<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1999
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _______________.
Commission File Number 33-40804
MODERN RECORDS, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-3404374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
468 North Camden Drive,Third Floor
Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
310/ 285-5370
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at September 10, 1999
-------------------------- ---------------------------------
Common Stock, no par value 24,510,864 shares
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART 1
ITEM 1. FINANCIAL INFORMATION
MODERN RECORDS, INC.
BALANCE SHEETS
(Expressed in U.S. Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 123,729 $ 1,656
Advance 10,000 -
Due from related parties 4,438 -
Receivables - 156,140
------------ ------------
TOTAL CURRENT ASSETS 138,167 157,796
DEFERRED RECORD MASTER COST, NET 211,161 184,892
PREPAID ARTISTS ROYALTIES 762,914 -
PROPERTY AND EQUIPMENT, NET 44,341 -
OTHER ASSET 8,486 655
------------ ------------
$ 1,165,069 $ 343,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft $ - $ 3,544
Accounts payable and accrued expenses 512,452 299,245
Accrued officer's compensation 450,000 283,333
Due to related parties - 6,823
Deferred revenue 23,599 -
Note payable - 19,705
Recoupable advance - 50,000
------------ ------------
TOTAL CURRENT LIABILITIES 986,051 662,650
LONG-TERM DEBT - RELATED PARTIES 27,193 26,570
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock; authorized - 20,000,000 shares, none issued - -
Common stock, no par value; authorized - 40,000,000 shares;
issued and outstanding - 25,088,087 shares (1999) and
23,297,696 shares (1998) 3,824,907 2,499,370
Accumulated deficit (3,673,082) (2,845,247)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 151,825 (345,877)
------------ ------------
$ 1,165,069 $ 343,343
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MODERN RECORDS, INC.
STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUE $ 101,719 $ 124,463 $ 301,494 $ 302,057
COST OF REVENUE - 56,768 - 116,083
GROSS PROFIT 101,719 67,695 301,494 185,974
EXPENSES
Officer's salaries 62,500 60,334 187,500 181,437
Other marketing, general and
administrative expenses 377,007 94,695 941,829 267,368
---------------- ---------------- ---------------- ----------------
439,507 155,029 1,129,329 448,805
---------------- ---------------- ---------------- ----------------
NET LOSS $ (337,788) $ (87,334) $ (827,835) $ (262,831)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,105,713 18,924,282 20,633,608 15,302,233
================ ================ ================ ================
BASIC AND DILUTED LOSS PER SHARE $(0.02) $(0.00) $(0.04) $(0.02)
================ ================ ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MODERN RECORDS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED JULY 31, 1999
(Expressed in U.S. Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- ----------------------------- Accumulated
Shares Amount Shares Amount Deficit Total
------------ ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1998 - $ - 23,297,696 $2,499,370 $(2,845,247) $(345,877)
Special warrants (969,100 shares
of common stock and 969,100
warrants issuable upon exercise
plus 44,350 special warrants
to finders) 988,612 988,612
Options exercised 199,718 104,755 104,755
Special warrants exercised 1,013,450
Private placement (600,000 shares
of common stock and 600,000
warrants) 577,223 232,170 232,170
Net loss (827,835) (827,835)
------------ ------------ ------------- ------------ ------------- ---------
Balance, July 31, 1999 - $ - 25,088,087 $ 3,824,907 $ (3,673,082) $ 151,825
============ ============ ============= ============= ============== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MODERN RECORDS, INC.
STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
---------------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (827,835) $ (262,831)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 4,500 -
Amortization of deferred record master cost - 50,000
(Increase) decrease in:
Advances (10,000) -
Receivables 156,140 (94,838)
Other current assets (7,831) (10,654)
Increase (decrease) in:
Accounts payable and accrued expenses 213,207 (148,753)
Accrued interest on note payable 4,000 -
Accrued officer's compensation 166,667 150,000
Recoupable advance (50,000) -
Deferred revenue 23,599 (141,574)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (327,553) (458,650)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred record master cost (26,269) -
Prepaid artists royalties (762,914) -
Purchase of property and equipment (48,841) -
-------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (838,024) -
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (3,544) 9,477
Advances to related parties, net (34,343) (472,573)
Issuance of common stocks 336,925 882,982
Addition of loan - 25,000
Special warrants sold 988,612 -
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,287,650 444,886
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 122,073 (13,764)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,656 15,417
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 123,729 $ 1,653
============== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MODERN RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements presented have been prepared by Modern
Records, Inc. (the "Company") without audit and, in the opinion of the
management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of (a) the results of operations for the three and
nine months ended July 31, 1999 and 1998, (b) the financial position at
July 31, 1999 and (c) the cash flows for the nine months ended July 31,
1999 and 1998. Interim results are not necessarily indicative of results
for a full year.
The balance sheet presented as of October 31, 1998 has been derived from
the financial statements that have been audited by the Company's
independent auditors. The financial statements and notes are condensed as
permitted by Form 10-QSB and do not contain certain information included in
the annual financial statements and notes of the Company. The financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on
Form 10-KSB.
2. STOCKHOLDERS' EQUITY
Private Placement - On January 28, 1999, the Company arranged a private
-----------------
placement of 969,100 special warrants at a price of $1.52Cdn. per special
warrant for gross proceeds of approximately $1,473,032Cdn. Each special
warrant will permit the holder, without additional payment, to acquire one
common stock and one non-transferable share purchase warrant on or before
the earlier of the day which is four months from the closing date, if the
Company becomes eligible to rely on the British Columbia Securities
Commission's Blanket Order and Ruling #98/7 to issue the underlying
securities subject to a four month hold period in British Columbia, or 330
days from the closing date. If the Company becomes eligible to rely on BOR
#98/7, the special warrants will be deemed to be exercised on the day which
is four months from the closing. Each share purchase warrant will be
exercisable into one additional common stock of the Company for a period of
two years, at a price of $2.25Cdn per share. The special warrants will not
be registered in the United States and will be subject to applicable
restrictions on transfer under United States Securities laws. A finder's
fee, consisting of 44,350 special warrants, is payable in connection with
this private placement. Completion of this private placement is subject to
regulatory approval and the Company finalizing an agreement for recording
an album with the Jacksons. The Company has finalized the agreement with
the Jacksons and has received regulatory approval. As of July 31, 1999
these special warrants have been exercised.
