RED, or a third party which has been approved
in writing by you, shall pay you, within ten (10) business days of Distributor's
receipt of monies from RED, the amount of "Net Proceeds" shown to be due on each
such accounting statement rendered by Distributor to you. As used herein, "Net
Proceeds" shall mean all Net Sales less each of the following: (a) Distributor's
Distribution Fee; (b) reserves in accordance with Article 8 below; (c) all
returns handling and other service fees and charges which Distributor is
entitled to charge or which you are required to pay hereunder; and (d) any and
all other costs, fees or charges which Distributor is entitled to charge or
which you are required to pay hereunder, including, without limitation,
manufacturing charges, the cost of coop advertising and retail marketing (to the
extent not placed and paid for by you), the cost of extended dating, scrapping
and defacing charges, etc.
7.02. With respect to any accounting period as to which there is a net
amount due from you to Distributor (i.e., Net Proceeds are a negative amount),
you shall promptly pay that amount to Distributor after receiving notice
thereof. Your failure to make such payment will be deemed a material breach of
this agreement.
7.03. Notwithstanding anything which may be to the contrary contained
herein and without limiting Distributor's rights and remedies, Distributor shall
have the right at all times to offset and deduct from any Net Proceeds or other
sums due you hereunder any and all charges payable by you, fees payable by you
and other amounts which you are required to pay to Distributor pursuant to this
Agreement.
7.04. All statements rendered by Distributor hereunder shall be
conclusively binding upon you and not subject to objection by you unless
specific objection in writing, stating the basis thereof, is given to
Distributor within two (2) years from the date rendered. You will not have the
right to sue Distributor in connection with any accounting, or to sue
Distributor for any monies due in respect of the period an accounting covers,
unless you commence such suit in a court of competent jurisdiction within three
(3) years after the date such accounting was rendered.
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7.05. You shall have the right at your own expense to commence an audit
of Distributor's books and records with regard to statements rendered hereunder
but only within one (1) year after such statement was rendered. Your audit shall
be conducted on no less than thirty (30) days notice, during Distributor's
regular business hours, at the place where such books and records are regularly
maintained and only once with respect to a particular statement. You may not
conduct more than one (1) such audit in any twelve-month period, and you may not
commence an audit between November 1 and February 28 of any year. Your audit
shall be conducted by an independent Certified Public Accountant who is not then
engaged in an outstanding examination of Distributor's books and records on
behalf of another Person. Such Certified Public Accountant will act only under a
letter of confidentiality that provides that any information derived from such
audit or examination will not be knowingly released, divulged or published to
any person, firm or corporation, other than to you or to a judicial or
administrative body in connection with any proceeding relating to this
Agreement.
8. RESERVES.
8.01. Distributor shall have the right to establish and maintain a
reserve against returns, credits and rebates in the same manner that RED
establishes and maintains reserves pursuant to paragraph 4(d) of the agreement
dated July 1, 1999 between Distributor and RED, which provision is attached
hereto as Exhibit "B" and incorporated herein by referenced.
9. TERMINATION/POST-TERM PROCEDURES.
9.01. In the event of (a) your breach of any of your material
representations, warranties, covenants or obligations hereunder; or (b) your
dissolution, the liquidation of your assets, the filing of a petition in
bankruptcy or insolvency or for an arrangement or reorganization by, for or
against you, the appointment of a receiver or a trustee for all or a portion of
your property, or in the event you shall make an assignment for the benefit of
creditors or commit any act for, or in, bankruptcy or become insolvent, then, in
addition to any other remedies which may be available: (i) Distributor shall
have the right and option to terminate the Term hereof upon notice to you,
and/or (ii) all outstanding amounts owed by you to Distributor hereunder or
otherwise in connection with this Agreement (including, without limitation, any
advances or loans) which are not otherwise yet due and payable shall, upon
notice to you, be accelerated and shall immediately become due and payable by
you to Distributor.
9.02. Upon the expiration or termination of the Term, Distributor may
continue to accept returns from its customers but is not obligated to do so. You
shall continue to be financially responsible for all returns of Records accepted
by Distributor.
9.03. Within fifteen (15) days following the expiration or termination
of the Term, you shall remove all inventory of Records from Distributor's (or
its designee's) warehouses (and you shall thereafter remove subsequently
returned Records within five (5) days following Distributor's notice to you
thereof). All Records so removed shall be defaced or otherwise marked by you, at
your expense, in a manner subject to Distributor's reasonable approval in order
to ensure that they are not returned to Distributor. Distributor shall have the
right to scrap any Records not timely removed by you, and you shall be
responsible for all costs in connection therewith.
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9.04. You shall use reasonable efforts to cause your next distributor
of Records to accept from Distributor's customers all returns of Records
hereunder and to issue full credit to such customers, provided that absent such
an agreement Distributor may hold back monies otherwise due you on the
termination of this agreement, in a commercially reasonable amount, to satisfy
itself that it will be compensated for all returns of Records.
10. WARRANTIES, REPRESENTATIONS AND INDEMNIFICATION.
10.01. You hereby warrant and represent that:
(a) You are a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. You have the full
right, power and authority to enter into and fully perform this Agreement and to
grant the rights herein granted.
(b) Throughout the Term hereof, you shall continue to function
as a record label, to sign new recording artists and to record, release and
market new recordings in a manner and at a level comparable to that existing at
the time of execution hereof and during the one year period prior thereto.
(c) The Material embodied in the Records, the Recordings and
the packaging therefor and all other items supplied by you for use by
Distributor hereunder will not violate any law or infringe upon the rights of
any other Person. As used herein, "Material" shall mean and include, without
limitation, all Recordings and other recorded material, all musical
compositions, names, logos, trademarks, service marks and trade names,
biographical information, photographs and likenesses, artwork and packaging
materials, and all other musical, dramatic, artistic and literary materials,
ideas and intellectual properties.
(d) All costs of producing the Recordings have been or will be
paid in full prior to the release hereunder of Records derived therefrom. All
recording artists, performers, producers and other Persons rendering services or
granting rights in respect of the Recordings were free to render such services
or grant such rights and have been or will timely be paid all sums due them.
(e) You have, or prior to release hereunder shall have, and
shall at all times thereafter continue to have in effect a valid and enforceable
grant of rights or license for the Territory with respect to each Recording,
each musical composition and all other copyrightable materials embodied in or on
the Records (including, without limitation, mechanical licenses for all musical
compositions and licenses for so-called "samples"). You shall timely pay all
royalties and other compensation due under such licenses. At Distributor's
request, you shall furnish Distributor with copies of any or all of such
licenses.
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(f) All Recordings have been or will be made in accordance
with the rules and regulations of all unions (if any) having jurisdiction over
the recording thereof. Without limiting the generality of the foregoing, you
shall pay all sums required to be paid to any such unions or guilds, or any
trustee pursuant to any such union or guild agreement (including any so-called
"per record" royalties payable in connection with AFM and AFTRA).
(g) Distributor will not be required to make any payments of
any nature for, or in connection with, the acquisition, exercise or exploitation
of the rights granted to Distributor hereunder, except as specifically provided
herein.
(h) You have not sold, assigned, transferred, leased, conveyed
or granted a security interest in, or otherwise disposed of, and will not sell,
assign, transfer, lease, convey or grant a security interest in, or otherwise
dispose of, the Recordings or the Records hereunder, or any of them, adverse to
or derogatory of the rights granted to Distributor herein, and you have not
authorized and will not authorize any other Person to distribute Records in the
Territory in contravention of Distributor's exclusive rights hereunder.
(i) There presently are no liens, levies, judgments,
garnishments, encumbrances (collectively, "Liens"), claims, demands, disputes or
litigation or other judicial or regulatory proceedings pending or threatened
(collectively, "Claims") upon, concerning or affecting the Recordings or the
Records, or on any of your other property (except for Liens or Claims relating
to office furniture and equipment), and there shall be no such Claims or Liens
during the Term. If any Lien or Claim shall arise during the Term, you shall
take whatever steps are necessary to defend any such Claim or eliminate any such
Lien.
10.02. You agree to and do hereby indemnify, save and hold Distributor,
its affiliates, officers, agents, employees and Subdistributors harmless from
and against any and all loss, damages, liabilities, costs and expenses
(including court costs and reasonable attorneys' fees) arising out of or
connected with any material breach or alleged material breach of this Agreement
or any claim, if reduced to a final, non-appealable judgment, or a settlement
entered into with your consent, that is inconsistent with any of the warranties,
representations or covenants made by you in this Agreement. You agree to
reimburse Distributor on demand for any payment made or incurred by Distributor
with respect to the foregoing sentence and, without limiting Distributor's
rights or remedies, Distributor may deduct any amount not so reimbursed by you
from any monies Distributor owes you. Pending the determination of any claim in
respect of which Distributor is entitled to be indemnified, Distributor may
withhold monies otherwise payable to you hereunder in an amount not to exceed
your potential liability to Distributor, which amount shall be mutually
determined by you and Distributor subject to the following. In the event you and
Distributor cannot agree on the amount to be withheld Distributor will, in no
event, withhold more than seventy-five thousand dollars ($75,000) without court
approval or the decision of a mutually approved arbitrator. Distributor shall
give you prompt notice of any written claim as to which the foregoing
indemnification applies and you shall have the right to participate with counsel
of your own choice at your own expense.
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11. FORCE MAJEURE.
11.01. If because of an act of God; inevitable accident; fire; lockout;
strike or other labor dispute; riot or civil commotion; act of public enemy;
enactment, rule, order or act of any government or governmental instrumentality;
failure of technical facilities; failure or delay of transportation facilities;
shortage of raw materials; or other cause not reasonably within your or
Distributor's control (a "Force Majeure Event"), either party to this Agreement
is materially hampered in the performance of its obligations under this
Agreement or its normal business operations are materially delayed or become
impossible or commercially impracticable (the "Force Majeure Party"), then the
other party shall have the option, by giving the Force Majeure Party, to suspend
its obligations hereunder for the duration of any such contingency.
12. SECURITY INTEREST.
12.01. To secure the prompt and complete payment and performance of any
and all present and future indebtedness, obligations and liabilities of you to
Distributor pursuant to this Agreement (the "Obligations"), you hereby grant to
Distributor a first-priority security interest (the "Security Interest") in and
to each of the following, whether now owned or hereafter acquired (collectively,
the "Collateral"): (a) all existing and after-acquired inventory of the
Applicable Albums and Related Records (including finished goods and components),
wherever located, now or hereafter held by you, Distributor or a Subdistributor
or other Person; (b) all production parts and components owned by you that are
used or intended for use in the manufacture of the Applicable Albums and Related
Records or packaging; (c) all accounts receivables due from Distributor to you
under this Agreement; and (d) all proceeds and products of any or all of the
foregoing. Distributor shall be entitled to all right and remedies of a secured
party under the Uniform Commercial Code as in effect from time to time in the
State of New York or any other applicable law or jurisdiction.
12.02. You warrant, represent and covenant that you have not granted
and will not grant any rights to any Person other than Distributor that would be
superior to the rights granted to Distributor hereunder with respect to the
Collateral. Without Distributor's prior written consent, you shall not sell,
transfer, lease or otherwise dispose of any of the Collateral, other than
Distributor's sale of Records in the ordinary course.
12.03. You agree to execute and deliver to Distributor all financing
statements and/or other documents (including UCC-1 forms) that Distributor
reasonably requires to protect its interest in the Collateral. If you fail to so
execute and deliver any such document within ten (10) business days after your
receipt, then Distributor may execute such documents in your name, and you
hereby irrevocably grant to Distributor a limited power-of-attorney solely for
such purpose. Distributor shall have the right to file such documents in any
jurisdictions Distributor deems appropriate. The Security Interest shall
terminate when the Term hereof has expired or terminated and all of the
Obligations have been completely performed and indefeasibly paid in full. At
such time and at your request, Distributor shall execute and deliver to you such
documentation as you reasonably require to evidence the termination of such
Security Interest. Each party shall bear its own filing fees and expenses.
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13. DEFINITIONS.
13.01. "Territory"--the United States, its territories and possessions,
and all military bases and Armed Forces Post Exchanges throughout the world.
13.02. "Normal Retail Channels"--distribution of Records through Normal
Retail Channels shall mean distribution or sale of Records through: (a)
sub-distributors, one-stops, rack jobbers, retailers and/or dealers for ultimate
sale to the consumer in retail record and other retail stores (including,
without limitation, book stores and computer software stores); (b) direct
digital distribution; (c) direct response, direct mail and mail order, including
fulfillment or orders solicited and/or received through Internet sites and/or
other "on-line" services (but not through so-called "record clubs" distributing
Records through mail order); and (d) other channels of trade that are considered
to be "normal retail channels" as such term is now or hereafter during the Term
generally understood in the United States record industry.
13.03. "Record" or "Records"-- all forms of reproductions,
transmissions or communications of Recordings now or hereafter known,
manufactured, distributed, transmitted or communicated primarily for home or
personal use (whether embodying sound alone, sound accompanied by visual images,
or sound accompanied by graphic material and/or text in an interactive format).
Records include, without limitation, vinyl discs, cassette tapes, compact discs,
video cassettes, videodiscs, "enhanced CDs" and CD-ROM devices.
13.04. "Recording" or "Recordings"-- all recordings in any form
(including audio and audiovisual) of the Applicable Albums or Related Records
from which Records may be derived, now or hereafter owned or controlled by, or
licensed to, you or any Affiliate or as to which you or any Affiliate have the
right to distribute Records derived therefrom in the Territory.
13.05. (a) "Affiliate"-each Principal and any Person which, directly or
indirectly, owns or controls, is owned or controlled by, or is under common
ownership or control with, you or any Principal or in which your or any
Principal have a direct or indirect interest.
(b) "Principal"--Joe Marrone.
(c) "Person"--any natural person, firm, corporation,
partnership or other entity recognized by law.
13.06. (a) "Net Sales"--Gross Sales less the dollar amount of all
returns, credits, rebates and adjustments, and less reserves withheld in
accordance with the terms hereof, plus liquidated reserves.
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(b) "Gross Sales"--The dollar amount invoiced to and payable
by Distributor's customers for your Records distributed hereunder, determined
after the deduction of all applicable discounts. Notwithstanding the foregoing,
Gross Sales shall not include, and Distributor may retain for its own account,
any separately stated handling charges charged to customers for special services
rendered to such customers, such as any special handling charge for fulfilling
orders in less than full box-lot quantities.
14. MISCELLANEOUS.
14.01. This Agreement contains the entire understanding of the parties
hereto relating to the subject matter hereof and cannot be changed or modified
except by an instrument signed by the party to be charged. A waiver by either
party of any term or condition of this Agreement in any instance shall not be
deemed or construed as a waiver of such term or condition for the future or of
any subsequent breach hereof.
14.02. Distributor may, at its election, assign this Agreement to any
parent, subsidiary or affiliate or to any Person who acquires all or a
substantial portion of Distributor's stock or assets, and this Agreement may be
so assigned by such assignee. You shall not have the right to assign this
Agreement or any of your rights or obligations, and any purported assignment by
you in contravention hereof shall be null and void.
14.03. Neither party to this Agreement shall be deemed to be in breach
of any of its obligations hereunder unless and until the other party shall have
given such party specific written notice of such default and the alleged
breaching party shall have failed to cure such default within thirty (30) days
after receipt of such notice.
14.04. In entering into this Agreement, you and Distributor each shall
have the status of an independent contractor and nothing herein contained shall
constitute the parties as partners, fiduciaries, agents or employees of each
other.
14.05. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
14.06. All notices hereunder shall be in writing and shall be given by
personal delivery or by registered or certified mail, return receipt requested,
at the addresses shown above or such other address or addresses as may be
designated by the applicable party. Notices shall be deemed given when
personally delivered or when mailed, except that notice of change of address
shall be effective only from the date of its receipt. Each notice sent to
Distributor shall be directed to the attention of the Executive V.P. Business
and Legal Affairs, Sheridan Square Entertainment, 130 Fifth Avenue, 7th Floor,
New York, New York 10011. You shall also send a copy of each notice to
Distributor to Grubman, Indursky & Schindler, P.C., 152 West 57th Street, New
York, New York 10019, Attention: Jonathan F. Horn, Esq.