On June 11, 1999 the Company arranged a private placement of 600,000 units
at a price of $.60Cdn per unit with each unit comprised of one share of
Common Stock and one non-transferable share purchase warrant. Each share
purchase warrant will entitle the holder to purchase an additional share of
Common Stock for two years at $.60Cdn per share for the first year, and at
$.75Cdn per share for the second year. The units will not be registered in
the United States and will be subject to regulatory approval. As of July
31, 1999 payments for 577,223 units had been received. These additional
shares were included in calculation of weighted average number of shares
outstanding. Subsequent to the end of the quarter ended July 31, 1999, all
of the units were issued.
Stock Options - On December 17, 1998, the Company granted incentive stock
-------------
options to purchase common shares to Mr. Johan Grandin (125,000 options),
Mr. Kendrik Packer (125,000 options) and Mr. Wayne Smith (75,000 options).
The options are exercisable for a period of 5 years, commencing on December
17, 1998 at $2.30Cdn. per share. Mr. Grandin is a director of the Company.
Mr. Smith is a consultant to the Company. Mr. Packer was a director of the
Company at the grant date.
On June 11, 1999 the Company engaged the services of Roland Perry of Perry
& Co., an investor and public relations firm specializing in the Internet,
restaurant and the entertainment industries. As compensation for his
services, Mr. Perry received options to purchase 200,000 shares of the
Company's Common Stock at C$0.82 per share (approximately US$.54 as at
July 31, 1999). The options will expire two years from the date of
issuance.
<PAGE>
On February 5, 1999, Mr. R. Jackson exercised his options to acquire
199,718 shares of common stock at a total purchase price of $155,780Cdn.
3. OFFICER'S COMPENSATION
Effective November 1, 1998, the compensation of Mr. R. Jackson, the
Company's President and Chief Executive Officer was increased to $250,000
per year.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Modern Records, Inc. (the "Company" or the "Registrant") produces,
licenses, acquires, markets and distributes high quality recorded music for a
variety of musical formats.
In May of 1997, Mr. Randy Jackson acquired a controlling interest in
the Company with the intent of repositioning the Company as an independent label
in the recording industry.
The primary source of revenue to the Company has been the production
and release of recorded music. The Company has been closely associated with the
work of recording artist Stevie Nicks, who was one of the Company's founders.
Although Ms. Nicks is no longer under contract with the Company, her works
continue to provide almost all of the Company's revenue; in April 1999 her three
CD box set "Enchanted" Album achieved Gold status with sales in excess of
167,000 albums.
In March 1999, the Company announced the signing of The Jacksons on
the Modern Records label. Work has begun on the project and it is expected that
the album will be released in the spring of 2000. The Jacksons' recording
contract (the "Jacksons' Agreement") requires the Company to make advances
totaling $2,000,000 to The Jacksons upon commencement of recording and
completion of The Jacksons' album, which advances are recoupable against The
Jacksons' share of royalties. The Company has already paid $1,000,000 of the
advances out of funds raised through its private placements. Randy Jackson,
Chairman, Chief Executive Officer and President of the Company and Jackie
Jackson, a director of the Company, are members of The Jacksons. (See
"Liquidity and Capital Resources," below)
Subsequent to the end of the third quarter, effective August 8, 1999, the
Company entered into an agreement with MCY.com for the distribution of the
Company's catalogue in digital form directly from the MCY.com website. MCY.com
acquired the global digital distribution rights of the Company's current and
future artists catalogue. The Company believes that MCY.com's proprietary
NETrax(TM) distribution technology prevents piracy, which has been the primary
concern with the more prevalent, and less secure, MP3 format of downloading
musical tracks from the Internet. NETrax (TM) is designed to prevent the
subsequent re-copying of downloaded tracks by the customer and to prevent
illegal downloading. MCY.com shoppers can
<PAGE>
purchase digital tracks from the Company's catalogue ranging in price from US
$0.99 to $1.99 per track of which the Company will receive 60% and MCY.com will
receive 40%.
The Company also announced in August 1999 the launch of its website which
provides information for investors and allows direct sales of albums of Stevie
Nicks, the Jackson 5, Michael Jackson, Janet Jackson, and 3T.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
Gross revenues decreased $22,744 or 18.3% to $101,719 for the three months
ended July 31, 1999 compared to the same period in 1998. This decrease reflects
primarily the fact that more revenue from sales of Stevie Nicks' "Enchanted"
album were generated in 1998, closer in time to the album's release in April
1998.
Cost of revenues decreased $56,768 or 100% to $0 for the three months ended
July 31, 1999 compared to the same period in 1998. This decrease is due to no
production activity during this period.
Gross profit increased $34,024 or 50.3% to $101,719 for the three months
ended July 31, 1999. This increase is due to no production costs in the three-
month period ended July 31, 1999.
Selling, marketing and general administrative expenses increased in 1999
over the corresponding third quarter of 1998 by $282,312 to $377,007 reflecting
the costs associated with the signing of The Jacksons, ongoing work with new
artist Abel Mason whose first album is expected be released in the next several
months, legal and accounting services required to gain new financing for the
Company and infrastructure including payroll, rent, and communications.
The net loss from continuing operations for the three months ended July 31,
1999 totaled $337,768 compared to $87,334 for the same period the prior year.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
Gross revenues for the nine months ended July 31, 1999 were flat compared
to the same period in 1998. This was due primarily to the fact that (i) the
nine-month period ended July 31, 1999 reflected greater revenue from sales of
Stevie Nicks' "Enchanted" album, which was released in April 1998, compared to
the comparable period ended July 31, 1998, while (ii) catalogue sales in the
nine month period ended July 31, 1998 were greater than they were in the
comparable period ended July 31, 1999.
<PAGE>
Cost of revenues decreased $116,083 or 100% to $0 for the nine months ended
July 31, 1999 compared to the same period in 1998. This decrease is due to no
production activity during the nine-month period ended July 31, 1999.
Gross profit increased $115,520 or 62.6% to $301,494 for the nine months
ended July 31, 1999. This increase is due to no production costs in the
nine-month period ended July 31, 1999.