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14.07. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK,
AND THE VALIDITY, INTERPRETATION AND LEGAL EFFECT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED
INTO AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. ALL CLAIMS, DISPUTES
OR DISAGREEMENTS WHICH MAY ARISE OUT OF THE INTERPRETATION, PERFORMANCE OR
BREACH OF THIS AGREEMENT SHALL BE SUBMITTED EXCLUSIVELY TO THE JURISDICTION OF
THE STATE COURTS OF THE STATE OF NEW YORK OR THE FEDERAL DISTRICT COURTS LOCATED
IN NEW YORK CITY; PROVIDED, HOWEVER, IF DISTRIBUTOR IS SUED OR JOINED IN ANY
OTHER COURT OR FORUM IN RESPECT OF ANY MATTER WHICH MAY GIVE RISE TO A CLAIM BY
DISTRIBUTOR HEREUNDER, YOU CONSENT TO THE JURISDICTION OF SUCH COURT OR FORUM
OVER ANY SUCH CLAIM WHICH MAY BE ASSERTED BY DISTRIBUTOR.
15. MANUFACTURING.
15.01. You and Distributor agree that Distributor shall arrange for the
manufacture of all Records (including all components) intended for distribution
hereunder during the Term. Distributor shall place all orders for the
manufacture of Records and/or components with those Persons which regularly
manufacture Distributor's own records (or those of its other distributed
labels). Distributor and you shall mutually determine the size of all
manufacturing orders; provided, however, Distributor shall have the right to
unilaterally order the manufacture of Records and/or components as may be
reasonably required to meet demand. All Records shall be in satisfactory
condition and shall bear an appropriate bar code reflecting a Universal Price
Code Manufacturer Number (and you shall be responsible for all fees and charges
in connection therewith, and Distributor shall have the right to place a legend
in customary size and location identifying Distributor as the Distributor.
16. ADDITIONAL SERVICES OF DISTRIBUTOR.
16.01. Distributor will render, without charging a fee or any costs
(accept the costs set forth in paragraph 6.02), the following additional
services in connection with the Applicable Albums:
(a) Services of JRB Sales & Marketing Innovations, Inc. for national
sales.
(b) Services of Wayman Jones as "quarterback" for R&B promotion.
(c) Services of a national pop promotion person as "quarterback" for
pop promotion.
(d) Services of the national publicity department of Distributor.
(e) Periodic advice from Danny Goldberg and other Artemis executives,
via telephone, subject to their reasonable prior professional
commitments and schedules.
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It will not be deemed a breach of this agreement if Wayman Jones and/or
JRB Sales and Marketing Innovations, Inc. are no longer associated with
Distributor and are unable to render such services provided that the such
services are rendered by other persons or entities affiliated with Distributor.
16.02 Distributor, upon its request, will be listed by you as
"distributor" in advertisements, press, Soundscan, and other similar materials
created or authorized by you in connections with Records distributed hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
SHERIDAN SQUARE
ENTERTAINMENT, L.L.C.
D/B/A ARTEMIS RECORDS
By:___________________________
An Authorized Signatory
ACCEPTED AND AGREED:
ANTRA RECORDS
By:_________________________
An Authorized Signatory
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SHERIDAN SQUARE ENTERTAINMENT, L.L.C. D/B/A ARTEMIS RECORDS
130 Fifth Avenue
7th Floor
New York, NY 10011
As of December __, 1999
Antra Music Group, Inc.
1515 Locust Street
Philadelphia 19102
Gentlemen:
Reference is hereby made to that certain distribution agreement between
Sheridan Square Entertainment L.L.C. d/b/a "Artemis Records" ("Distributor") and
Antra Music Group, Inc. ("you" or "your") dated as of July 29, 1999 (the
"Agreement"). When executed, the following shall constitute an amendment (the
"Amendment") to the Agreement. Except as otherwise provided for herein, the
terms used in this Amendment shall have the same meanings and definitions
ascribed to them in the Agreement
1. You and Distributor hereby acknowledge that contemporaneously
herewith, the parties are entering into a joint venture agreement (the
"LLC Agreement") to form and operate a record company business. You and
Distributor further acknowledge that other than master recordings
pursuant to the LLC Agreement, the rights granted to Distributor
pursuant to the Agreement shall be exclusive.
2. Subject to the terms of the Agreement, promptly following the
complete execution hereof (but in no event later than ten (10) Days from
the date hereof, Distributor shall pay to you Eight Hundred Thousand
($800,000) Dollars as an advance against all monies under this Agreement
(the "Advance").
3. Paragraph 1.01 is hereby deleted in its entirety and replaced by the
following:
"(a) The term ("Term") of the Agreement shall be deemed to have
commenced as of July 28th, 1999 and shall be continue for a period
of three (3) years from the date hereof. Notwithstanding the
foregoing, Distributor will have the right to exploit each
Applicable Album for no less than two (2) years after the initial
United States release of the Applicable Album concerned.
(b) For the purposes of this Agreement: (i) "Applicable Album(s)
shall mean one (1) album by the artist professionally known as
"Sheeba and Black", one (1) album by the artist collectively
professionally known as "Kurupt" and any other albums that are owned
or controlled, in whole or in part, directly or indirectly by you
other than Albums delivered to Distributor
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pursuant to the LLC Agreement; and (ii) "Related Records" shall mean
all master recordings contained on the Applicable Album(s) and all
Records derived in their entirety from any Applicable Album."
4. (a) The following subparagraph is deemed added to paragraph 2.01:
"(c) You agree that Distributor shall not be required to initially
release for distribution more than eight (8) Applicable Album(s)
during each Contract Year of the Term. Without limitation of the
foregoing, the scheduling of such Applicable Albums shall be subject
to the mutual approval of you and Distributor."
(b) The first sentence of paragraph 2.02 shall be deemed deleted in its
entirety and replaced by the following:
"Notwithstanding anything to the contrary contained herein,
Distributor shall not be obligated to distribute (or, if
distribution has already commenced, may cease to distribute) any
Applicable Album or Related Record embodying any Recording or other
material which (i) in Distributor's good faith judgment infringes
upon the rights of any other Person or is in contravention of law or
advocates illegal activity; (ii) constitutes a breach by you of any
warranty, representation or covenant contained herein; (iii)
denigrates a given race, religion, ethnic background or sexual
orientation in a manner not subject to excuse or explanation by
virtue of the fact that the performer shares the same race,
religion, ethnic background or sexual orientation, (iv) the rights
to distribute such Applicable Album or Related Record would expire
on the earlier of (A) June 30, 2002; or (B) one year after the
commercial release of such Record in the United States, or (v) is
rejected for distribution by RED Distribution, Inc. ("RED") based on
any of the foregoing criteria."
5. Paragraph 3.03 is hereby deleted and replaced by the following:
"Distributor will administer and advance, on your behalf, coop
advertising for Albums and Related Records distributed hereunder up
to an amount mutually approved by you and Distributor, it being
understood that coop advertising not in excess of four percent (4%)
of Gross Sales hereunder is hereby deemed approved. Any such coop
advertising costs incurred by Distributor shall be deducted from Net
Proceeds payable hereunder."
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6. The following sentence shall be deemed to be added to the end of
subparagraph 4.01(c):
"Without limitation of the foregoing, at your request, during each
Contract Year of the Term, Distributor will administer and advance,
on your behalf, independent promotion costs incurred in connection
with up to four (4) Applicable Album(s) designated by you, up to an
amount approved in writing by Distributor. In connection with any
such Applicable Album that is a "pop" or "urban" album (as such
terms are generally understood in the music industry), independent
promotion costs not in excess of $50,000 are hereby deemed approved.
In connection with any such Applicable Album that is a "crossover
album" (as such term is generally understood in the music business),
additional independent promotion costs not in excess of $25,000 are
hereby deemed approved. Any such independent promotion costs
incurred by Distributor shall be deducted from Net Proceeds payable
hereunder.
7. The third and fourth sentences of paragraph 6.04 are deemed deleted
and replaced by the following:
"Without limitation of the foregoing, Manufacturing Charges shall be
administered and advanced on your behalf by Distributor and such
Manufacturing Charges (and any interest accrued thereon) shall be
deducted from Net Proceeds payable hereunder."
8. Upon receipt of your request, Distributor will provide you with
redacted statements from its distributor solely with respect to the
distribution of Applicable Albums and Related Records.
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Except as specifically modified herein, the Agreement remains in full
force and effect, is binding by its terms, and is hereby ratified and confirmed
as though set forth at length herein.
WITNESS, the due execution hereof.
SHERIDAN SQUARE ENTERTAINMENT, L.L.C.
By: /s/ Daniel Goldberg
----------------------------------------
An Authorized Representative
ANTRA MUSIC GROUP, INC.
By: /s/ Joseph M. Marrone
---------------------------------------
An Authorized Representative
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OPERATING AGREEMENT (the "LLC AGREEMENT") dated as of December __, 1999
by and between SHERIDAN SQUARE ENTERTAINMENT, LLC. d/b/a Artemis Records
("Artemis"), at 130 Fifth Avenue, New York, New York 10011, on the one hand, and
Antra Music Group, Inc. ("Antra"), at 1515 Locust Street, Philadelphia, PA
19102, on the other hand.
All capitalized terms not expressly defined herein shall have the same
meaning ascribed to them in Exhibit A annexed hereto and incorporated herein by
this reference.
ARTICLE I
ORGANIZATION
SECTION 1.01. Formation.
(a) As of the date hereof, (the "Commencement Date"), Artemis and
Antra have agreed to form, pursuant to the Delaware Limited Liability Company
Act, as amended, (the "Act"), and all other pertinent laws of the State of
Delaware, Antra Records, LLC ("Company") as a limited liability company, for the
purposes and upon the terms and conditions hereinafter set forth. Artemis and
Antra and any additional member or successor-in-interest admitted to Company in
accordance with the terms hereof shall sometimes be referred to individually as
a "Member" and collectively as the "Members". Each Member's equity interest in
Company is sometimes hereinafter referred to as a "Member Interest".
(b) Promptly following the date hereof, each Member shall execute,
[or, if applicable, Artemis on behalf of the Members shall execute (and provide
copies to Antra following receipt of Antra's written request for same)] and the
Members shall, as soon as practicable, file and record, or cause to be filed and
recorded with the Office of the Secretary of State of the State of Delaware, as
required by and in conformance with Section 18-201 of the Act, a certificate of
formation of Company in the form attached hereto as Exhibit B (the
"Certificate") (the date of such filing being the "Formation Date"). Each Member
shall [or, if applicable, Artemis on behalf of the Members shall (and provide
copies to Antra following receipt of Antra's written request for same)], if
required by law, publish such other certificates or other instruments as may be
necessary or desirable under the laws of any state in which Company does
business in connection with the formation of Company, the commencement and
carrying on of its business and the establishment and preservation of the
limited liability of the Members.
SECTION 1.02. Name and Office. The name of Company shall be Antra
Records, LLC, or such other name as the Members shall mutually approve in
writing. All business of Company shall be conducted under such name and title to
all property real, personal, or mixed, owned by or leased to Company shall be
held in such name. The principal place of business of Company shall be at 1515
Locust Street, Philadelphia, PA 19102 or at such other place within the
Philadelphia metropolitan area as may be chosen at any time and from time to
time by unanimous written consent of the "Executive Board" (as defined in
Section 7.01 hereof). The registered office and registered agent of Company
shall be United Corporate Services, Inc., 15
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East North Street, Dover, DE 19901 (County of Kent). Company may have such
offices and places of business as the Members may from time to time designate.
SECTION 1.03. Purpose
(a) The purpose of Company is to conduct a record company business
substantially in accordance with industry practices for record companies of the
size of the Company. In that connection, the Company shall: (i) conduct said
record company business, (ii) seek to have recording artists enter into
exclusive recording agreements with the Company as set forth herein; (iii)
produce, sell, license and otherwise exploit Company Masters and Records derived
therefrom by any means or methods whether now known or hereafter devised; (iv)
engage in customary activities of a company in the phonograph record industry;
and (v) do all things necessary or incidental in connection with the foregoing
as may be determined by the Management Committee from time to time (collectively
the "Business").
(b) Company shall not, without the prior written consent of each of
the Members, engage in any business or activity other than the Business and
those activities that are necessary or advisable to carry out the Business.
(c) Antra and Artemis hereby acknowledge that the parties have
previously entered into a pressing and distribution agreement (the "P&D
Agreement") dated as of July 28, 1999. Antra and Artemis further acknowledge
that subject to Antra's Minimum Submission Requirement [as defined in paragraph
7.04(a)(i)], Antra, in its sole discretion, shall determine which Proposed
Artists [as such term is defined paragraph 7.04(a)(i)] it shall furnish to
Company in accordance with the terms and conditions of the LLC Agreement and
which Proposed Artists it will exploit pursuant to the Terms and Conditions of
the P&D Agreement.
SECTION 1.04. Term
(a) Unless sooner terminated pursuant to Article X below, the period
during which Artemis shall be obligated to fund the operation of the Company as
provided herein (the "Term") commenced on the Commencement Date and shall
continue for three (3) years and shall automatically extend, unless Artemis
sends Antra written notice to the contrary, for an additional two (2) year
period, subject to Article X hereof. Each one (1) year period during the Term,
as such period may be suspended or extended in accordance with the terms hereof
is sometimes referred to herein as a "Term Year".
(b) Upon the expiration or termination of the Term:
(i) Artemis shall have no further obligation to make any Loans to
or on behalf of Company or Antra (i.e., Artemis shall have complete discretion
whether to expend any additional monies in connection with the exploitation of
Company Masters);
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(ii) Antra and Joseph Marrone shall have no further obligation to
submit Artists to Company pursuant to Section 7.04 hereof;
(iii) Antra and Joseph Marrone shall have no further obligation
to render services for Company and Artemis as a record company executive on an
exclusive basis; and
(iv) All parties hereto shall be deemed to have fulfilled all of
their respective obligations hereunder, except for those obligations which
survive the termination of the Term, such as warranties, indemnities, any
repayment obligations expressly set forth herein or in the Loan Agreement which
Company and/or Antra may have and Artemis' obligation, on behalf of Company, to
accrue and pay Distributable Profits to Antra, if and when due, in respect of
Company Masters delivered to Company during the Term;
(v) The overall control and management of Company shall be vested
entirely in Artemis. Without limiting the foregoing, Artemis will have the
continuing right to market, distribute and otherwise exploit Company Masters
delivered to Company during the Term, on the same terms and conditions set forth
herein with respect to the Term, and to use the Mark, on and in connection with
the exploitation of Company Masters;
SECTION 1.05. Territory. The Company shall have the right to conduct
the Business throughout the world (the "Territory").
ARTICLE II
LOANS
SECTION 2.01. Artemis' Funding Contributions. Subject to the terms of
the "Working Capital Loan and Security Agreement" annexed hereto as Exhibit C
(the "Loan Agreement"), Artemis shall make the following "Advances" at the
following times:
(a) Operating Advances. Provided Antra is not in material breach of
its obligations under the LLC Agreement or the Consulting Agreement:
(i) During the Term, Artemis shall make loans (collectively, the
"Loans") to Company, in the form of a "Line of Credit", sufficient in amount to
enable Company to pay all expenses set forth in the approved Annual Budget (as
described and defined in Section 2.02 below) for each Term Year, but only to the
extent funds are unavailable from Company's operations to pay such expenses.
Subject always to the applicable approved Annual Budget, the aforesaid expenses
shall be limited to: Advances to Accepted Artists and to producers of Company
Masters, recording costs, video production costs, record royalties, mechanical
royalties, outside legal fees, promotion, marketing and advertising
expenditures, sample clearances, artwork, production and manufacturing costs,
and distribution and other fees payable to third parties in connection with the
exploitation of the Masters. In furtherance of the foregoing, on the
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Commencement Date, and pursuant to the terms of the Loan Agreement, Artemis
shall establish, for Company's benefit, a working capital line of credit (the
"Line of Credit") to cover the Loans.
(ii) Subject to the provisions of this Section 2.01 and Section
2.02 below, the Line of Credit will be available for drawing down by Company in
accordance with the approved Annual Budget then in effect. In the event Antra
desires to cause Company to draw down on the Line of Credit for an item of
expense not specifically provided for in the Annual Budget, then Antra must
obtain Artemis' specific, prior written approval therefor.
(iii) Notwithstanding anything to the contrary expressed or
implied herein, the following shall apply with respect to any Fiscal Year during
the Term after the Initial Term Year:
(A) If at the end of the first six (6) months of such Fiscal
Year, the income statement (including Artemis' reasonable estimate of so-called
"pipeline" income) of Company for such six (6) month period shows either (1) an
actual Net Loss for such six month period or (2) a projected annual Net Loss for
such Fiscal Year, in either case in excess of Three Million Dollars ($3,000,000)
(the "Loss Cap"), then Company's right to draw down on the Line of Credit during
the remainder of such Fiscal Year shall be suspended; provided that, if the
income statement of Company at the end of any subsequent month during such
Fiscal Year shows a projected annual Net Loss for such Fiscal Year which is less
than the Loss Cap (e.g., a projected annual Net Loss of $2,750,000), then
Company's right to draw down on the Line of Credit (and Artemis' obligation to
make payments to Company therefrom) shall resume until such time, if ever, as
the Loss Cap is reached for such Fiscal Year.
(B) If at the end of any Fiscal Year after the Initial Term
Year, the formal accounting statement rendered by Artemis for such Fiscal Year
shows a Net Loss for such Fiscal Year in excess of the Loss Cap, then Artemis
shall have the right to exercise its option to dissolve the Company, as provided
in Section 10.02(e) below. Without limitation of the foregoing, Antra shall have
the right, but not the obligation, to "pay down" the Loss Cap no later than
thirty (30) days after the date of Artemis' notice of its intention to suspend
operation of Company in accordance with subparagraph 2.01(a)(iii)(A) above or to
dissolve Company in accordance with this subparagraph 2.01(a)(iii)(B), provided
however, Antra shall not encumber (whether by mortgage, lien, pledge, charge,
security interest, guarantee, or otherwise), sell, transfer or otherwise dispose
of any assets of Company in order to "pay down" the Loss Cap in accordance
herewith.
(C) Artemis' Finance Department shall oversee the preparations
of all financial statements of Company, including Company's income statements
and the assumptions thereto. Notwithstanding any other provision in the LLC
Agreement, the Line of Credit shall not be deemed to be a guaranty, maintenance
agreement or other similar agreement, or under any circumstances used to satisfy
the general obligations of Company other than in accordance with this Section
2.01.
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(iv) As set forth in more detail in the Loan Agreement, the
principal sum of the Line of Credit, outstanding from time to time, will bear
interest at a floating rate which is equal to one percentage point above the
prime lending rate announced by Citibank, N.A., from time to time. Interest
shall be compounded and shall accrue on the outstanding principal amount of the
Line of Credit on the basis of a three hundred sixty (360) day year over the
actual number of days elapsed.
(v) Notwithstanding the foregoing, neither Antra (except as
expressly set forth in paragraph 10.04) nor Joseph Marrone shall have an
obligation to repay the Loans. For the avoidance of doubt, the immediately
preceding sentence shall in no way relieve Company of any of its obligations
pursuant to this LLC Agreement.
SECTION 2.02. Annual Budget. With respect to each Fiscal Year, during
the Term, no later than one hundred and twenty (120) days before the end of the
end of the current Fiscal Year, Antra shall prepare and submit to Artemis, for
Artemis' approval on a line item-by-line item basis, an annual budget ("Annual
Budget") setting forth in reasonable detail all anticipated revenues and
expenditures of Company for the next Fiscal Year. Without limiting the
foregoing, each Annual Budget shall be in the form annexed hereto as Exhibit D.
Artemis shall have the right, in its reasonable discretion, to approve or
disapprove the Annual Budget and/or any individual line items set forth therein,
it being understood that Artemis' approval of any Annual Budget must be
confirmed in writing by an authorized representative of Artemis to be binding on
Artemis. In the event Artemis refuses to approve the proposed Annual Budget as
submitted by Antra, then the approved Annual Budget for the
immediately-preceding Fiscal Year for each line item shall govern until such
time, if ever, as Artemis has formally approved a new Annual Budget for the
current Fiscal Year in the manner provided herein. For the avoidance of doubt,
Artemis shall not fund the Annual Budget(s) shall not be inclusive of any
so-called "Overhead Expenses" and both Antra and Artemis shall be solely
responsible for their respective Overhead Expenses.
SECTION 2.03. No Further Capital/Loans. Except as expressly provided
in this agreement or as otherwise agreed to in writing, no Member or third party
shall be required or entitled to contribute any other or further capital to
Company, nor shall any Member or third party be required or entitled to loan any
funds of any kind to Company. Notwithstanding the foregoing, in the event that
there is an exigency which requires capital that is not otherwise required to be
contributed by Artemis pursuant to the LLC Agreement, and the Members do not
agree to make additional Capital Contributions, then, at Artemis' election, it
may make a loan to the Company which shall bear interest at a floating rate per
annum of 2% in excess of the reference rate of Chase Manhattan Bank as it may
exist from time to time while such loan is outstanding, but not in excess of the
maximum permitted by law, and if such rate is in excess of the maximum, then at
such maximum rate. Any such loan shall be repaid by the Company on demand, and
if not sooner repaid, shall be repaid prior to the making of any cash
distributions to the Members.
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ARTICLE III
INTERESTS
SECTION 3.01. Interests. On the Formation Date, the Members'
membership interest in the Company shall be as follows: (i) Artemis, fifty
percent (50%); and (ii) Antra, fifty percent (50%).
SECTION 3.02. Capital Accounts. A "Capital Account" shall be
maintained for each Member on the books of Company in accordance with Section
1.704-1(b) of the Treasury Regulations as of any particular date. Each Member's
Capital Account initially shall be equal to such Member's initial contribution
under the LLC Agreement (except as otherwise set forth herein) and thereafter
shall be adjusted as follows:
(a) Increases in the Capital Account of a Member. The Capital
Account of each Member shall be increased by:
(i) The amount of any cash contributed by the Member to Company,
pursuant to the LLC Agreement;
(ii) The amount of any income and gain (or items thereof),
including tax exempt income and gain, allocated on or after the date hereof to
such Member;
(iii) The amount, if any, of any Company liabilities assumed by
such Member on or after the date hereof, other than liabilities that are secured
by any Company property distributed to such Member by Company, as provided in
Treasury Regulations Section 1.704-1(b)(2)(iv)(c)(1); and
(iv) The fair market value of property contributed to the capital
of Company by such Member on or after the date hereof (net of liabilities
secured by such contributed properties that Company is considered to assume or
take subject to or under Section 752 of the Code.)
(b) Decreases in the Capital Account of a Member. The Capital Account
of each Member shall be decreased by:
(i) The amount of cash distributed to such Member by Company on or
after the date hereof;
(ii) The amount of any loss or deduction (or items thereof)
allocated to such Member on or after the date hereof,
(iii) The fair market value of any property distributed to such
Member by Company an or after the date hereof (net of liabilities secured by
such distributed property that
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such Member is considered to assume or take subject to or under Section 752 of
the Code);
(iv) The amount of individual liabilities of such Member that
is assumed by Company on or after the date hereof other than liabilities secured
by property contributed by such Member to Company as provided in Treasury
Regulations Section 1.704-1(b)(2)(iv)(c)(2); and
(v) The amount of any allocations to such Member of expenditures
of Company described in Section 705(a)(2)(B) of the Code.
No interest shall be paid on Capital Contributions, nor earned on Capital
Accounts of any party hereto. A party hereto with a negative Capital Account
shall not be obligated to contribute any amounts to Company to eliminate such
negative balance, nor shall such party owe to the other party or to Company any
interest on any negative balance in its Capital Account. If all or any portion
of a Member Interest is transferred, as permitted hereunder, the transferee
shall succeed to the transferor's Capital Account to the extent it relates to
the transferred interest. Loans made by Artemis or its Affiliates or the
repayment thereof or any interest accrued thereon shall not constitute
contributions or reductions therefrom to capital for purposes of this Section
3.02. A Member's Capital Account shall not be affected (except indirectly by the
reduction in Company income resulting from such payments) by the payment to it
by Company of a fee or other compensation for services rendered to the Company
or in reimbursement of any expenses paid or incurred by such Member in
connection therewith.
SECTION 3.03. Return of Capital Contribution. Company shall not be
liable to either Member and each Member shall not be liable to the other Member
for a return of Capital Contributions. Neither Member shall be entitled to
withdraw from the Company except as set forth herein.
SECTION 3.04. Maintenance of Capital Accounts. Each Capital Account
established for a Member shall be maintained by the "Tax Matters Partner" in
accordance with the rules of Section 704(b) of the Code and the Treasury
regulations promulgated thereunder. Artemis, in consultation with Antra, shall
be deemed the "Tax Matters Partner" of Company. As the Tax Matters Partner,
Artemis shall make such tax elections as it deems necessary and/or advisable in
its discretion (such as under Section 754 of the Code). Artemis inadvertent,
non-repetitious failure to consult with Antra shall not be deemed to be a breach
of the LLC Agreement. Upon receipt of Antra's request, Artemis shall provide
Antra with copies of tax returns prepared for Company.
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ARTICLE IV
AGREEMENTS AND REPRESENTATIONS
SECTION 4.01. Intentionally Omitted.
SECTION 4.02. Artemis Representations. Artemis represents and warrants,
as of the execution hereof, each of the following: (a) Artemis has all necessary
power and authority to enter into, and to perform its obligations under, the LLC
Agreement; (b) the execution, delivery and performance of the LLC Agreement by
Artemis does not and will not (i) conflict with or violate any law or order of
any court or other governmental authority applicable to Artemis or any of its
assets, properties or businesses; or (ii) result in any breach of or constitute
a default under any agreement to which Artemis is a party or by which any of
such assets or properties is bound or affected; (c) Artemis is a corporation
duly organized, existing and in good standing under the laws of the State of New
York, and (d) Artemis shall act in good faith with respect to all matters
covered by the LLC Agreement and the Exhibits hereto. Artemis shall not at any
time do, or authorize any Person to do, anything inconsistent with the terms and
conditions set forth herein or which might diminish or impair any party's rights
hereunder, nor shall Antra become liable by reason of any representation, act or
omission of Artemis that is contrary to the provisions hereof.
SECTION 4.03. Antra Representations. Antra represents and warrants, as
of the execution hereof, each of the following:
(a) Antra is a corporation duly organized, existing and in good standing
under the laws of the State of Pennsylvania.
(b) Antra has all necessary power and authority to enter into, and to
perform its obligations under the LLC Agreement and the Exhibits hereto. This
LLC Agreement and the Exhibits hereto upon execution will constitute legal,
valid and binding obligations of Antra, enforceable against Antra in accordance
with their terms. The execution, delivery and performance of the LLC Agreement
by Antra do not and will not: (i) violate, conflict with or result in the
breach of any law or order of any court or other governmental authority
applicable to Antra, or any of its assets, properties or business; or (ii)
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of any encumbrance on any of the assets or properties of Antra
pursuant to, any note, bond, mortgage or indenture, contract agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to which
Antra is a party or by which any of such assets or properties are bound or
affected.
(c) Antra has provided Artemis with copies of all written contracts and
has disclosed to Artemis the terms of all material oral agreements to which
Antra or any Affiliate is a party or has any obligation (i) with composers,
lyricists, singers, musicians, or any other Person, in each case, directly
relating to the production, manufacture or distribution of Master Recordings,
(ii) intentionally omitted, (iii) that limit or purport to limit the ability of
Antra or any Affiliate to
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compete in the Business or in any geographic area, or (iv) the performance of
which would, or could reasonably be expected to have a material adverse effect
on the business, financial condition or prospects of Antra, Company or Artemis
(and all such contracts and pre-existing obligations are listed on Exhibit E).
(d) Company shall have good title to all of the properties, rights, and
assets which may be transferred or licensed to or acquired in any way by
Company, free and clear from all liens, encumbrances and third-party interests.
(e) Company shall own and/or possess adequate licenses or other valid
rights to use (without payment, except as expressly set forth herein) all
trademarks [including, without limitation, the "Antra", "Antra Records", and
"Antra Music Group" trademarks and logos (collectively, the "Mark")], copyrights
and other proprietary rights necessary to conduct its business and none of the
following shall be defamatory or violate or infringe upon the rights of any
Person, including, without limitation, contractual rights, copyrights and rights
of privacy: (i) any name, trademark, logo or other identification used by
Company, including without limitation, the Mark; or (ii) any materials, ideas or
other properties embodied in or used in connection with the Master Recordings or
the packaging of or the advertising for Phonograph Records embodying Master
Recordings.
(f) Antra has no knowledge of any claim or purported claim, lien or
right of any third party which would interfere with Company's or Artemis' rights
hereunder or create any liability on the part of Artemis or Company. Antra
further covenants that it will not make any sale or exchange of any interest in
Company that will cause a termination of Company within the meaning of Section
708 of the Code.
(g) Antra expressly agrees that all Master Recordings recorded pursuant
to any Artist Agreement or otherwise pursuant to the LLC Agreement (specifically
excluding master recordings delivered pursuant to the P&D Agreement), from the
inception of the recording thereof, and all artwork ("Artwork") created for
use on or in connection with Phonograph Records or other derivatives of such
Master Recordings, shall be deemed "works made for hire" for Company.
Accordingly, all such Master Recordings, from the inception of the recording
thereof, and all Phonograph Records and other reproductions made therefrom,
together with the performances embodied therein, and all Artwork, and all
copyrights therein and thereto, and all renewals and extensions thereof, shall
be entirely Company's property, free of any claims whatsoever by Antra or any
other Person. throughout the world and in perpetuity. Accordingly, Company shall
have the exclusive right to obtain registration of copyright (and all renewals
and extensions) in those Master Recordings and in all Artwork, in Company's
name, as the owner and author thereof. If for any reason any such Master
Recording(s) or Artwork are deemed not to be "works made for hire" for Company,
then Antra hereby irrevocably assigns to Company all of Antra's right, title and
interest in and to such Master Recordings and Artwork (including, without
limitation, all copyright therein, and all renewals and extensions thereof).
Without limiting the generality of the foregoing, Company shall have the sole,
exclusive and unlimited right
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throughout the world to manufacture Records and otherwise exploit the Master
Recordings and the performances thereon, or any part thereof, by any method(s)
now or' hereafter known embodying any portion(s) or all of the performances
embodied on such Master Recordings.
(h) Antra shall act in good faith with respect to all matters covered by
the LLC Agreement and the Exhibits hereto. Antra shall not at any time do, or
authorize any Person to do, anything inconsistent with the terms and conditions
set forth herein or which might diminish or impair any party's rights hereunder,
nor shall Artemis become liable by reason of any representation, act or omission
of any of Antra that is contrary to the provisions hereof.
(i) Antra shall not, at any time, directly or indirectly, give or offer
to give any consideration of any kind to any radio or television station,
network, to any employee thereof, or programming for the purpose of securing the
broadcast or promotion of any phonograph records embodying Master Recordings.
(j) Neither the tangible products produced in connection with Antra's
activities under the LLC Agreement, including the Exhibits hereto, nor any
payments to be made pursuant to the LLC Agreement (including the Exhibits
hereto) is currently being used or pledged or shall be used or pledged by Antra
as collateral and/or security for any loan, indebtedness, lien or any other
liability that Antra may have incurred heretofore or incur hereafter.