Selling, marketing and general administrative expenses increased in 1999
over the corresponding period of 1998 by $674,461 to $941,829 reflecting the
costs associated with the signing of The Jacksons, ongoing work with new artist
Abel Mason whose first album is expected be released in the next several months,
legal and accounting services required to gain new financing for the Company and
infrastructure including payroll, rent, and communications.
The net loss from continuing operations for the nine months ended July 31,
1999 totaled $827,835 compared to $282,831 for the same period the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current revenue stream is derived in large part from sales of
Stevie Nicks' albums. In fiscal 1998, the Company realized $241,462 gross profit
from sales of Stevie Nicks' albums. The Company's current management, headed by
Mr. Randy Jackson, who acquired a 47% equity interest in the Company in 1997,
intends to pursue a growth strategy that is centered on signing additional
artists to the Modern label, advancing funds for production of new albums,
marketing albums released on the Modern label and retaining a team of talented
executives with experience in the entertainment industry. Revenues from the
Company's existing products are insufficient to fund this strategy since the
strategy requires significant expenditures before additional revenues are
generated.
In the last two fiscal years, the Company has financed its growth strategy
primarily from sales of the Company's no par value common stock ("Common Stock")
to a limited number of investors, including officers and directors of the
Company. In fiscal 1998, the Company raised approximately C$1.7 million
(approximately US$1,148,028) from placements of its Common Stock to a limited
number of investors and from the exercise of stock options by officers and
directors of the Company. More recently, in March 1999, the Company completed a
private placement of special warrants in which it received net proceeds of
C$1.47 million (approximately US$988,612). The proceeds from this private
placement were applied to the advance owed to The Jacksons for their forthcoming
album. In August 1999 the
<PAGE>
Company completed a private placement of units consisting of Common Stock and
share purchase warrants in which it received net proceeds of C$360,000
(approximately US$240,040 as at July 31, 1999).
The Company's implementation of its growth strategy is dependent on the
Company's ability to obtain additional debt, equity and other financing,
particularly during the period before the Company releases, and begins to derive
revenues from, albums with its existing artists such as The Jacksons and Abel
Mason. There can be no assurance that such financing will be available to the
Company on favorable terms, if at all.
At July 31, 1999, the Company had a working capital deficit of $847,884,
which amount includes $450,000 of accrued compensation to Mr. Randy Jackson. In
addition, the Company is required to pay The Jacksons the $1,000,000 balance of
their advance on completion of their album. The Company does not currently have
these funds available and does not expect that sales of its existing products
will produce enough funds to pay the balance of the advance. To obtain funds
for payment of the advance, the Company is currently engaged in discussions with
a number of lenders with respect to the possibility of obtaining long term debt
financing in the future. Such discussions are in the preliminary stages. The
Company is also exploring alternative sources of financing. There can be no
assurance that such financing will be available to the Company on favorable
terms, if at all. In the event that the Company is unable to obtain the
necessary funds to pay the advance, it may default in its obligations under the
terms of the Jacksons' Agreement.
YEAR 2000 ISSUES
This discussion for "Year 2000" (or "Y2K") relates to the possible
inability of computers, hardware or software to perform properly because they
are unable to interpret date information correctly after December 31, 1999, and
includes all of the associated consequences of such failures on the Company's
operations. If not corrected, such situations could result in a number of
things, including computer-system failure.
The Company's plan to address the Year 2000 problem involved two phases:
assessment of risks and remediation. The Company has completed both phases and
believes that all primary software applications and hardware being used within
the Company are Year 2000 compliant and that any Y2K problems of its vendors or
suppliers will not materially adversely effect the Company's business.
The Company is not currently producing or shipping new product and does not
anticipate doing so until after the year 2000 has started. The number of
vendors and suppliers on which it is dependent is, therefore, considerably
reduced. The Company has inquired of those vendors and suppliers with whom it
is currently doing business and they have given assurances that they are Y2K
compliant.
<PAGE>
The Company has not incurred any significant costs in association with
its remediation program. The Company believes software and hardware components
currently owned by the Company contain sufficient upgrade capability to operate
after December 31, 1999.
The Company's only contingency plan is the saving of information and
recordings on separate back-up disks and tapes. The Company does not have and
does not plan to devise any other contingency plan for a Year 2000 problem. The
Company believes its operations will not be materially adversely affected upon
the occurrence of a hardware or software failure. In the event of a computer
failure, the Company plans to purchase the new software or hardware needed in
order to repair or replace the affected hardware or software.
Although the Company believes that it has assessed and remedied all of
its Y2K problems and that any Y2K problems of its vendors and suppliers will not
cause material adverse disruptions in the Company's operations, the Company
cannot be sure that it has identified all of its Y2K problems and that will not
suffer business interruptions because of its own Y2K problems or those of its
vendors or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
has failed to satisfactorily resolve Year 2000 issues in a timely manner, it
could have a material adverse effect on the Company's business and could expose
the Company to liability to third parties.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Part II, Item 1 of the Company's Quarterly Report on
Form 10-QSB for the quarter ending April 30, 1999, for a description of the
default judgment in the amount of $1.3 million which had been entered against
Mr. Randy Jackson and others in a bankruptcy proceeding. At a hearing held on
July 15, 1999, the judge in the matter voided and vacated the default judgment
against Mr. Randy Jackson, relieving him from any further liability to the
plaintiff.
ITEM 2. CHANGES IN SECURITIES.
UNREGISTERED SECURITIES
On June 11, 1999, the Company engaged the services of Roland Perry of Perry
& Co., an investor and public relations firm specializing in the Internet,
restaurant and the entertainment industries. As compensation for his services,
Mr. Perry received options to purchase 200,000 shares of the Company's Common
Stock at C$0.82 per share (approximately US$.54 as at July 31, 1999). The
options will expire two years from the date of issuance. In addition, Mr. Perry
subscribed for 100,000 units in the private placement completed on August 20,
1999 which is described immediately below. The Company believes that the
issuance of the options to Mr. Perry was exempt from the registration
requirements of the Securities Act of 1933, as amended
<PAGE>
(the "Securities Act") under Section 4(2) of the Securities Act because the
issuance of the options did not involve a public offering.