ARTICLE V
DISTRIBUTIONS
SECTION 5.01. Distributions.
(a) Within ninety (90) days following the last day of each Fiscal Year,
and in connection with each accounting hereunder pursuant to Section 8.04(a)
below, Company shall do the following: (i) distribute to Antra an amount equal
to fifty percent (50%) of Distributable Profits, but only after making the
"Priority Distribution" to Artemis set forth in the next sentence; and (ii)
distribute to Artemis an amount equal to fifty percent (50%) of Distributable
Profits. For purposes of this agreement, "Distributable Profits" shall mean,
with respect to the Fiscal Year concerned, the lesser of: (x) Net Profits and
(y) Available Cash as of the date of such distribution after satisfying the
following priorities:
(i) First, Available Cash shall be applied to reduce the accrued and
unpaid interest on the Loans;
(ii) Second, if there is any Available Cash remaining, it shall be
applied to reduce the principal amount of the Loans; and
(iii) Third, if there is any Available Cash remaining, it shall be
used to
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establish a reasonable reserve against the anticipated cash disbursements
required for the costs and expenses of the proper management of Company's
activities hereunder (in accordance with approved Annual Budget, or as otherwise
approved by the Executive Board) during the next twelve (12) months of the Term,
to the extent in excess of the anticipated cash receipts during such period.
(b) Company, Antra and Artemis shall each be solely responsible for
their respective liabilities for all taxes due to any taxing authority, and
nothing hereunder shall be construed to require Artemis to pay or reimburse
Antra or Company for any taxes of any nature which are payable by Antra or
Company.
(c) Without limitation of the foregoing, Artemis shall have the right
to deduct any outstanding amounts under the P&D Agreement from any Distributable
Profits or other monies otherwise due you hereunder. For the avoidance of doubt,
such amounts shall not be added to any Loss Cap calculations prepared by Artemis
pursuant to paragraph 2.01(a)(iii).
ARTICLE VI
ALLOCATIONS
SECTION 6.01. Computation of Net Income and Net Loss. The Net Income and
Net Loss of Company for any Fiscal Year shall be an amount equal to Company's
taxable income (or loss) for such Fiscal Year (computed in accordance with
Section 703(a) of the Code), with the following adjustments:
(a) any income of Company for such Fiscal Year that is exempt from
federal income tax and not otherwise taken into account in computing Net Income
or Net Loss under this Section 6.01 shall be added to such taxable income (or
loss);
(b) any Section 705(a)(2)(B) Expenditure for such Fiscal Year not
otherwise taken into account in computing Net Income or Net Loss under this
Section 6.01 shall be subtracted from such taxable income (or loss);
(c) in the event the book value of any asset is adjusted pursuant to
Section 704(b) of the Code and the Treasury regulations promulgated thereunder,
the amount of such adjustment shall be taken into account as gain or loss from
the disposition of such asset for purposes of computing the Net Income or Net
Loss;
(d) any gain or loss resulting from the disposition during such Fiscal
Year of any asset (in a taxable transaction) shall be computed by reference to
the book value of such asset;
(e) in lieu of the depreciation (or cost recovery) or amortization with
respect to any asset taken into account in computing such taxable income (or
loss), there shall be taken into account depreciation (or cost recovery) or
amortization in respect of such asset determined by
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applying the method used by Company for federal income tax purposes with respect
to such asset to the book value of such asset (or if the tax basis of such
asset is zero at the beginning of such Fiscal Year, by applying any reasonable
method selected by the Tax Matters Partner);
(f) any items in the nature of income, gain, expense or loss that are
specially allocated pursuant to Section 6.04 shall not be taken into account;
(g) to the extent an adjustment to the tax basis of any Partnership
asset pursuant to Section 734(b) or Section 743(b) of the code is required
pursuant to Section 1.704-1(b)(2)(iv)(m)(4) or (m)(2) of the Treasury
Regulations to be taken into account in determining Capital Accounts as a result
of a distribution other than in complete liquidation of a Partner's interest in
Company, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account in computing Net Income or Net Loss; and
(h) all items of income, gain, loss, deduction or expense that are
required to be separately stated pursuant to Section 7.03(a)(1) of the Code
shall be included in computing Net Income or Net Loss.
SECTION 6.02. Allocation of Net Income, After giving effect to the
special allocations set forth in Section 6.04 hereof, Net Income for any Fiscal
Year shall be allocated as follows:
(a) First, to Artemis in an amount equal to the excess, if any, of (i)
the cumulative Net Losses allocated to Artemis pursuant to Section 6.03(b)
hereof for all prior Fiscal Years, over (ii) the cumulative Net Income allocated
to Artemis pursuant to this Section 6.02(a) for all prior Fiscal Years; and
(b) The balance, if any, fifty percent (50%) to Artemis and fifty
percent (50%) to Antra.
SECTION 6.03 Allocation of Net Losses. After giving effect to the
special allocations set forth in Section 6.04 hereof, Net Losses for any Fiscal
Year shall be allocated as follows:
(a) First, fifty percent (50%) to Artemis and fifty percent (50%) to
Antra in an amount equal to the excess, if any, of (i) the cumulative Net Income
allocated to the Members pursuant to Section 6.01(b) hereof for all prior Fiscal
Years, over (ii) the cumulative Net Losses allocated to the Members pursuant to
this Section 6.03(a) for all prior Fiscal Years; and
(b) Second, one hundred percent (100%) to Artemis,
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SECTION 6.04. Special Allocations.
(a) (i) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Treasury Regulations, notwithstanding any other provision of
this Article VI, if there is a net decrease in partnership minimum gain during
any Fiscal Year, each Member shall be specially allocated items of Company
income and gain for the Fiscal Year (and, if necessary, subsequent Fiscal Years)
in an amount equal to such Member's share of the net decrease in partnership
minimum gain, determined accordance with Treasury Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704(j)(2) of the Treasury Regulations. This
subsection 6.02(a)(i) is intended to comply with the minimum gain chargeback
requirement in Section 1.704(f) of the Treasury Regulations and shall be
interpreted consistently therewith.
(ii) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(6) of the
Treasury Regulations, items of Company income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible, provided that an allocation
pursuant to this subsection 6.04(a)(ii) shall be made only if and to the extent
that such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article VI have been tentatively made as if
this subsection 6.04(a)(ii) were not in the LLC Agreement,
(iii) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Fiscal Year which is in excess of the sum of
(x) the amount such Member is obligated to restore pursuant to any provision of
the LLC Agreement, and (y) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations Sections
1.704-2(g)(1),and 1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible; provided that an allocation pursuant to this subsection 6.04(a)(iii)
shall be made only if and to the extent that such Member would have a deficit
Capital Account in excess of such sum after all other allocations provided for
herein have been made as if subsection 6.04(a)(ii) and this subsection
6.04(a)(iii) were not in the LLC Agreement.
(iv) Curative Allocations. The allocations set forth above in this
Section 6.04 (the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this subsection 6.04(a)(iv).
Therefore, notwithstanding any other provision of the LLC Agreement (other than
the Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss or deduction in whatever manner they
determine appropriate so that, after such offsetting allocations are made, each
Member's Capital Account balance is, to the extent possible,
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equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the LLC Agreement and all Company items
were allocated pursuant to the LLC Agreement without regard to the Regulatory
Allocations, In exercising their discretion under this subsection 6.04(a)(iv),
the Members shall take into account future Regulatory Allocations that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under subsections 6.04(a)(i), (ii) and (iii) above.
(v) Other Allocation Rules. Solely for purposes of determining the
Members' proportionate share of the "excess nonrecourse liabilities" of Company
within the meaning of Treasury Regulations Section 1.752-3(a)(3), each Members
interest in Company profits shall be equal to such Member's Member Interest in
Company (i.e., 50%).
(b) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the Members shall endeavor to treat distributions of cash as having
been made from the proceeds of a nonrecourse liability only to the extent that
such distributions would cause or increase an Adjusted Capital Account Deficit
for any Member.
(c) Tax Allocations. In accordance with Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to Company for Federal income tax
purposes and its initial Gross Asset Value
(d) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to the definition of Gross Asset Value set forth on Exhibit A
hereto, subsequent allocations of income, gain, loss and deduction with respect
to such asset shall take account of any variation between the adjusted basis of
such asset for Federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(e) Any elections or other decisions relating to such allocations shall
be made by the Tax Matters Partner in any manner that reasonably reflects the
purpose and intention of the LLC Agreement. Allocations pursuant to this Section
6.04 are solely for purposes of Federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing any share of
Distributable Profits, Net Profits or Available Cash hereunder.
(f) Except as otherwise provided in the LLC Agreement, all items of
Company gain, loss, deduction, and any other allocations not otherwise provided
for shall be divided among the Members in the same proportions as they share Net
Profits or Net Loss, or amounts specially allocated pursuant to Section 6.04
hereof, as the case may be, for the Fiscal Year.
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MANAGEMENT
SECTION 7.01. Management. During the Term, the overall management and
control of the business and affairs of Company will be vested in the "Executive
Board", which shall manage the affairs of Company and determine the policies of
Company. During the Term, the "Executive Board" shall initially consist of
Joseph Marrone, (as Antra's representative) and Danny Goldberg (as Artemis'
representative). Artemis may replace its designated representative or revoke
its appointment of any previously designated representative at any time (and
from time to time) by giving written notice to Antra. Artemis shall promptly
fill any vacancy caused by the death, removal or resignation of its designated
representative. Each representative on the Executive Board shall be entitled to
one vote and all decisions of the Executive Board shall require a unanimous vote
of both representatives.
SECTION 7.02. Day-to-Day Management. Joseph Marrone ("Marrone") shall
act as the chief executive officer of Company. Subject to the terms hereof,
including without limitation Section 7.06 below, each of Antra and Artemis shall
have the ability to act on behalf of Company in connection with its day-to-day
affairs.
SECTION 7.03. Key Man.
(a) Marrone shall be deemed the "Key Man" and shall render exclusive
services to Company (other than with respect to his services in connection with
the P&D Agreement) so as to fulfill the obligations contemplated hereunder
and/or required of Antra and/or Company under the LLC Agreement, or as may be
reasonably requested by Company, including, without limitation, the supervision
of the production, recording and delivery of Master Recordings to Company and
the fulfillment of all A&R and management functions required on behalf of Antra
and Company.
(b) It is acknowledged that the participation of the Key Man in
Company's affairs and his direct involvement in the performance of Company's
obligations hereunder for the entire Term are of the essence of the LLC
Agreement. In the event of the death or permanent incapacity of the Key Man
during the Term of the LLC Agreement, or if the Key Man shall cease working due
to mental, physical or other disability for a period of six (6) or more
consecutive months, or, if for any other reason, the Key Man fails, refuses or
neglects, for a period exceeding six (6) months, to so participate as set forth
above during the Term, Artemis shall have the right, by notice, to terminate the
Term of the LLC Agreement, and all Loans (including any accrued interest)
hereunder will immediately become due and payable by Company to Artemis.
(c) Artemis shall have the right at any time to obtain insurance on the
life of Marrone, at Artemis' sole expense, with Artemis being the sole
beneficiary thereof. Marrone agrees that he will cooperate fully with Artemis in
connection with the obtaining of such a policy, including, without limitation,
Marrone's submitting to any required physical examination and completing any
documents necessary or desirable in respect thereof, provided, however, Marrone
shall be
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entitled to have a physician of his own choice present at any physical
examination which is required. Neither Marrone nor Marrone's estate shall have
any right to claim the benefit of any such policy obtained by Artemis.
(d) In the event of the death or permanent incapacity of Danny Goldberg
("DG") during the Term of the LLC Agreement, or if DG shall cease working due to
mental, physical or other disability for a period of six (6) or more consecutive
months, Antra shall have the right, by notice, to terminate the Term of the LLC
Agreement.
SECTION 7.04. Services to Be Furnished to Company by Antra.
(a) A&R Scout/Artist Signings. Antra shall endeavor in good faith to
find Artists and to cause such Artists to enter into Artist Agreements with
Company, subject to the following:
(i) During the Term, Antra will, in good faith, submit no less
than five (5) proposed Artists ("Proposed Artists") to Company (the "Minimum
Submission Requirement"), whose recording services shall not be subject to any
contractual restrictions. If Artemis, in its sole discretion, designates any
Proposed Artist an "Accepted Artist", Company may enter into a Artist Agreement
with respect to such Artist, as set forth in more detail below. Each Proposed
Artist shall be submitted to Artemis as follows:
(A) Antra shall deliver to Artemis notice (the
"Submission Notice") along with all materials and information (photos,
performance history, etc.) ("Submission Materials") which will enable Artemis to
make an informed decision regarding the potential of such Proposed Artist. At
Artemis' election, Artemis may also require, a personal audition by such
Proposed Artist. In addition, at Artemis' election, Antra shall deliver a
finished Master Recording or a "demo" tape recording of no fewer than three (3)
compositions. Such "demo" tape shall be recorded pursuant to a budget
approved by Antra and Artemis. (The latter of (1) the date on which the demo
tape, all Submission Materials and the Submission Notice have been received by
Artemis, or (2) the date of the audition described above [if such audition is
requested], shall be deemed the "Submission Date" for purposes hereof.)
(B) If within sixty (60) days from the Submission
Date, Artemis has not designated such Proposed Artist an "Accepted Artist", then
Artemis shall be deemed to have rejected such Proposed Artist (a "Rejected
Artist"). Without limitation of the foregoing, Antra shall have the right to
distribute Records embodying the performances of any such Rejected Artist
pursuant to the terms of and subject to the limitations set forth in the P&D
Agreement.
(C) Antra shall have the right to introduce and
submit the applicable Rejected Artist to a Person other than Company.
(ii) If Artemis elects to designate any Proposed Artist an
Accepted Artist, then Artemis shall, on behalf of Company, endeavor to negotiate
and enter into an Artist Agreement
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with respect to the Proposed Artist concerned. Artemis shall consult with Antra
and its designated legal representative regarding the material financial and
creative terms of such Artist Agreement; provided that Artemis' failure to do so
shall not be deemed a breach hereof and Artemis' decision shall govern in the
event of a dispute. Neither Antra nor Company shall enter into any agreement for
Recordings or the services of Artists during the Term except as specifically
permitted herein.
(A) Provided Antra and/or Marrone are not in material
breach of their obligations hereunder, during each Term Year of the Term,
Artemis shall accept three (3) Artists presented to Artemis by Antra in
accordance with the Minimum Submission Requirement ("Artemis' Acceptance
Obligation"). Antra hereby acknowledges that the two Accepted Artists set forth
in subparagraphs (B) and (C), below shall reduce Antra's Minimum Submission
Requirement and Artemis' Acceptance Obligation for the First Term Year.
(B) Artemis and Antra hereby designate Irina Perez,
Booker Tucker, Joseph Davis, Chenjerai Kumanyika and Jerell Spruill,
individually and collectively professionally known as the "Spooks"' as an
Accepted Artist hereunder. Antra warrants and represents that there is a valid
and binding agreement covering such Accepted Artist's recording services and
that Antra has the exclusive right to record, deliver and exploit Master
Recordings embodying the performances of such Accepted Artist in accordance with
the terms and conditions contained in the LLC Agreement.
(C) Artemis hereby acknowledges that Antra has
acquired and shall transfer to Company the exclusive right to exploit a
soundtrack album (the "Soundtrack Album") derived from the theatrical motion
picture titled "Once In The Life" and that for the purposes of this LLC
Agreement, the Soundtrack Album shall be treated as an Accepted Artist. Such
Soundtrack Album shall be owned by the Company and shall be manufactured,
distributed and otherwise exploited in accordance with this Agreement. Artemis
hereby approves a budget (subject to Artemis' right to review and approve each
line item of the proposed budget) not in excess of One Hundred Fifty Thousand
($150,000) Dollars.
(D) In the event that Antra and/or Marrone has
previously incurred and paid any out-of-pocket costs in connection with either
of the Accepted Artists referred to in subparagraphs (B) and (C) above, Company
shall reimburse Antra or Marrone promptly following: (1) the complete execution
hereof, (2) intentionally omitted; and (3) submission of written documentation
of such expenses.
(iii) With respect to each Company Artist Antra and Artemis
shall mutually control all decisions regarding creative issues relating to the
Business, including, without limitation, the selection of producers, remixers,
compositions to be recorded, recording studios, recording budgets, the
Recordings to be embodied on Singles, the scheduling of release dates for
Company's Records (subject always, however, to any limitations arising out of
Artemis' overall release schedule), Album artwork, the sequencing of Recordings
on Albums, and the selection of
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concepts, scripts and directors for music videos (provided that, with respect
to music videos, Antra must submit all such concepts, scripts, storyboards and
directors to Artemis at least two (2) weeks prior to the scheduled date of the
proposed video shoot, and provided further that the production budget for each
music video shall be subject to mutual approval by Antra and Artemis).
(iv) Except as expressly set forth above, the Advances payable
by Artemis, on behalf of Company, under each Artist Agreement (including,
without limitation, the Recording Costs for each Record) shall be determined by
Artemis, in consultation with Antra.
(v) Company shall be responsible for all costs of recording
Master Recordings, but such costs shall be administered through Artemis' A & R
Administration Department.
(b) Antra, shall be responsible for the supervision of all elements
involved in the production, recording and delivery of the Master Recordings to
Company, as described in subsection 7.04(a) above, including, without
limitation, the following:
(i) Antra shall comply with and shall cause Company and any
individual under the control of Antra or Company to comply with all rules and
regulations of, and become a direct signatory to the applicable collective
bargaining agreements with the AFofM, AFTRA and all other unions and guilds
having jurisdiction over the activities of Company in connection with the
production and recording of Master Recordings. Each Master Recording shall be
recorded in a first class recording studio and shall embody a newly recorded
performance of a musical composition or other material not previously recorded
and commercially released by the Company Artist whose performances are recorded
in that Master Recording. Each Master Recording shall be commercially
satisfactory to Company, which shall be determined by Antra and Artemis on
behalf of Company. Each Master Recording shall also be satisfactory for the
manufacture and sale of Phonograph Records and shall be delivered to Company and
Artemis in a form acceptable to Artemis for the manufacture by and on behalf
of Company of Phonograph Records embodying Master Recordings. Antra shall
deliver to Company each and every original session tape and each multi-track
master recording and, upon Company's receipt, Company shall be responsible for
maintaining and keeping available each Master Recording.
(ii) Antra shall cause to be delivered to Company and Artemis
all information, documents and approvals in accordance with the provisions of
the Artist Agreements so that Artemis is able to manufacture, distribute, market
and sell Phonograph Records embodying Master Recordings and otherwise to exploit
Master Recordings on behalf of Company, except obtaining written confirmation of
mechanical licenses, which, as between Antra and Artemis, shall be Artemis' sole
responsibility, subject to the Company Artist's obligation to obtain such
licenses under the applicable Artist Agreement. Without limitation of the
foregoing, Antra shall furnish Company in writing with all information, consents
and clearances required for the recording, manufacture and distribution of
Master Recordings hereunder with respect to any so-
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called "Embodied Copyrighted Materials". For the purposes hereof, Embodied
Copyrighted Materials shall mean the "interpolation", "sampling", "borrowing" or
other adaptation of any copyrighted music, lyrics, spoken words, sounds, musical
composition sound recordings or other material.
SECTION 7.05. Artemis' General Services to Company. Except as expressly
provided otherwise in the LLC Agreement, Artemis and/or its Affiliates will
perform manufacturing services, sales and distribution services, marketing,
publicity, advertising and promotion services, artwork preparation, and
administrative and so-called "back office" services (including finance, business
and legal affairs, royalty accounting, copyright clearance and accounting, video
production, A&R administration, contract administration and general information
services). Notwithstanding anything to the contrary expressed or implied herein,
Artemis and/or its Affiliates will have the right to decline to release or
distribute, or to cease to distribute, any Record hereunder, in their
discretion, including, without limitation, on the grounds of advocacy of illegal
activity, patent offensiveness, violation of rights of privacy and/or publicity,
defamation, other violation of law or infringement of any other rights of any
third party (including, without limitation, rights of copyright or trademark).
Upon receipt of Antra's written request Artemis shall provide Antra with copies
of redacted statements received by Artemis from its current or subsequent other
distributor.
(a) U.S. Retail Distribution.
(i) During the Term Artemis or its designated Affiliate, shall
be the exclusive distributor through all retail channels and all means of
exploitation in the United States of all Records derived from Company Masters
released by Company (collectively, the "Products"). During each month, Company
shall be accounted to by Artemis or its designated Affiliate with respect to
"Net Billings" (which, for purposes of this agreement, shall mean gross billings
less returns and credits) of the Products distributed hereunder in such
applicable month, after deduction of the distribution fee charged to Artemis by
its distributor, a reasonable reserve against returns (but not to exceed
reserves being held by Artemis' distributor), and any other costs (e.g., co-op
advertising costs) paid by Artemis on Company's behalf, all of which Artemis
shall have the right to retain from Net Billings prior to accounting to Company.
(ii) If, in any month of the Term hereunder, Artemis or its
designee receives returns and/or issues credit to customers in excess of gross
billings during such month ("Excess Returns"), then, in the accounting statement
for such month, Artemis shall have the right, at its election to do any of the
following: (A) to demand reimbursement from Company for an amount (the "Excess
Returns Amount") equal to the credits issued to customers in connection with
such Excess Returns, and, iii such event, Company shall make reimbursement of
the Excess Returns Amount promptly following the date of Artemis' written
request therefor; and/or (B) to deduct the Excess Returns Amount from any and
all reserves established hereunder, and/or (C) to deduct the Excess Returns
Amount from any and all Revenues collected by Artemis hereunder; and/or (D) to
treat the Excess Returns Amount as Advances hereunder.
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(b) Foreign Rights. Artemis and/or its designated Affiliates shall be
Company's exclusive licensee outside the United States, and Company hereby
licenses to Artemis and/or its Affiliates the right to acquire, distribute and
otherwise exploit the Products and the Company Masters outside the United
States, in exchange for which Company shall be entitled to receive, as Revenues
hereunder any monies payable to Artemis by its designated Affiliates.
(e) Ancillary Rights. Artemis will make all decisions regarding the
exploitation of the Products through so-called "secondary exploitation
channels", as that term is understood within the music industry (including,
without limitation, directly or indirectly through licenses for use of Masters
on Records, key outlet sales, master use licenses, licenses or sales to record
clubs and sampling licenses) (collectively, "Ancillary Distribution Channels")
in consultation with Antra, provided that Artemis' inadvertent, non-repetitious
failure to so consult shall not be a breach hereof and that, in the event of a
dispute, Artemis' decision shall be binding. Company hereby designates Artemis,
or its Affiliate(s), as its exclusive agent for Ancillary Distribution Channels.
(d) Marketing. The marketing plan (the "Marketing Plan") for each
Record released by Company shall be determined by Artemis, within the limits
set forth in the applicable approved Annual Budget. Furthermore, Artemis shall
have the right to control the marketing and promotion of all of Company's
Records in accordance with the applicable approved Marketing Plan. Artemis will,
however, consult with Antra with respect to Marketing Plans; provided that
Artemis' decisions shall control in all instances, and provided further that
Artemis' inadvertent, non-repetitious failure to so consult with Antra in any
instance shall not constitute a breach of this agreement by Artemis.
(e) (i) During the Term, Artemis, on behalf of Company, shall
administer and track Company's Options to extend the term of the Artist
Agreements, it being understood, however, that, during the Term, the decision
whether or not to exercise any Option shall be made by the Executive Board. If
Company does not wish to exercise an Option because Antra does not wish for
Company to exercise such Option, then Artemis shall have the right, subject to
making appropriate arrangements with Company for prior expenditures, including,
without limitation, prior unrecouped balances, to require that Company assign to
Artemis all of Companys rights and obligations under the applicable Artist
Agreement (including, without limitation, the right to exercise such Option and
any other Options thereunder, but specifically excluding Company's rights and
obligations relating to Company Masters delivered to Company pursuant to the
applicable Artist Agreement prior to such assigmnent, it being understood that
all such Company Masters shall remain the property of Company). In the event of
any such assignment, neither Company nor Antra shall have any further interest,
financial or otherwise, in respect of the exploitation of Master Recordings
recorded and delivered to Artemis by any Company Artist subsequent to the date
of such assignment. Without limitation of the foregoing, Artemis, in its sole
discretion shall be entitled to renegotiate any Artist Agreement.
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(ii) Without Limitation of the foregoing, if Company does not
wish to exercise an Option because Artemis does not wish for Company to exercise
such Option, then Antra shall have the right, subject to making appropriate
arrangements with Company for prior expenditures, including, without limitation,
prior unrecouped balances, to require that Company assign to Antra all of
Company's rights and obligations under the applicable Artist Agreement
(including, without limitation, the right to exercise such Option and any other
Options thereunder, but specifically excluding Company's rights and obligations
relating to Company Masters delivered to Company pursuant to the applicable
Artist Agreement prior to such assignment, it being understood that all such
Company Masters shall remain the property of Company). In the event of any such
assignment, neither Company nor Artemis shall have any further interest,
financial or otherwise, in respect of the exploitation of Master Recordings
recorded and delivered to Antra by any Company Artist subsequent to the date of
such assignment.
(f) Company's Trademark and Logo.
(i) Antra and Artemis shall mutually approve the Mark to be
used and reproduced by Company on or in connection with exploitations of Company
Masters, and the following terms and conditions shall apply:
(A) The Mark (i.e., the "Antra" logo) shall appear
along with the "Artemis" logos on the packaging and labels of all Records
hereunder and in all advertising and promotional materials related thereto and
shall be substantially the same size as the "Artemis" logo. Notwithstanding the
foregoing, any failure by Artemis' licensees', and any inadvertent failure by
Artemis to comply with the foregoing, shall not be deemed a breach of the LLC
Agreement.
(B) Antra shall retain ownership of the Mark and all
rights therein, subject to the rights herein granted to Company to use the Mark,
as set forth in the following sentence. Antra hereby grants to Company and its
licensees and designees, on a royalty-free basis, the right and license to use
the Mark on and in connection with the exploitation of the Company Masters
hereunder (including, without limitation, on the materials described in Section
7.01 (f)(i)(A) above), and to authorize others to do so, in each instance in
accordance with the terms of the LLC Agreement. Antra shall be solely
responsible for and shall pay all costs to register, maintain and protect the
Mark in all countries designated for use by Artemis. If applicable, Antra shall
execute and deliver to Artemis any and all documents reasonably necessary to
Artemis to evidence or implement the license herein granted to Company. The
rights herein granted to Company in respect of the Mark shall be exclusive
during the Term, and non-exclusive after the Term.
(C) On and in connection with all Phonograph Record
packaging and other materials used on or in connection with the exploitation of
the Company Masters, Artemis shall have the right to reflect that Artemis and/or
its applicable Affiliate is the authorized
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manufacturer and distributor of Company's Phonograph Records embodying Master
Recordings throughout the Territory.
SECTION 7.06. Major Decisions. Notwithstanding anything to the contrary
expressed or implied herein, Antra and Artemis agree that, without the prior
written consent of each of Antra and Artemis, the Company shall not, and shall
not permit any Member, officer, employee or agent of Company, including the
chief executive officer, directly or indirectly, to take any of the following
actions or enter into any agreement which would result in any of the following
actions (any such action a "Major Decision").
(a) incur capital expenditures other than as set forth in an applicable
approved Annual Budget;
(b) borrow money (other than the Loans);
(c) make loans or advances or grant financial or operating guarantees,
except as set forth in the applicable approved Annual Budget;
(d) encumber (whether by mortgage, lien, pledge, charge, security
interest, guarantee, or otherwise), sell, transfer or otherwise dispose of any
assets of Company, other than in the ordinary course of Company's business and
as set forth in the applicable Annual Budget;
(e) approve, establish or enter into any employment agreement,
compensation or other benefit arrangement with an employee;
(f) admit any new members or grant additional interests;
(g) dissolve, liquidate or otherwise terminate Company, except as
permitted pursuant to Article X below;
(h) change the nature of the Business of Company;
(i) change the nature of the rights and/or obligations of Artemis and
Company as set forth herein;
(j) effect a merger or an acquisition or incur any debt in addition to
the amounts provided herein (excluding approved credit issued to Company in the
ordinary course of business, e.g., credit cards, manufacturer's credit, etc.);
(k) join in any involuntary case, or commence any voluntary case, under
applicable bankruptcy, insolvency or other similar laws now or hereafter in
effect, or consent to the entry of an order for relief in any such involuntary
case, or to the conversion of any involuntary case to a voluntary case under any
such law, or consent to the appointment of or taking possession by a
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receiver, trustee or other custodian of all or a substantial portion of the
assets of Company;
(1) adopt the Annual Budget;
(m) appoint, remove or change any of Company's officers or senior
employees, primary outside lawyers or accountants, if applicable;
(n) make any distributions of Company's property or cash or any payment
to any Member or its Affiliates, except as otherwise permitted herein;
(o) acquire, on behalf of Company, any securities of, or other
ownership interest in any Person;
(p) acquire, on behalf of Company, any business or the creation of any
direct or indirect subsidiary of Company or enter into, or acquire any interest
in, any joint venture or partnership with any Person;
(q) authorize any amendment to the LLC Agreement or the Certificate of
Formation of the Company; or
(r) change the name of Company.
ARTICLE VIII
BOOKS AND RECORDS
SECTION 8.01. No Remuneration. Except as otherwise agreed to herein or
in writing by the Members, no Member shall receive any salary or other
remuneration for its services rendered pursuant to the LLC Agreement.
SECTION 8.02. Bank Accounts. The Members shall have authority to open
bank accounts and designate signatories with respect thereto on behalf of
Company and may authorize agents and independent contractors of Company to open
such bank accounts as deemed necessary or desirable for the conduct of Company
business, subject to the terms set forth herein.
SECTION 8.03. Collection of Accounts; Artemis Services.
(a) The parties hereto agree that Artemis, on behalf of Company, shall
be responsible for collecting all Revenues generated by Company, and Antra shall
instruct all sources of Company's Revenues to remit such amounts to the account
specified by Artemis for Company. Notwithstanding that Artemis, on behalf of
Company, shall be responsible for collecting all Revenues generated by Company,
the obligation to pay principal and interest in respect of the Loans is and
shall remain the obligation of Company.
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(b) Company shall maintain a separate, local account (the "Local
Account") and Artemis shall, subject to the Annual Budget and the terms hereof,
make deposits into such Local Account with respect to payments designated by
Artemis to be paid directly by Company; provided that (i) Antra shall report to
Artemis on a monthly basis in connection with the status of such direct
payments, and (ii) the bank at which the Local Account is established shall
provide monthly statements directly to Artemis in connection with such Local
Account. It is hereby agreed that Artemis shall manage all payroll payments on
behalf of Company.
SECTION 8.04. Accountings.
(a) Formal Annual Accountings.
(i) Accountings with respect to Net Profits, Available Cash and
Distributable Profits shall be prepared in accordance with U.S. GAAP and the
internal financial reporting guidelines of Artemis, and shall be made by
Artemis, on behalf of Company, to Antra and Artemis, respectively, on or before
March 31st following the end of the preceding Fiscal Year, or such other
accounting periods as Artemis may adopt, but in no event less frequently than
annually in accordance with the terms and conditions of Section 6.01 above.
(ii) All accountings shall be binding upon Antra unless specific
objection in writing, stating the basis thereof, is given to Artemis within
three (3) years following the date such statement was rendered. Solely for
purposes of objecting to statements under this Section 8.04(a), all statements
hereunder will be deemed conclusively to have been rendered on the due date set
forth in subsection 8.04(a)(i) above unless Antra notifies Artemis otherwise
within thirty (30) days after such due date.