Subsequent to the end of the third quarter, on August 20, 1999, the Company
completed a private placement offering of units. The Company raised C$360,000
(approximately US$240,040 at July 31, 1999) from its private placement of
600,000 units at a price of C$.60 per unit (approximately US$.40 as at July 31,
1999). Each unit consisted of one share of Common Stock and one non-
transferable share purchase warrant. Each share purchase warrant entitles the
holder to purchase an additional share of Common Stock for two years at C$.60
(approximately US$.40 as at July 31, 1999) for the first year, and at C$.75
(approximately US$.50 as at July 31, 1999) for the second year. The Company
believes that the sales of units were exempt from the registration requirements
of the Securities Act under Section 4(2) of the Securities Act because the
transaction did not involve a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders on May 3, 1999, the following actions
were taken:
1. Election of Directors
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Stephen Randall (Randy) Jackson 14,285,459 0
Stig Hans Johan Grandin 14,285,459 0
Sigmund (Jackie) Jackson 14,285,459 0
Kendrik Packer 14,285,459 0
Lawrence Gallo 14,285,459 0
</TABLE>
There were no broker non-votes.
2. Appointment of Hollander, Lumer and Co., LLP as the Company's independent
auditors to serve until the next annual meeting of shareholders
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
3. Ratification of the appointment of Hollander, Lumer and Co., LLP as the
Company's independent auditors for fiscal year ended October 31, 1998
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
<PAGE>
4. Ratification of shareholders' and directors' actions in furtherance of
prior amendments of the Articles of Incorporation and Bylaws of the Company
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
5. Approval of a resolution authorizing the Company's directors to grant stock
options to directors, officers, employees and other "insiders" of the Company
(as the term "insider" is defined in the British Columbia Securities Act) and to
amend such options from time to time as required
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
ITEM 5. OTHER INFORMATION.
On June 15, 1999 the Company announced that it had engaged the services of
Roland Perry of Perry & Co., an investor and public relations firm specializing
in the Internet, restaurant and entertainment industries. The Company will
additionally be utilizing Perry & Co.'s recently formed Internet Consulting
division, which helps public and private corporations identify e-commerce
opportunities within their stated field of expertise. Mr. Perry will assist the
Company in developing an Internet strategy intended to strengthen the Company's
brand identification with both trade and consumer audiences and to assist in
identifying acquisition candidates and joint venture partners within the rapidly
expanding Internet-based music industry. The agreement is for an initial term
of two years and provides that Mr. Perry will receive, as sole compensation for
his services, options to purchase 200,000 shares of the Company's Common Stock
at C$0.82 per share (approximately US$.54 as at July 31, 1999). The options
are for a term of two years. Additionally, Mr. Perry subscribed for 100,000
units in the Company's private placement which was completed on August 20, 1999.
(See PART II, ITEM 2, above.)
EVENTS OCCURRING SUBSEQUENT TO THE END OF THE THIRD QUARTER
The Company announced on August 6, 1999 that Russ Regan had become a
consultant to the Company. Mr. Regan, a former President of Quality Records, is
consulting with the officers and employees of the Company on administration,
marketing, distribution, A&R (artists and repertoire) and promotion matters.
Russ Regan has played a major role in the careers of many recording artists
including Frank Sinatra, Elton John, Olivia Newton-John, Neil Diamond, Barry
White, the Beach Boys, Marvin Gaye, Smokey Robinson, The Supremes and The
Miracles.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.01 Employment Agreement dated May 17, 1999 between the Company and
Henley "Jr." Regisford.
10.02 Agreement dated June 11, 1999 between the Company and Roland
Perry.
10.03 Incentive Stock Option Agreement dated June 15, 1999 between the
Company and Roland Perry.
10.04 Agreement dated August 8, 1999 between the Company and MCY Music
World, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MODERN RECORDS, INC.
Date: September 17, 1999 /s/ Stephen Randall Jackson
--------------------------------
Stephen Randall Jackson
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT 10.01
-------------
As of May 17, 1999
Mr. Henley "Jr." Regisford
10610 Lurline Avenue
Chatsworth, CA 91311
Dear Junior,
This letter confirms the terms of your employment by Modern Records, Inc.
hereinafter termed (the "Employer").
1. Term
----
The term of your employment hereunder commences as of May 24, 1999, and
expires on March 13, 2002, unless earlier terminated as hereinafter
provided (the "term").
2. Salary
------
In full consideration for all rights and services provided by you
hereunder, you shall receive an annual salary of $125,000 for the first
year, $140,000 for the second year and $160,000 for the third year of the
term. Salary payments shall be made in equal installments in accordance
with Employer's then prevailing payroll policy.
3. Bonus
-----
Bonus compensation, if any, shall be at the discretion of the Employer.
4. Stock Options
-------------
Employer shall recommend to the Compensations Committee of the Board of
Directors of Modern Records that you be granted non-qualified stock options
pursuant to a stock option or stock incentive plan of Modern Records to
purchase 25,000 shares of common stock of Modern Records, it being
understood that such options shall have an exercise price of 100% of fair
market value of the common stock of Modern Records at the date of grant by
the Committee (the "Grant Date") and that such options shall vest at the
rate of 5,000 shares immediately, 10,000 shares upon your first anniversary
of the Grant Date and 10,000 shares on your second anniversary of the Grant
Date (subject to your continued employment by Employer and to the other
provisions of the applicable stock option or stock incentive plan).
5. Title/Reporting
---------------
You are being employed hereunder in the position of Vice President, Artist
and Repertoire and will report directly to Randy Jackson.
<PAGE>
6. Duties
------
You shall personally and diligently perform, on a full-time and exclusive
basis, such services as Employer or any of its divisions may reasonably
require. You shall observe all reasonable rules and regulations adopted by
Employer in connection with the operation of its business and carry out to
the best of your ability all instructions of Employer.
7. Expenses
--------
To the extent you incur necessary and reasonable business expenses
(including, without limitation, travel [business class flights when in
excess of 3 hours) and entertainment], in the course of your employment,
you shall be reimbursed for such expenses, subject to Employer's then
current policies regarding reimbursement of such business expenses.
8. Other Benefits
--------------
You shall be entitled to those benefits that are standard for persons in
similar positions with Employer, including paid vacation and medical
coverage.
9. Protection of Employer's Interests
----------------------------------
During the term of your employment by Employer you will not compete in any
manner, directly or indirectly, whether as a principal, employee, agent or
owner, with Employer, Modern Records, or any affiliate thereof, except that
the foregoing will not prevent you from holding at any time less than 5% of
the outstanding capital stock of any company whose stock is publicly
traded. To the extent permitted by law, all rights worldwide with respect
to any and all intellectual or other property of Entertainment produced,
created or suggested by you during the term of your employment or resulting
from your services shall be deemed to be a work made for hire and shall be
the sole and exclusive property of Employer. You agree to execute,
acknowledge and deliver to Employer at Employer's request, such further
documents as Employer finds appropriate to evidence Employer's rights in
such property. Any confidential and/or proprietary information of Employer,
Modern Records or any affiliate thereof shall not be used by you or
disclosed or made available by you to any person except as required in the
course of your employment, and upon expiration or earlier termination of
the term of your employment, you shall return to Employer all such
information that exists in written or other physical form (and all copies
thereof) under your control. Without limiting the generality of the
foregoing, you acknowledge signing and delivering to Employer, Modern
Records Confidentiality Agreement and Modern Records Statement of Policy
Regarding Conflicts of Interest and Business Ethics and Questionnaire
Regarding Compliance and you agree that all terms and conditions contained
therein, shall be deemed, and hereby are, incorporated into this agreement
as if set forth in full herein. The provisions of the immediately preceding
four
2
<PAGE>
sentences of this paragraph shall survive the expiration of earlier
termination of this agreement.
10. Services Unique
---------------
You recognize that your services hereunder are of a special, unique,
unusual, extraordinary and intellectual character giving them a peculiar
value, the loss of which cannot be reasonably or adequately compensated for
in damages, and in the event of a breach of this agreement by you
(particularly, but without limitation, with respect to the provisions
hereof relating to the exclusivity of your services and the provisions of a
paragraph 10 hereof), Employer shall, in addition to all other remedies
available to it, be entitled to equitable relief by way of injunction and
any other legal or equitable remedies.
11. Termination
-----------
(a) Employer may terminate your employment hereunder for gross negligence,
misconduct, nonfeasance or breach of this agreement or for other good
cause, and in any such event all obligations of Employer hereunder
shall immediately terminate. Employer must pay salary, expense
reimbursements, vacation through date of termination.
(b) In the event of your death during the term hereof, this agreement
shall terminate and Employer shall only be obligated to pay your
estate or legal representative the salary provided for herein to the
extent earned by you prior to such event. In the event you are unable
to perform services required of you hereunder as a result of any
disability and such disability continues for a period of 90 days or
more consecutive days or an aggregate of 120 or more days during any
12-month period during the term hereof, then at any time thereafter
Employer shall have the right, at its option, to terminate your
employment hereunder. Unless and until so terminated, during any
period of disability during which you are unable to perform the
services required of you hereunder, your salary hereunder shall be
payable to the extent of, and subject to, Employer's policies and
practices then in effect with regard to sick leave and disability
benefits.
(c) You acknowledge that you have been provided by Employer with a copy of
Section 508 of the Federal Communications Act of 1934, as amended,
relating in part to receiving or paying consideration for product
identification in television programs, that you are familiar with the
provisions thereof and that you will fully comply therewith during the
term of this agreement. Without limiting the foregoing, however, and
whether or not Section 508 is applicable to your activities, you agree
that you will not without Employer's prior written consent, accept any
compensation or gift, from ant person, firm or corporation (other than
Employer) where such compensation of gift is, or may appear to be, in
3
<PAGE>
consideration of your acting in a particular manner in relation to the
business of such person, firm or corporation. Without limiting the
generality of paragraph 12 (a) hereof, it is agreed that in any
violation of this paragraph 12 (c) shall constitute a violation of
this agreement upon which Employer may forthwith terminate this
agreement pursuant to paragraph 12 (a) hereof.
12. Use of Employee's Name
----------------------
Employer shall have the right but not the obligation to use your name or
likeness for any publicity or advertising purpose. Employer is under no
obligation to accord you credit for any production.
13. Assignment
----------
Employer may assign this agreement or all or any part of its rights
hereunder to Modern Records or to any entity that succeeds to a substantial
portion of Employer's assets or that Employer or Modern Records may own
substantially, and this agreement shall inure to the benefit of such
assignee.
14. No Conflict with Prior Agreements
---------------------------------
You represent to Employer that neither your commencement of employment
hereunder nor the performance of your duties hereunder conflicts with any
contractual commitment on your part to any third party or violates or
interferes with any rights of any third party.
15. Post-Termination Obligations
----------------------------
After the expiration or earlier termination of your employment hereunder
for any reason whatsoever you shall not either alone or jointly, with or on
behalf of others, either directly or indirectly, whether as a principal,
partner, agent, shareholder, director, employee, consultant or otherwise,
at anytime during a period of one year following such expiration or
termination (the "Commitment Period"), offer employment to, or solicit the
employment or engagement of, or otherwise entice away from the employment
of Employer or any affiliated entity, either for your own account or for
any other person, firm or company, any person who is or has been employed
by Employer or any such affiliated entity at any time during the Commitment
period, whether or not such person would commit any breach of his/her
contact of employment by reason of his leaving the service of Employer or
any affiliated entity.
16. Entire Agreement; Amendments; Waiver. Etc.
-----------------------------------------
(a) This agreement supersedes all prior or contemporaneous agreements and
statements, whether written or oral, concerning the terms of your
employment, and no amendment or
4
<PAGE>
modification of this agreement shall be binding against Employer unless set
forth in a writing signed by Employer and delivered to you. No waiver by
either party of any breach by the other party of any provision or condition
of this agreement shall be deemed a waiver of any similar or dissimilar
provision or condition at the same or any, prior or subsequent time.
(b) You have been given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the effect that
any fees or commissions of any nature are, or under any circumstances might
be, payable by Employer in connection with your employment hereunder.
(c) Nothing herein contained shall be construed so as to require the commission
of any act contrary to law, and wherever there is any conflict between any
provision of this agreement and any present or future statute, law,
ordinance or regulation, the latter shall prevail, but in such event the
provision of this agreement affected shall be curtailed and limited to the
extent necessary to bring it within legal requirements. Without limiting
the generality of the foregoing, in the event any compensation or other
monies payable hereunder shall be in excess of the amount permitted by any
statute, law, ordinance, regulation or wage guideline which may be in
effect at any time of from time to time, payment of the maximum amount then
allowed thereby shall constitute full compliance of this agreement.