(iii) Antra shall have the right at its own expense to audit
Artemis' books and records which pertain to the LLC Agreement only ounce per
statement, and only within three (3) years following the date such statement was
rendered. Furthermore, Antra may make such audit only for the purpose of
verifying the accuracy of statements sent to Antra hereunder, and only as
provided herein. Antra shall have the right to audit said books by notice to
Artemis at least thirty (30) days prior to the date Antra intends to commence
the audit. Said audit shall be conducted by a reputable, independent certified
public accountant experienced in recording industry audits, and in such a manner
so as not to disrupt the Company's or Artemis' other functions, and shall be
completed promptly. Prior to the commencement of any audit the accounting firm
and each of its employees or partners conducting such audit shall sign a
confidentiality agreement in form and substance satisfactory to Artemis. Antra's
auditor shall review its tentative written findings with a member of Artemis'
finance staff designated by Artemis before rendering a report to Antra, so as to
remedy any factual errors and clarify any issues that may have resulted from any
misunderstanding. Such audit shall be conducted during Artemis' usual business
hours, and at Artemis' regular place of business in the United States where
Artemis keeps the books and records to be examined. Notwithstanding anything to
the contrary expressed or implied herein, in no event shall Antra have the
right to audit any of Artemis' or its Affiliates' manufacturing
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records, nor any of Artemis' Affiliates books and records relating to the
exploitation of Company Masters outside the United States.
(iv) Antra shall not have the right to bring an action against
Artemis in connection with statements hereunder unless Antra commences the suit
within three (3) years following the date such statement was rendered; the scope
of the proceeding will be limited to determination of the amount due for the
accounting periods concerned, and the court will have no authority to consider
any other issues or award any relief except recovery of any monies found owing;
however, in the event any court determines, on the face of the facts presented,
fraud or gross negligence on the part of Artemis in connection with any such
claim, and such determination is not overturned or reversed, the limitations set
forth in the immediately preceding clause shall not apply.
(b) Informal Monthly Accountings. In addition to the annual accountings
required to be rendered to Antra and Artemis pursuant to Section 8.04(a) above,
Artemis, on behalf of Company, shall prepare and render to Antra and Artemis,
within thirty (30) business days following the end of each mouth during the
Term, an informal income statement showing Company's estimated income and
expenses during such month and an a cumulative basis during the applicable
Fiscal Year. Artemis' Finance Department will be reasonably available to Antra
to answer any questions Antra may have regarding any such informal income
statement.
ARTICLE IX
SALE OR TRANSFER OF MEMBER INTERESTS
SECTION 9.01. No Transfer. No Member may sell, assign transfer, give,
hypothecate or otherwise encumber, directly or indirectly, by operation of law
or otherwise (including by merger, consolidation, dividend or distribution) (any
such sale, assignment, transfer, gift, hypothecation or encumbrance being
hereinafter referred to as a "Transfer"), any Member Interest ("Equity
Interest") except as set forth in this Article IX. Any Transfer of any Equity
Interest in contravention of this Article IX shall be null and void. No Member,
without the prior written consent of each other Member, shall retire or withdraw
from Company except as a result of such Member's death, permanent disability,
insanity, incompetence or the final adjudication of such Member as bankrupt.
SECTION 9.02. Transfers to Affiliates; Succession.
(a) (i) Artemis may, at its election, assign this agreement or any of
its rights hereunder to any parent, subsidiary, Affiliate or division of Artemis
or to any subsidiary or licensee in which Artemis now has or may hereafter
acquire a substantial interest, to any entity that merges its assets with those
of Artemis or the assets of which are acquired by Artemis, by lease or
otherwise, or to any entity acquiring all or a substantial portion of Artemis'
assets, and such rights may be assigned by any assignee.
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(ii) Subject to Artemis' right to terminate the LLC Agreement
pursuant to paragraph 7.03, Antra may, at its election, assign this agreement or
any of its rights hereunder to any parent, subsidiary, Affiliate or division of
Antra or to any subsidiary or licensee in which Antra now has or may hereafter
acquire a substantial interest, to any entity that merges its assets with those
of Antra or the assets of which are acquired by Antra, by lease or otherwise, or
to any entity acquiring all or a substantial portion of Antra' assets, and such
rights may be assigned by any assignee. Notwithstanding the foregoing, in the
event that Marrone is no longer involved with Antra or Company in accordance
with 7.03(b), Artemis shall be relieved of Artemis' Acceptance Obligation set
forth in paragraph 7.04(a)(ii)(A).
(b) Subject to Section 7.03, in the event of the death or permanent
incapacity of an individual Member or in the event of the merger,
consolidation, dissolution or liquidation of any Member not an individual, all
of such Member's Interest shall pass to such Member's personal representative,
heir or distributee, in the cast of an individual Member, or to such member's
legal successor, in the case of any Member not an individual. A Transfer
pursuant to this Section 9.02 shall not be subject to Section 9.01 above.
SECTION 9.03. New Members. Notwithstanding Section 9.01 and subsection
9.02(a) above, no Person, not then a Member, shall become a Member hereunder
under any of the provisions hereof unless such Person shall expressly assume and
agree to be bound by all of the terms and conditions of the LLC Agreement. All
reasonable costs and expenses incurred by Company in connection with any
Transfer and, if applicable, the admission of a Person as a Member hereunder,
shall be paid by the transferor. Upon compliance with all provisions hereof
applicable to such Person becoming a Member, all other Members agree to execute
and deliver such amendments hereto as are necessary to constitute such Person a
Member of the Company.
Article X
TERMINATION
SECTION 10.01. Dissolution. In addition to (and not in lieu of) the
applicable provisions of Delaware law, Company shall be dissolved and its
business wound up upon the occurrence of any of the following events, whichever
shall first occur (the "Termination Date"):
(a) Subject to Section 11.03 below, a material breach by Antra of any
of its representations or obligations under the LLC Agreement (including without
limitation the Exhibits hereto) and/or a breach by Antra of the Consulting
Agreement;
(b) The death, insanity, permanent incapacity, retirement, resignation,
withdrawal, expulsion, dissolution, liquidation or final adjudication as a
bankrupt or the filing of a voluntary petition in bankruptcy of any Member
unless the remaining Member elects to continue Company within ninety (90) days;
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(c) Intentionally Omitted;
(d) The written agreement of Artemis and Antra; or
(e) At Artemis' option, upon notice, to Antra, if Net Losses for any
Fiscal Year after the Initial Term Year exceed the Loss Cap (subject only to
Antra's right to pay down the Loss Cap as set forth in paragraph 2.01(a)(iii),
as shown on the formal accounting statements prepared by Artemis for such Fiscal
Year.
SECTION 10.02. Termination. In all cases of dissolution of Company
(except in the case of a dissolution pursuant to paragraph 10.01(d), in which
instance such dissolution shall be governed by the mutual agreement of the
parties), the Business of Company shall be wound up and terminated by Artemis as
promptly as practicable thereafter, and each of the following shall be
accomplished:
(a) Artemis shall cause to be prepared a statement setting forth the
assets and liabilities of Company as of the date of dissolution, a copy of which
statement shall be furnished to all of the Members. The assets of Company shall
be allocated, either by appraisal and distribution of the assets themselves or
by liquidation of the assets and distribution of the proceeds of such
liquidation, as Artemis and Antra may mutually agree.
(b) Notwithstanding anything to the contrary in subsection 10.02(a)
above, if Company is being terminated because of an event described in
subsection 10.01(a), (b), (c) or (e) above, then Artemis shall have the right to
acquire all the assets of Company for a purchase price equal to the fair market
value of such assets. The "fair market value" of the assets of Company shall be
determined by a nationally recognized investment banking firm agreed upon by
Artemis and Antra and knowledgeable with respect to the Business. Such
investment banking firm's determination of the fair market value of the assets
of Company, shall be considered in the context of a hypothetical purchase of the
assets of Company negotiated between a willing buyer and a willing seller,
neither of whom is under compunction to act, without any discount for a minority
interest, transfer restrictions, illegality or other similar factors; provided
that in the event Marrone is no longer President, the investment banking firm
shall consider such fact. In evaluating Company, the investment banking firm
shall give due consideration to the prospects and potential of Company. The
fees, costs and expenses of the investment banking firm shall be borne by
Company. Artemis shall notify Company within fifteen (15) days of the delivery
of such investment banking firm's determination to Company whether Artemis
intends to exercise its right to acquire the assets of Company; provided that in
order to exercise such right, Artemis must be able to demonstrate in reasonable
detail in such notice that it (i) has the financial ability to consummate such
purchase and (ii) is able to close such transaction within sixty (60) days of
the Termination Date. Artemis shall have the right to deduct its unpaid Loans
and/or Advances hereunder, and any unpaid interest accrued thereon from the
amount of the purchase price.
(c) Any gain or loss realized by Company upon the appraisal and
distribution or sale
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of its property and assets shall be allocated to the Members in the manner set
forth in Article VI hereof
(d) The appraised assets and/or proceeds of the sale of all the assets
of Company shall be applied and distributed as follows and in the following
order or priority:
(i) To the payment of (A) the debts and liabilities of Company
(including any outstanding amounts due on any recourse indebtedness encumbering
the Property, or any part thereof, including any accrued and unpaid interest
thereon) and (B) the expenses of liquidation;
(ii) To the setting up of any reserves which Artemis shall
determine to he reasonably necessary for contingent, unliquidated or unforeseen
liabilities or obligations of Company or the Members arising out of or in
connection with Company. Such reserves may, in the discretion of Artemis, be
paid over to a national bank selected by it and authorized to conduct business
as an escrowee to be held by such bank as escrowee for the purposes of
disbursing such reserves to satisfy the liabilities and obligations described
above, and at the expiration of such period as Artemis may reasonably deem
advisable, distributing any remaining balance as provided in clauses (iii) and
(iv) below; provided that, to the extent that it shall have been necessary, by
reason of applicable law or regulation, to create any reserves prior to any and
all distributions which would otherwise have been made under this subsection (d)
and, by reason thereof, a distribution under clause (i) hereof has not been
made, then any balance remaining shall first be distributed pursuant to clause
(i) hereof;
(iii) To Artemis, the sum of the full amount drawn on the Loans or
Advances provided by Artemis to Company and/or Antra, and any unpaid interest
accrued thereon; and
(iv) The remainder of the aggregate assets and/or proceeds shall be
divided between Artemis and Antra, in accordance with their Member Interests
(i.e., fifty percent (50%) to Artemis and fifty percent (50%) to Antra).
SECTION 10.03. Attorney-In-Fact. Artemis is hereby irrevocably
appointed as the true and lawful attorney in the name, place and stead of each
of the Members, such appointment being coupled with an interest, to make,
execute, sign, acknowledge and file with respect to Company all papers which
shall be necessary or desirable to effect the dissolution and termination of
Company in accordance with the provisions of this Article X. Without limiting
the foregoing, Artemis shall, upon the final dissolution of Company, file an
appropriate certificate to such effect in the proper governmental office or
offices under the Act as then in effect. Notwithstanding the foregoing, each
Member, upon the request of Artemis, shall promptly execute, acknowledge and
deliver all such documents, certificates and other instruments as Artemis shall
reasonably request to effectuate the proper dissolution and termination of
Company, including the winding-up of the business of Company.
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SECTION 10.04 Buy-out.
(a) Either party shall have the option, exercisable by sending the,
other party a notice (the "Buy-out Election Notice") not earlier than one (1)
year following the expiration of the Term (the "Buy-out Trigger Date"), to
buy-out the interest of the other party in the Company. within thirty (30) days
after such Buy-out Election Notice, Artemis shall render a good faith estimate
of the status of accounts of the Venture, including undistributed Net Profits
and outstanding Loans or other Advances (the "Interim Statement"). Within thirty
(30) days after after date Artemis delivers the Interim Statement, Antra shall
deliver written notice (the "Buy-out Price Notice") to Artemis specifying a
price (which price shall be for 50% of the equity value of the Company).
Artemis will then have an irrevocable option for a period of thirty (30) days to
agree to purchase Antra's share of Company for the price specified in the
Buy-out Price Notice (subject to adjustment pursuant to paragraph 10.04(b)
below). If Artemis does not exercise the option prior to its expiration, then
Antra, shall purchase Artemis' share of the Company for the price specified in
the Buy-out Price Notice, In the event that Antra fails to fulfil such
obligation to purchase the Company by such date, the parties shall retain their
respective ownership interests in Company and Artemis shall continue to operate
the Company in accordance with the terms of the LLC Agreement applicable to the
operation of the Company after the expiration of the term.
(b) If either party purchases the other party's interest in the Company
pursuant to this Section 10.04, then the seller shall also be entitled to
receive the balance of all undistributed Net Profits, if any, attributable to
its ownership interest in the Company up to the end of the Buy-out Trigger Date.
Artemis shall deliver to Antra, within 90 days after the end of the Term,
financial statements in order to determine the Net Profits distributable to each
of the parties at the end of the Term. At the Buy-out Closing, the party which
sold its interest shall be entitled to receive from the Company an amount equal
to such Net Profits. Additionally one hundred percent (100%) of any outstanding
Loans (and any interest accrued thereon) shall be either (i) deducted from the
price to be paid by Artemis or (ii) added to the price to be paid by Antra to
purchase the other party's interest in Company.
(c) The closing of any purchase provided for in this Section 10.04 (the
"Buy-out Closing") shall be held at such time and place as the parties may agree
(such date, the "Buy-out Closing Date").
(d) (i) If Artemis acquires Antra's interest in Company in accordance
with this Section 10.04, effective as of the Buy-out Closing Date, Antra shall
have no further consent, approval or consultation rights pursuant to this LLC
Agreement, any Artist Agreement and/or any other rights acquisition Agreement.
(ii) If Antra acquires Artemis' interest in Company in accordance
with this Section 10.04, effective as of the Buy-out Closing Date, Artemis shall
have no further consent, approval or consultation rights pursuant to this LLC
Agreement, any Artist Agreement and/or any other rights acquisition Agreement.
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(e) After the Buy-out Closing, the party that purchased the interest of
the other party shall indemnify and hold harmless against all losses,
liabilities, damages, costs and expenses (including reasonable attorney's fees
and expenses) relating to the business and operations of Company both before and
after the Buy-out Closing; provided that such indemnification shall not release
the indemnified party from any obligation arising as a result of a breach of
this LLC Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Further Assurances. Each Member agrees to execute,
acknowledge, deliver, file, record and publish such further certificates,
amendments to certificates, instruments and documents, and do all such other
acts and things as may be required by law, or as may be required to carry out
the intent and purposes of the LLC Agreement.
SECTION 11.02. Indemnities.
(a) Company shall indemnify, to the extent of the then-current Company
assets any Member, employee, officer, agent or individual who was or is a party
or is threatened to be made a party to any threatened, pending completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a member of the management committee or
similar governing body, or an employee or agent of Company, against expenses
(including, without limitation, reasonable fees and disbursements of counsel
incurred by the indemnitee in any action or proceeding between such indemnitee
and the indemnitor or any third party or otherwise), judgments, fines and
amounts paid in settlement (with Company's consent) actually and reasonably
incurred in connection with such 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
interest of Company.
(b) Any indemnification under subsection (a) of this Section 11.02
(unless ordered by a court) shall be made by Company only as authorized in the
specific case upon a determination that indemnification of the Member, officer,
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in subsection (a) of this Section
11.02. Such determination shall be made by a unanimous vote of the Members or,
with respect to a member of the Executive Board, as so directed by independent
legal counsel in a written opinion.
(c) Company may purchase and maintain insurance on behalf of any Person
who is or was a Member, officer, employee or agent of Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, including without limitation,
Marrone.
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SECTION 11.03. Force Majeure/Cure/Suspension.
(a) Each of Artemis and Antra shall not be deemed to be in breach of
any of their respective obligations hereunder that can be cured unless and until
the other shall notify them specifically of the details of that breach or
alleged breach and they shall fail to cure or attempt to cure that breach or
alleged breach within sixty (60) days after their receipt of that specific
written notice from the other party.