(d) This agreement does not constitute a commitment of Employer with regard to
your employment, express or implied, other than to the extent expressly
provided for herein. Upon termination of this agreement, it is the
contemplation of both parties that your employment with Employer shall
cease, and that neither Employer nor you shall have any obligation to the
other with respect to continued employment. In the event that your
employment continues for any period of time following the stated expiration
date of this agreement, unless and until agreed to in a new subscribed
written document, such employment or any continuation thereof is "at will",
and may be terminated without obligation at any time by either party's
giving notice to the other.
(e) This agreement shall be governed by and construed in accordance with the
laws of the state of California. In accordance with the immigration Reform
and Control Act of 1986, employment hereunder is conditioned upon
satisfactory proof of your identity and legal ability to work in the United
States.
(f) To the extent permitted by law, you will keep the terms of this agreement
confidential, and you will not disclose any information concerning this
agreement to anyone other than your immediate family and profession
representation (provided they also agree to keep the terms of this
agreement confidential).
5
<PAGE>
19. Notices
-------
All notices that either party is required or may desire to give the other
shall be in writing and given either personally or by depositing the same
in the United States mail addressed to the party to be given notices as
follows:
To Employer: Modern Records
468 N. Camden Drive
3rd Floor
Beverly Hills, CA 90210
To you: Henley Regisford, Jr.
10610 Lurline Avenue
Chatsworth, CA 91311
Either party may by written notice designate at a different address for giving
of notices. The date of mailing of any such notices shall be deemed to be the
date on which such notice is given.
20. Headings
--------
The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the meaning
of the provisions of this agreement.
If the foregoing accurately reflects our mutual agreement, please sign where
indicated.
MODERN RECORDS, INC.
By: /s/ Randy Jackson
---------------------------------------
Randy Jackson (President, CEO)
By /s/ Henley Regisford, Jr.
---------------------------------
Employee Signature
Henley Regisford, Jr.
---------------------------------
Employee (printed or typed)
6
<PAGE>
EXHIBIT 10.02
-------------
June 11, 1999
Roland Perry
Perry & Co.
468 North Camden Drive
Beverly Hills, CA 90210
Regarding: Terms of Employment
Dear Roland,
This letter confirms the terms of the agreement between Modern Records, Inc.
("the Company") and Roland Perry ("Perry").
1. Engagement. The Company has agreed to employ Roland Perry and Perry has
agreed to provide the Company with those services referred to in paragraph 3 of
this agreement. Perry is the President of Perry & Company, an Internet Business
firm and the editor of the Internet Stock Review, an Internet newsletter, with
over 19,000 subscribers through his own website.
2. Terms. The initial term of the employment is for a period of two years from
the date of this agreement. This agreement may be renewed at the end of the
initial term, and at the end of each subsequent renewal term, for successive
three month periods, but only upon written notice by the Company and Perry that
it desires to continue the engagement.
This agreement may be terminated forthwith by the Company with three (3) days
prior written notice if, at any time while in the performance of his duties,
Perry:
(a) commits a material breach of a provision of this agreement;
(b) is unable or unwilling to perform the duties under this agreement;
(c) commits fraud or serious neglect or misconduct in the performance of his
duties to the Company;
3. Services. Perry will provide the Company with assistance with respect to
setting up a corporate news dissemination and will assist the Company in
developing an Internet strategy intended to strengthen Modern's brand
identification with both trade and consumer audiences through consistent
messaging of Modern's activities. Perry is aware that the Company is a publicly
listed Company on the Vancouver Stock Exchange as well as on the NASDAQ OTC
bulletin board and has securities registered under the securities exchange act
of 1984 and as such is aware of policies and regulations with respect to timely
and accurate disclosure of information to the public.
Page 2
<PAGE>
While this agreement is in force, Perry will provide the Company with a premium
position (first page, standard sized "Watch List" banner) on the website of the
Internet Stock Review, at no additional cost. As well, Perry will additionally
distribute to the subscribers of the Internet Stock Review Online newsletter,
all public corporate announcements and public earnings announcements pre-
approved in writing by the Company, at no additional cost.
4. Compensation of Services. The Company has agreed to grant to Perry stock
options to purchase 200,000 common shares in the Company. The right for Perry to
purchase shares under the stock option agreement will vest immediately after
options are granted. Such options are subject to the approval of the
shareholders of the Company as well as the Vancouver Stock Exchange and any
other applicable regulatory bodies. The pricing of the options are subject to
Vancouver Stock Exchange rules and policies. Such approvals as are required
shall be obtained by the Company and provided Perry at or before execution
hereof. The Company shall advise Perry in writing if the stock option price set
forth in the agreement conflicts with the VSE rules and policies and, if so,
Perry and the Company shall agree on the per share option price prior to
execution hereof. The stock issued under such option will not be freely tradable
and must be resold pursuant a registered offering and under an applicable exempt
under the US securities laws. The option will expire in 2 years from the grant
of the option.
Perry and the Company agree that the compensation represented by the stock
options covering the 200,000 shares is a non-refundable payment for the
engagement of Perry's services. If the Company decides not to renew this
agreement, no refund will be forthcoming to the Company or be payable by Perry.
If the Company shall register any of its securities for public sale, Perry, in
its discretion, shall have the right to piggyback some or all of its restricted
shares of the Company in such registration statement, subject to any required
consent by the Company's underwriter. The Company shall to its best effort
registers the stock options for Perry in the US. Perry shall only be responsible
for direct costs relating to the sale of its shares thereby, such as brokerage
commissions or underwriters discount prospectus cost pro rata to the number of
prospectuses supplied by Perry, SEC and blue sky filing fees.
5. Costs. The Company will be responsible for all printing and distribution,
press release and/or advertising costs recommended by Perry and pre-approved by
the Company. The Company will also be responsible for all travel related costs
incurred by Perry when providing its' services as determined by Perry and pre-
approved by the Company.