(b) With respect to the services to be furnished to Company by Artemis
hereunder, Artemis shall not be deemed in default of the LLC Agreement to the
extent the performance of Artemis' obligations are delayed or become impossible
or impractical by reason of any labor disagreements, fire, catastrophe, shortage
of materials or other force majeure event beyond their control that materially
hampers or makes commercially impractical their normal business operations
(hereinafter referred to as a "force majeure contingency"). By notice to Antra,
Artemis may suspend its obligations hereunder for the duration of any such force
majeure contingency. In the event of any such suspension, specific dates,
periods and time requirements referred to in the LLC Agreement, shall be
postponed or extended accordingly. No suspension imposed under this paragraph
11.03(b) shall exceed six (6) months unless such contingency is industry-wide,
in which event Artemis shall have the right to suspend the applicable Period for
the duration of such contingency. If such suspension is not industry-wide, Antra
may request Artemis by notice in writing given at any time after the expiration
of such six (6) month period to terminate the suspension within sixty (60) days
following Artemis' receipt of Antra's said notice. If Artemis does not so
terminate the suspension, the Term of this agreement will terminate at the and
of such sixty (60) day period, or at such earlier date as Artemis may designate
in writing, and the parties shall be deemed to have fulfilled all their
obligations hereunder except those obligations, which survive such
termination.
SECTION 11.04. Notices. All notices to Artemis shall be sent to Artemis
at 130 Fifth Avenue, New York, New York 10011, to the attention of the Chief
Executive Officer; and all statements and payments and any and all notices to
Antra shall be sent to Antra at the address set forth on the first page of this
agreement or such other address as each party hereafter designates by notice in
writing to the other. All notices shall be in writing and shall be sent by
registered or certified mail, return receipt requested, and the date of mailing
of any such notice shall be deemed the date of the, giving thereof (except
notices of change of address), the date of which shall be the date of receipt by
the receiving party. Copies of all notices to Artemis hereunder shall also be
sent to the attention of the Senior Vice President, Business & Legal Affairs.
Copies of all notices to Antra shall also be sent to the Law Offices of Brad A.
Rubens, LLC, 1822 Spring Garden Street, Philadelphia, PA 19130, provided,
however that Artemis' inadvertent failure to send such copy shall not be deemed
to be a breach of this agreement or to impair the effectiveness of the notice in
question.
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SECTION 11.05. GOVERNING LAW. EXCEPT FOR MATTERS RELATING TO THE
VALIDITY OF COMPANY, WHICH SHALL BE SUBJECT TO DELAWARE LAW, THIS LIMITED
LIABILITY COMPANY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND
PERFORMED ENTIRELY IN THAT STATE (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS
PRINCIPLES UNDER NEW YORK LAW). THE PARTIES AGREE THAT ANY ACTION, SUIT OR
PROCEEDING BASED UPON ANY MATTER, CLAIM OR CONTROVERSY ARISING UNDER THE
AGREEMENT AND/OR HEREUNDER OR RELATING THERETO AND/OR HERETO SHALL BE BROUGHT
SOLELY IN THE STATE COURTS OF OR THE FEDERAL COURT IN THE STATE AND COUNTY OF
NEW YORK; EXCEPT THAT IN THE EVENT ARTEMIS IS SUED OR JOINED IN ANY OTHER COURT
OR IN ANY OTHER FORUM IN RESPECT OF ANY MATTER WHICH MAY GIVE RISE TO A CLAIM BY
ARTEMIS HEREUNDER, THE PARTIES HERETO OTHER THAN ARTEMIS CONSENT TO THE
JURISDICTION OF SUCH COURT OR FORUM OVER ANY CLAIM WHICH MAY BE ASSERTED BY
ARTEMIS THEREIN. THE PARTIES HERETO IRREVOCABLY WAIVE ANY OBJECTION TO THE VENUE
OF THE ABOVE-MENTIONED COURTS, INCLUDING ANY CLAIM THAT SUCH ACTION, SUIT OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. ANY PROCESS IN ANY ACTION,
SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THE AGREEMENT AND/OR THIS
LIMITED LIABILITY COMPANY AGREEMENT MAY, AMONG OTHER METHODS PERMITTED BY LAW,
BE SERVED UPON ANTRA BY DELIVERING OR MAILING THE SAME IN ACCORDANCE WITH
SECTION 11.04 HEREOF. ANY SUCH PROCESS MAY, AMONG OTHER METHODS, BE SERVED UPON
ANTRA OR ANY OTHER PERSON WHO APPROVES, RATIFIES, OR ASSENTS TO THIS AGREEMENT
TO INDUCE ARTEMIS TO ENTER INTO IT, BY DELIVERING THE PROCESS OR MAILING IT TO
ARTIST OR THE OTHER PERSON CONCERNED IN THE MANNER PRESCRIBED IN SECTION 11.04.
SECTION 11.06. Headings. All titles or captions contained in the LLC
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of the LLC Agreement.
SECTION 11.07. No Third Party Beneficiaries. This LLC Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever.
SECTION 11.08. Extention Not a Waiver. No delay or omission in the
exercise of any power, remedy or right herein provided or otherwise available to
a party or Company shall impair or affect the right of such party or Company
thereafter to exercise the same. Any extension of time or other indulgence
granted to a party hereunder shall not otherwise alter or affect any power,
remedy or right of any other party or of Company, or the obligations of the
party to whom such extension or indulgence is granted.
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SECTION 11.09. Severability. If any term or other provision of the LLC
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of the LLC Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify the LLC Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 11.10. Consents. Any consent or approval to any act or matter
required under the LLC Agreement must be in writing and shall apply only with
respect to the particular act or matter to which such consent or approval is
given, and shall not relieve any Member from the obligation to obtain the
consent or approval, as applicable, wherever required under the LLC Agreement
to any other act or matter. Notwithstanding the foregoing, with respect to
approvals which may be required of Antra in connection with the exploitation of
Master Recordings hereunder, Antra shall be deemed to have granted its approval
if it does not inform Artemis to the contrary, within five (5) days of Artemis'
request therefor.
SECTION 11.11. Entire Agreement. This LLC Agreement shall not be
binding upon Antra or Artemis until signed by a duly authorized officer of
Artemis and countersigned by Antra. This LLC Agreement and the Exhibits, which
are incorporated and made a part hereof, constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and all prior
agreements (including, without limitation, the Short-Form Agreement) relating to
the subject matter hereof are hereby superseded and merged herein. Amendments,
variations, modifications, or changes herein may be made effective and binding
upon the parties by, and only by, the setting forth of the same in a document
duly executed by each party, and any alleged amendment, variation, modification
or change herein which is not so documented shall not be effective as to any
party.
SECTION 11.12. Counterparts, This LLC Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which when taken together shall constitute one and the same agreement.
SECTION 11.13. Related Businesses
(a) Antra acknowledges and agrees that Artemis and its Affiliates
engage in a variety of entertainment-related businesses on a worldwide basis;
and that Artemis and such Affiliates intend to continue engaging in such
businesses, and nothing contained in the LLC Agreement or in any other agreement
shall restrict the rights of Artemis and/or its Affiliates from continuing to
engage in in such businesses.
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(b) Artemis hereby acknowledges that Antra and its affiliates engage in
a variety of entertainment-related businesses on a worldwide basis and that
Antra and such affiliates intend to continue engaging in such businesses, and,
so long as Antra does not engage in any business that would constitute a breach
of its material obligations hereunder or under the P&D Agreement, nothing
contained in the LLC Agreement or in any other agreement shall restrict the
rights of Antra and/or its Affiliates from continuing to engage in such
businesses.
SECTION 11.14. Confidentiality.
(a) The Members acknowledge that during the course of their performance
under the LLC Agreement, each Member may learn confidential information of the
other Member. Each Member agrees to take reasonable steps to protect such
confidential information and further agrees that it shall not: (i) use such
confidential information except as required in the normal and proper course of
performing under the LLC Agreement; and (ii) disclose or allow access to such
confidential information, other than the parties' respective employees,
authorized representatives, agents, directors and officers, in their capacity as
such, on a need-to-know basis, and except as may otherwise be required by law,
without, in each case, obtaining the prior written approval of the other Member,
provided, however, that such restrictions shall not apply to confidential
information which a Member has requested be subject to a confidentiality order
but none the less is required to be revealed to an adjudicating body in the
course of litigation. The foregoing restrictions shall continue to apply after
the expiration or termination of the Term and/or the dissolution of the Company,
regardless of the reason for such expiration, termination and/or dissolution,
and shall continue to apply for so long as the confidential nature of such
information is maintained. All confidential information is, and shall remain,
the property of the Member which supplied it. Each Member shall take reasonable
steps to mark its confidential information with appropriate legends, provided,
however, that the failure so to mark such confidential information shall not
relieve the other Member of its obligations hereunder. The term "confidential
information" does not include information of a particular Member which is or
becomes generally available to the public other than as a result of a disclosure
by the other Member.
(b) Any press releases or press communications concerning the LLC
Agreement must be mutually approved by Artemis and Antra.
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IN WITNESS WHEREOF, the parties hereto have duly executed the LLC
Agreement as of the day and year first above written.
SHERIDAN SQUARE ENTERTAINMENT, LLC
By: /s/ Daniel Gless
------------------------------
An Authorized Representative
ANTRA MUSIC GROUP, INC.
By: /s/ Joseph M. Marrone, CEO
---------------------------
An Authorized Representative
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ASSENT AND GUARANTY
To induce Artemis to enter into the foregoing agreement with Antra Music Group,
Inc. (the "Label") (the "Agreement"):
The undersigned:
(a) represents to Artemis that he has read the Agreement and has had
the legal effect of each of its provisions explained to him by a
lawyer chosen by him;
(b) assents to the execution of the Agreement and agrees to be bound by
all grants, restrictions, and other provisions of it relating to
the undersigned insofar as it relates to him; and
(c) acknowledges that Artemis will have no obligation to make any
payments to the undersigned in connection with the fulfillment of
the undersigned's obligations under the Agreement.
/s/ Joseph M. Marrone, CEO
- --------------------------
JOSEPH MARRONE
SHERIDAN SQUARE ENTERTAINMENT LLC
d/b/a Artemis Records
By: /s/ Daniel Gless
-----------------------
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EXHIBIT A
DEFINITIONS
When used in the LLC Agreement, the following terms shall have the
meanings set forth in this Exhibit A:
(a) "Adjusted Capital Account Deficit" means, with respect to each
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Member
is obligated to restore pursuant to any provision of the LLC Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences of each
of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
(b) "Affiliate": Any Person who, directly or indirectly, controls, is
controlled by, or is under common control with, the specified Person.
(c) "Album": One or more LPs, sold in a single package (an Album of
more than one LP sometimes being referred to as a "Multiple-Record Album").
(d) "Artist": individually and collectively, an individual, duo or
group recording artist.
(e) Artist Agreement: any agreement pursuant to which Company acquires
rights to the recorded performances of an Artist who renders services in
connection with the activities of the parties under the LLC Agreement (whether
such agreement is with the applicable Artist, a furnishing entity, a producer or
otherwise).
(f) "Ancillary Distribution Channels": any and all distribution
channels other than Normal Distribution Channels, including, without limitation,
so-called "secondary exploitation channels", as that term is understood within
the Phonograph Record industry, such as, by means of example only, exploitations
through key outlet sales, master use licenses, licenses or sales to record
clubs, synchronization licenses, sales by or through direct mail and mail order,
and premium sales.
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(g) "Audio-Visual Devices": All forms of reproductions of Audio-Visual
Recordings now or hereafter known, manufactured or distributed primarily for
home and/or jukebox use and/or use on or in means of transportation.
(h) "Audio-Visual Recordings" means every form of recording embodying
performances of Artist wherein are fixed visual images, whether of Artist or
otherwise, together with sound.
(i) "Available Cash": As of any date of determination: (i) the amount
by which Revenues actually received by Company in cash in same-day United States
currency exceed all accrued liabilities and Charges actually paid for by Company
in cash, from commencement of the applicable year through the date of
distribution, less (ii) any Distributable Profits actually paid out by Company
in respect of any Member's Member Interest from the commencement of the
applicable Fiscal Year of the Term through the date of the determination.
(j) Capital Account: The capital account established on the books of
Company for each Partner in accordance with the provisions of Section 3.02 of
the Agreement.
(k) "Capital Contribution": With respect to any Member, the amount of
money and the initial Gross Asset Value (defined below) of any property (other
than money) contributed to Company by such Member (or such Member's predecessors
in interest) with respect to the Member Interest in Company held by such Member.
(l) "Charges": For any period, the sum of the following amounts, in
each case calculated in accordance with U.S. GAAP for such period, without
duplication.
(i) All out of pocket costs paid or accrued to Non-Affiliated
Third Parties by Company or by Artemis or any of its Affiliates on behalf of
Company, including, without limitation, costs relating in any way to Accepted
Artists, Company Masters, the Mark and/or the Business;
(ii) the distribution fee and all other costs charged to Artemis
by its current or subsequent other distributor, a current schedule of which is
attached hereto as Exhibit F;
(iii) all manufacturing costs, and artwork preparation and
production costs in connection with exploitation of Company Masters;
(iv) accrued and unpaid interest on the aggregate principal amount
of the Loans;
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(v) all other expenses of Company in connection with exploitation
of Company Masters and the operation of the Business properly charged against
income in accordance with U.S. GAAP; and
(m) "Code": the Internal Revenue Code of 1986, as amended, modified or
supplemented from time to time, or any successor legislation.
(n) "Company Masters": Master Recordings embodying the performances of
Accepted Artists.
(o) "Depreciation": For any Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
Federal income tax purposes with respect to an asset for such Fiscal Year,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for Federal income tax purposes at the beginning of such Fiscal Year,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the Federal income tax depreciation, amortization, or other
cost recovery deduction for such Fiscal Year bears to such beginning adjusted
tax basis; provided that, if the adjusted basis for Federal income tax purposes
of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Members.
(p) "Fiscal Year": the twelve (12) month fiscal reporting period used
by Artemis from time to time (currently, commencing on January 1 and ending on
December 31).
(q) "Foreign Royalty Base": the published price to dealers in the
applicable country of sale, without any so-called "container charges" or
"packaging deductions".
(r) "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for Federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset (other than money)
contributed by a Member to Company shall be the gross value of such asset as
agreed to by all of the Members (which agreement shall not be unreasonably
withheld by any Member);
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market values as determined by agreement
among all of the Members (which agreement shall not be unreasonable withheld by
a Member) as of the following times: (A) the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a de minimis Capital Contribution; (B) the distribution by Company to a Member
of more than a de minimis amount of property as consideration for an interest in
the Company; or (C) the liquidation of Company within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations; and
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(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross value of such asset on the date of distribution, as
determined by agreement among all the Members (which agreement shall not be
unreasonable withheld by any Member).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subsection (i) or (ii) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset.
(s) "LP: A Phonograph Record embodying no less than ten (10) Sides,
containing no less than forty-five (45) minutes of playing time.
(t) "Master", "Recording", "Master Recording": Any recording of sound,
whether or not coupled with a visual image, by any method and on any substance
or material, whether now or hereafter known, including Audio-Visual Recordings,
intended for reproduction in the form of Phonograph Records, or otherwise.
(u) "Net Billings: Gross billings, less sales allowances, returns and
credits.
(v) "Net Income": For any Fiscal Year, the amount equal to Company's
net income for such year, determined in accordance with Section 6.01.
(w) "Net Loss": For any Fiscal Year, the amount equal to Company's net
loss for such year, determined in accordance with Section 6.01.
(x) Net Profits": Revenues less the following items: (i) Charges; (ii)
a reserve against returns (as calculated and held by Artemis' current or
subsequent other distributor), which shall not exceed 20% of Net Billings; and
(iii) all taxes or other payments required to be paid by Company pursuant to
applicable law, but only to the extent greater than zero, if any.
(y) "Non-Affiliated Third Parties": Persons other than Persons as to
which Artemis now or hereafter directly or indirectly holds more than a fifty
percent (50%) interest or control (including joint ventures) or Persons in which
the principals of Artemis now or hereafter collectively hold more than a fifty
percent (50%) interest or control.
(z) "Normal Distribution Channels: Normal retail distribution channels
as commonly understood in the Record industry, and any other distribution
channels utilized by the sales force of Artemis' affiliated branch distributor.
(aa) "Member": Each of Artemis and Antra.
(bb) "Person": Any individual, corporation, partnership, association,
or other entity, or the legal successors or representatives of any of the
foregoing.
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(cc) "Records", "Phonograph Records": Any device now or hereafter
known, on or by which sound may be recorded and reproduced, which is
manufactured or distributed primarily for home and/or consumer and/or jukebox
use and/or use on or in means of transportation including "sight and sound"
devices or Audio-Visual Devices.
(dd) "Revenues": For any period, calculated in accordance with U.S.
GAAP, the sum of (i) one hundred percent (100%) of the monies actually received
by or credited to Company in the United States in respect of Net Billings solely
attributable to the exploitation of Company Masters in the United States
(expressly excluding any blanket licenses of Artemis' audio and/or audio-visual
catalog of Master Recordings), and (ii) without duplication, the royalty income
actually received by or credited to Company in the United States solely
attributable to the exploitation of Company Masters outside of the United
States.
(ee) "Section 705(a)(2)(B) Expenditure": Any expenditure by Company of
a type that is described in Section 705(a)(2)(B) of the Code (or treated as such
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i)).
(ff) "Side": A Recording embodying Artist's performance of one (1)
Composition or the equivalent thereof, containing no less than two and one-half
(2-1/2) minutes of continuous sound.
(gg) "Single": A 7-inch vinyl disc Phonograph Record or its non-vinyl
equivalent embodying no more than two (2) Sides.
(hh) "Taxable Year": The taxable year of Company required by Section
706 of the Code.
(ii) "Treasury Regulations": The official Treasury Department
interpretation of the Code found in Title 26 of the Code of Federal Regulations.
(jj) "U.S. GAAP": Generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case consistent with the manner in which the
same are applied to the financial statements of Artemis.
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EXHIBIT B
---------
CERTIFICATE OF FORMATION
42
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EXHIBIT C
---------
WORKING CAPITAL LOAN FACILITY
NOTE AND SECURITY AGREEMENT
43
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EXHIBIT D
---------
FORM OF ANNUAL BUDGET
44
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EXHIBIT D-1
-----------
[APPROVED ANNUAL BUDGET FOR FISCAL YEAR 2000]
45
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EXHIBIT E
---------
PRE-EXISTING ANTRA CONTRACTS AND OBLIGATIONS
46
<PAGE>
EXHIBIT F
---------
47
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PUT EXERCISE AGREEMENT
It is hereby agreed as of this _____ day of November, 1999 among the
undersigned, in connection with the Put described in Sections 11.1, 11.2, 11.3
and 11.4 of Subscription Agreements dated on or about July 20, 1999
("Subscription Agreements") between Antra Holdings Group, Inc. (the "Company")
and each of the Subscribers identified on Schedule A hereto ("Subscribers"),
that each of the undersigned consents to the acceleration in part of the
exercise by the Company of that amount of the Put in relation to the amount of
Put Notes ("Put Notes") set forth on Schedule A hereto. For clarification, the
parties agree that the amount of the part of the Put being accelerated in part
and exercised hereby by the Company shall be an aggregate of $800,000, or
57.8313% of the full amount of the Put. Notwithstanding anything to the contrary
herein or in any of the other agreements being executed in connection with this
transaction, the Company shall continue to be entitled to exercise the balance
of the Put at such time as the conditions for exercise set forth in the
Subscription Agreement shall be satisifed or waived.
The Subscribers are granted all the rights, remedies, liquidated
damages and indemnification granted to the Subscribers in connection with the
Notes purchased by the Subscribers pursuant to the Subscription Agreements,
including but not limited to, the rights and procedures set forth in Sections
9.1, 9.2, 9.3, 9.5, 9.6 of the Subscription Agreements, the registration rights
and liquidated damages described in Section 10 of the Subscription Agreements
and the security interest described in Section 13(g) of the Subscription
Agreements.
The Subscribers waive the contingencies described in Sections
11.1(b)(i), 11.1(b)(ii), 11.1(b)(iii), and 11.1(c) of the Subscription Agreement
with respect to the portion of the Put being exercised hereby.
The Company represents and warrants the continuing truth and accuracy
of all of the Company's representations, warranties, and reaffirms the Company's
undertakings set forth in the Subscription Agreements, as of the date hereof
(which shall be deemed the Put Date) and as of the date the purchase price of
the Put Notes is transmitted to the Company (the "Put Closing Date").
The Company further represents and warrants that except as described
above, all contingencies and conditions required for the exercise of the Put
will have been satisfied as of the Put Date and Put Closing Date.
The Placement Agents identified on Schedule B hereto will receive the
cash portion of the Put Commissions (as defined in Section 11.4 of the
Subscription Agreements) and the number of the Company's common stock purchase
warrants which shall be deemed to be the Put Warrants in the amounts designated
on Schedule B hereto.
<PAGE>
For clarification, the parties agree that, subject to modifications approved by
the Placement Agents, (a) the cash commissions payable to the placement agents
as set forth on Schedule B hereto are equal to 57.8313% of the full amount of
such cash commissions as set forth on the disbursement letters to the escrow
agent dated July 15, 1999 and July 20, 1999, and (b) the placement warrants to
be delivered to each of the placement agents as set forth on Schedule B hereto
are equal to (i) 57.8313% of the full amount of such placement agent's placement
warrants as set forth on Schedule B to the Subscription Agreement plus (ii) the
portion of an additional 400,000 warrants in the same proportion as (x) the full
amount of such placement agent's Put placement warrants received in connection
with the Subscription Agreement shall bear to (y) the total amount of all the
placement warrants received by placement agent in connection with the
Subscription Agreement. The attorney for the Subscribers shall receive the fee
described in Section 11.4 of the Subscription Agreements.
This Put Exercise Agreement may be executed in any number of
counterparts and on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same Put Exercise Agreement. This Put Exercise Agreement may be executed
by facsimile transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Put Exercise Agreement as of the date first written above.
ANTRA HOLDINGS GROUP, INC.
By:________________________________
AUSTOST ANSTALT SCHAAN
By:________________________________
BALMORE FUNDS, S.A.
By:________________________________
BERKELEY GROUP LTD.
By:________________________________
NESHER, INC.
By:________________________________
UNITED SECURITIES SERVICES, INC.
By:________________________________
ELLIS ENTERPRISES, LTD.
By:________________________________
<PAGE>
SCHEDULE A
================================================================================
SUBSCRIBER PRINCIPAL NOTE AMOUNT
- --------------------------------------------------------------------------------
AUSTOST ANSTALT SCHAAN $332,530.00
7440 Fuerstentum
Lichenstein, Landstrasse 163
Fax: 011-431-534532895
- --------------------------------------------------------------------------------
BALMORE FUNDS S.A. $332,530.00
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- --------------------------------------------------------------------------------
BERKELEY GROUP LTD. $ 57,831.00
P.O. Box N-1836
Suite A-096
Nassau, Bahamas
Fax: 415-449-3490
- --------------------------------------------------------------------------------
NESHER, INC. $ 38,554.00
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1, 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------
UNITED SECURITIES SERVICES, INC. $ 28,916.00
135 West 50th Street
New York, New York
Fax: 212-541-4410
- --------------------------------------------------------------------------------
ELLIS ENTERPRISES, LTD. $ 9,639.00
42A Waterloo Road
London, England
NW2, 7UF
Fax: 011-441-014509004
- --------------------------------------------------------------------------------
TOTAL $800,000.00
================================================================================
<PAGE>
SCHEDULE B - PUT COMMISSION SCHEDULE
================================================================================
PLACEMENT AGENT CASH COMMISSION PLACEMENT
WARRANTS
- --------------------------------------------------------------------------------
LIBRA FINANCE S.A. $42,602.00 598,555
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- --------------------------------------------------------------------------------
HYETT CAPITAL LTD. 10,313.00 52,048
1510 51st Street
Brooklyn, New York 11219
Fax: 718-972-6196
- --------------------------------------------------------------------------------
INTERNATIONAL GLOBAL 40,000.00 -0-
COMMUNICATIONS, INC.
142 Mineola Avenue, Suite 2D
Roslyn Heights, New York
Fax: 212-643-1998
- --------------------------------------------------------------------------------
J. HAYUT -0- -0-
1116 Potomac Road
Atlanta, GA 30338
Fax: 404-636-0501
- --------------------------------------------------------------------------------
ELLIS ENTERPRISES, LTD. 386.00 8,674
42A Waterloo Road
London, England
NW2, 7UF
Fax: 011-441-014509004
- --------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS, INC. 2,699.00 60,723
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1, 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------
TOTALS $96,000.00 720,000
================================================================================
<PAGE>
PUT EXERCISE AGREEMENT
It is hereby agreed as of this _____ day of February, 2000 among the
undersigned, in connection with the Put described in Sections 11.1, 11.2, 11.3
and 11.4 of Subscription Agreements dated on or about July 20, 1999
("Subscription Agreements") between Antra Holdings Group, Inc. (the "Company")
and each of the Subscribers identified on Schedule A hereto ("Subscribers"),
that each of the undersigned consents to the acceleration in part of the
exercise by the Company and an increase in the amount of the Put to that amount
of the aggregate Put Notes ("Put Notes") set forth on Schedule A hereto. For
clarification, the parties agree that the amount of the Put being accelerated,
increased and exercised hereby by the Company shall be an aggregate of
$1,300,000.
The Subscribers are granted all the rights, remedies, liquidated
damages and indemnification granted to the Subscribers in connection with the
Notes purchased by the Subscribers pursuant to the Subscription Agreements,
including but not limited to, the rights and procedures set forth in Sections
9.1, 9.2, 9.3, 9.5, 9.6 of the Subscription Agreements, the registration rights
and liquidated damages described in Section 10 of the Subscription Agreements
and the security interest described in Section 13(g) of the Subscription
Agreements.
The Subscribers waive the contingency described in Section 11.1(b)(i)
of the Subscription Agreement with respect to the portion of the Put being
exercised hereby. However, it shall be deemed an occurrence of a
Non-Registration Event if all the Company Shares and Common Stock components of
the Securities and Put Securities (as defined in the Subscription Agreement) are
not included in a registration statement as described in Section 10.1(iv) of the
Subscription Agreement, declared effective on or before March 15, 2000.
The Company represents and warrants the continuing truth and accuracy
of all of the Company's representations, warranties, and reaffirms the Company's
undertakings set forth in the Subscription Agreements, as of the date hereof
(which shall be deemed the Put Date) and as of the date the purchase price of
the Put Notes is transmitted to the Company (the "Put Closing Date").
The Company further represents and warrants that except as described
above, all contingencies and conditions required for the exercise of the Put
will have been satisfied as of the Put Date and Put Closing Date.
The term Note as employed in Section 9.5 of the Subscription Agreement
shall be deemed also to refer to Put Note.
The Subscriber shall have the right to allocate which of the equity of
the Company deemed beneficially owned by the Subscriber shall be allocated to
the 9.9% amount described in Section 9.5 of the Subscription Agreement and
similar restrictive agreements and which shall be allocated to the excess above
9.99%.
<PAGE>
The Placement Agents identified on Schedule B hereto will receive the
cash portion of the Put Commissions (as defined in Section 11.4 of the
Subscription Agreements) and the number of the Company's common stock purchase
warrants which shall be deemed to be the Put Warrants in the amounts designated
on Schedule B hereto.
Nothing herein shall constitute a waiver of any of the Subscriber's
rights set forth in any agreement or document prior to the date hereof.
The Company acknowledges that the Put Notes issued prior to the date
hereof and the Put Notes described herein are, among others, "Obligations" as
that term is defined in a Security Agreement dated July 20, 1999 among the
Company, Subscribers and a Collateral Agent.
This Put Exercise Agreement may be executed in any number of
counterparts and on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same Put Exercise Agreement. This Put Exercise Agreement may be executed
by facsimile transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Put Exercise Agreement as of the date first written above.
----------------------------------------
ANTRA HOLDINGS GROUP, INC.
----------------------------------------
AUSTOST ANSTALT SCHAAN
----------------------------------------
BALMORE FUNDS, S.A.
----------------------------------------
BERKELEY GROUP LTD.
----------------------------------------
NESHER, INC.
----------------------------------------
UNITED SECURITIES SERVICES, INC.
---------------------------------------
ELLIS ENTERPRISES, LTD.
<PAGE>
SCHEDULE A
================================================================================
SUBSCRIBER PRINCIPAL NOTE AMOUNT
- --------------------------------------------------------------------------------
AUSTOST ANSTALT SCHAAN $540,410.00
7440 Fuerstentum
Lichenstein, Landstrasse 163
Fax: 011-431-534532895
- --------------------------------------------------------------------------------
BALMORE FUNDS S.A.
P.O. Box 4603 $540,410.00
Zurich, Switzerland
Fax: 011-411-201-6262
- --------------------------------------------------------------------------------
BERKELEY GROUP LTD. $ 93,990.00
P.O. Box N-1836
Suite A-096
Nassau, Bahamas
Fax: 415-449-3490
- --------------------------------------------------------------------------------
NESHER, INC. $ 62,660.00
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1, 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------
UNITED SECURITIES SERVICES, INC. $ 46,930.00
135 West 50th Street
New York, New York
Fax: 212-541-4410
- --------------------------------------------------------------------------------
ELLIS ENTERPRISES, LTD. $ 15,600.00
42A Waterloo Road
London, England
NW2, 7UF
Fax: 011-441-014509004
- --------------------------------------------------------------------------------
TOTAL $1,300,000.00
================================================================================
<PAGE>
SCHEDULE B - PUT COMMISSION SCHEDULE
================================================================================
PLACEMENT
PLACEMENT AGENT CASH COMMISSION WARRANTS
- --------------------------------------------------------------------------------
LIBRA FINANCE S.A. $ 43,228.00
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- --------------------------------------------------------------------------------
HYETT CAPITAL LTD. $ 16,759.00
1510 51st Street
Brooklyn, New York 11219
Fax: 718-972-6196
- --------------------------------------------------------------------------------
INTERNATIONAL GLOBAL $ 65,000.00 220,000
COMMUNICATIONS, INC.
142 Mineola Avenue, Suite 2D
Roslyn Heights, New York
Fax: 212-643-1998
- --------------------------------------------------------------------------------
J. HAYUT $ 26,000.00
1116 Potomac Road
Atlanta, GA 30338
Fax: 404-636-0501
- --------------------------------------------------------------------------------
ELLIS ENTERPRISES, LTD. $ 627.00
42A Waterloo Road
London, England
NW2, 7UF
Fax: 011-441-014509004
- --------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS, INC. $ 4,386.00
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1, 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------
TOTALS $156,000.00 2,433,333
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Balance Sheet and Statement of Operations as of and for
the year ended December 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 343,399
<SECURITIES> 0
<RECEIVABLES> 14,009
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,438,587
<PP&E> 109,185
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,396,964
<CURRENT-LIABILITIES> 4,105,047
<BONDS> 0
0
0
<COMMON> 12,344
<OTHER-SE> 1,274,059
<TOTAL-LIABILITY-AND-EQUITY> 6,396,964
<SALES> 85,366
<TOTAL-REVENUES> 85,366
<CGS> 788,439
<TOTAL-COSTS> 393,402
<OTHER-EXPENSES> 964,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,714
<INCOME-PRETAX> (1,508,276)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,508,276)
<EPS-BASIC> (0.14)
<EPS-DILUTED> 0
</TABLE>