6. Additional Obligations of Perry. Perry agrees that, in connection services to
the Company, it will abide by the following conditions:
Page 3
<PAGE>
Perry will distribute only financial or other material information about the
Company, which is already available to the public and the release of such
information shall be made with the prior written consent and approval of the
Company.
After notice by the Company of filing for a proposed public offering of
securities, and during any period of restriction on publicity, Perry shall not
engage in any public relations efforts without prior written approval of legal
council for the Company.
Perry will indemnify the Company from all claims, liability, costs or other
expenses (including reasonable attorney's fees) incurred by the Company as a
result of any in a inaccurate information concerning the Company released by
Perry, unless such information was provided in writing to Perry by the Company
or as a result of any breach by Perry of any of the terms and conditions of this
agreement.
7. Additional Obligation of the Company. The Company agrees that, in connection
with this agreement, it will indemnify Perry from all claims, liability, costs
or other expenses incurred (including reasonable attorneys' fees) incurred by
Perry as a result of any inaccurate or misleading information that is given to
Perry in writing by the Company as per the terms of this agreement concerning
the Company and provided in writing by the Company or as a result of any breach
by the Company of any of the terms and conditions of this agreement. If, in the
Company's judgement, any material non-public information concerning the Company
cannot be revealed, the Company will advise Perry that a quite period is in
effect.
8. Assignment. The rights and obligations of each party to this agreement may
not be assigned without the prior written consent of the other party.
9. Entire Agreement. This letter agreement between the Company and Perry
contains the entire agreement between them. This agreement may not be modified
or extended except in writing and signed by the Company and Perry.
10. Regulatory approval. This agreement is subject to the approval of the
Vancouver Stock Exchange and any other regulatory authority.
11. California Law. This agreement shall be governed by and construed in
accordance with California law.
Page 4
<PAGE>
12. Arbitration and Waiver of Jury Trial. ANY DISPUTE BASED UPON OR ARISING OUT
OF THIS LETTER AGREEMENT SHALL BE SUBJECT TO BINDING ARBITRATION TO BE HELD IN
LOS ANGELES COUNTY, CALIFORNIA BEFORE A RETIRED CALIFORNIA SUPERIOR COURT JUDGE.
JUDGEMENT ON THE ARBITRATOR'S AWARD SHALL BE FINAL AND BINDING, AND MAY BE
ENTERED IN ANY COMPETENT COURT. AS A PRATICAL MATTER, BY AGREEING TO ARBITRATE
ALL PARTIES ARE WAIVING JURY TRIAL.
13. Attorney fees. The prevailing party in any arbitration or litigation arising
out of or relating to this letter agreement shall be entitled to recover all
attorney's fees and all costs (whether or not such costs are recoverable
pursuant to California Code of Civil Procedure) as may be incurred in connection
with either obtaining or collecting any Judgement and/or arbitration award, in
addition to any other relief to which that party may be entitled.
Please sign this letter agreement in the space provided below to indicate your
agreement with the terms stated in this letter.
Sincerely,
By: /s/ Randy Jackson
------------------------------
Randy Jackson, President & CEO
(being hereunto duly authorized)
AGREED AND ACCEPTED THIS 11th DAY OF JUNE, 1999.
By: /s/ Roland Perry
------------------------------
Roland Perry
<PAGE>
EXHIBIT 10.03
-------------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT is made as of the 15th day of June, 1999.
BETWEEN: MODERN RECORDS, INC., a company duly incorporated under the laws of
--------------------
the State of California, having a business office at 468 N. Camden
Drive, 3rd Floor, Beverly Hills, California, USA, 90210
(hereinafter call the "Company") OF THE FIRST PART
AND: ROLAND PERRY, c/o 468 North Camden Drive, 3rd Floor, Beverly Hills,
------------
California, USA, 90210
(hereinafter call the "Optionee") OF THE SECOND PART
WHEREAS the Optionee is an Employee of the Company and requires as a condition
of holding such position that the parties enter into this Incentive Stock Option
Agreement on the terms and conditions hereinafter set forth;
AND WHEREAS the Company has been classified as a "Venture Board" company by the
Vancouver Stock Exchange.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
of the covenants and agreements herein contained the parties hereto covenant and
agree as follows:
1. Subject to paragraphs 5 and 6, from the date hereof, the Optionee shall
have and be entitled to and the Company hereby grants to the Optionee an option
to purchase up to TWO HUNDRED THOUSAND (200,000) fully paid and non-assessable
shares of the Company from the treasury on or before JUNE 15, 2004 at the price
of EIGHTY-TWO CENTS ($0.82) per share.
2. The right to take up shares pursuant to the option herein granted is
exercisable by notice in writing to the Company accompanied by a certified
cheque in favour of the Company for the full amount of the purchase price of the
shares being then purchased. When such payment is received, the Company
covenants and agrees to issue and deliver to the Optionee share certificates in
the name of the Optionee for the number of shares so purchased.
3. This is an Option Agreement only and does not impose upon the Optionee any
obligation to take up and pay for any of the shares under option.
4. The option herein granted shall be non-transferable and non-assignable by
the Optionee otherwise than by Will or the law of intestacy and the option may
be exercised during the lifetime of the Optionee only by the Optionee.
<PAGE>
-2-
5. If the Optionee should die while he is an Employee of the Company, the
option herein granted may then be exercised by his legal heirs or personal
representatives to the same extent as if the Optionee were alive and an Employee
of the Company for a period of six (6) months after the death of the Optionee
but only for such shares as the Optionee was entitled to at the date of the
death of the Optionee.
6. Subject to paragraph 5 hereof, the option herein granted shall cease and
become null and void following the thirtieth (30th) day after the Employee
ceases to be an employee of the Company for any reason other than death.
7. The provisions of the agreement and the exercise of the rights hereinbefore
granted to the Optionee are subject to the approvals of the British Columbia
Securities Commission or, if listed thereon, the Vancouver Stock Exchange (the
"Exchange") and the shareholders of the Company; provided, however, that in the
event that such approvals are not obtained within twelve (12) months of the date
of this agreement, then this agreement shall from that date be null and void and
of no further force and effect.
8. The Optionee hereby acknowledges that, in the event the Optionee is an
insider of the Company, the option herein granted may not be exercised in full
or in part until this agreement has been approved by the shareholders at a
general meeting of the Company.
9. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the options hereby granted are
outstanding, the number of shares under option to the Optionee and the price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
10. The Company hereby covenants and agrees to and with the Optionee that it
will reserve in its treasury sufficient shares to permit the issuance and
allotment of shares to the Optionee upon full exercise of the option herein
granted.
11. If at any time during the continuance of this agreement, the parties hereto
deem it necessary or expedient to make any alteration or addition to this
agreement, they may do so by means of a written agreement between them which
will be supplemental hereto and form part hereof and which will be subject to
the approval of the Exchange and the shareholders at a general meeting of the
Company and/or any requirements of the securities regulatory bodies in effect at
that time.
12. This agreement may be executed in several parts in the same form and such
parts as so
<PAGE>
-3-
executed will together constitute one original agreement, and such parts, if
more than one, will be read together as if all the signing parties hereto had
executed one copy of this agreement.
13. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, and
successors.
14. Wherever the plural or masculine are used throughout this agreement, the
same shall be construed as meaning singular or feminine or neuter or the body
politic where the context of the parties thereto require.
15. The Optionee hereby acknowledges and confirms that he has obtained
independent legal advise with respect to this agreement and understands and is
aware that the option hereunder as well as the underlying securities have not
been registered under the Securities Act of 1933, as amended, and that the
granting of this option is conditional upon it being exempt from the application
of the Securities Act of 1933 and any applicable state laws. The Optionee
covenants with and to the Company that he will exercise the option herein
granted, and dispose of the shares thereby acquired, only in accordance with all
applicable laws.
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed as of the day and year first above written.
The COMMON SEAL of )
MODERN RECORDS, INC in the )
presence of: )
) c/s
/s/ Johan Grandin )
- ----------------------------- )
)
SIGNED, SEALED AND DELIVERED )
by ROLAND PERRY in the )
presence of: )
)
/s/ Judy Connor ) /s/ Roland Perry
- ----------------------------- ) -------------------------
Witness ) Roland Perry
This is page 3 to that certain Incentive Stock Option Agreement
between MODERN RECORDS, INC. and ROLAND PERRY dated as of the 15th day
of June 1999.
<PAGE>
EXHIBIT 10.04
-------------
MCY Music World, Inc.
307 7th Avenue
New York, NY 10001
This agreement ("Agreement") made and entered into this 8th day of August, 1999
by and between:
MCY Music World, Inc. a Delaware Corporation having its head office and
principal place of business at 307 Seventh Avenue, New York, NY 10001
(hereinafter referred to as ("MCY")
AND:
Modern Records (hereinafter referred to as "Licensor")
468 North Camden Drive 3/rd/ floor
Beverly Hills CA 90210 USA
Tax ID Number: 95-3404374
----------
By signing this Agreement Licensor hereby grants to MCY the right during the
Term to sell master recordings and other Licensed Material owned and/or
controlled by you as set forth herein.
Certain Definitions:
- -------------------
Term: Three (3) years commencing on the agreement date (the "Initial
Period"). Any extension to this Initial Period must be mutually
agreed upon by both parties in a written amendment form no later
than sixty (60) days prior to term expiration.
Territory: The Universe unless otherwise specified by Licensor under
- ---------
separate cover.
Master Recordings: Shall mean a recording of sound, sometimes embodying the
- -----------------
performance of a featured artist ("Artist"), owned or controlled by Licensor,
including, without limitation, those recordings listed on Schedule A attached
hereto. The word "Master" includes the original recording and all derivatives
therefrom.
Licensed Material: Shall mean the Master Recordings owned or controlled by
- -----------------
Licensor set forth on Schedule "A" attached hereto and those additional Master
Recordings which Licensor shall deliver to MCY during the Term. For purposes
hereof, "Licensed Material" shall be limited to, photographs, artwork,
illustrations, liner notes, lyrics, graphics, trademarks, logos, video footage,
animations, compositions, and any other intellectual property which Licensor
shall deliver to MCY during the Term, used in connection with the commercial
exploitation of the Master Recordings.
1
<PAGE>
STANDARD TERMS AND CONDITIONS
-----------------------------
1. MCY Right to Distribute and Promote: During the Term, Licensor hereby
-----------------------------------
grants to MCY the non-exclusive right to market, promote and sell any and
all Licensed Material to customers, by means of digital transmission or
broadcast, via MCY's website on the global computer network known as the
worldwide web and/or via any other means, now known or hereafter developed
by which digital transmissions or broadcasts may be disseminated. In
connection with Distribution and Promotion as set forth hereinbelow,
Licensor grants to MCY the non-exclusive right during the Term and in the
Territory to display, exhibit, publicly perform, publish, reproduce,
transmit, manufacture, distribute, package, use, sell, prepare derivative
works and compilations of, couple with material provided by other
licensors, and otherwise distribute any and all Licensed Material as
provided herein. Without limiting the generality of the foregoing, this
grant of rights shall include the non-exclusive right to synchronize the
Masters and/or Compositions with visual images, and to use and publish the
name, biographical material of any and all the recording artists, producers
and other individuals who contributed to or have any interest in the
Licensed Material for advertising and trade purposes and in connection with
the sale, advertisement and promotion of Licensed Material.
The Licensed Material may be disseminated as follows:
----------------------------------------------------
a. Digital Distribution: MCY shall have the right to initiate the digital
--------------------
transmission and/or broadcast of electronic data embodying the Licensed Material
("Distribution").
b. Promotional Services: MCY shall have the right to enable customers to
--------------------
listen to and/or view Licensed Material, as MCY may select in its discretion, on
a promotional, no-charge basis, provided access to audio and/or video elements
of such Licensed Material shall be limited to fragments of time not to exceed
thirty (30) seconds for any distinct work ("Promotion").
c. Customer Bonuses: MCY will have the right to distribute Licensed
----------------
Material from time to time as "Bonus Material" at no charge. The amount of such
Bonus Material will not exceed ten (10%) percent of Licensor's Licensed Material
sold.
2. Delivery of Licensed Material: Licensor shall, in it's discretion but at
-----------------------------
Licensor's own expense (i.e. cost of packaging, shipping and duplicating)
deliver such Licensed Material listed below to MCY at MCY's address, provided
that MCY may Distribute and Promote any such Licensed Material so delivered
("Delivery") as provided herein.
a. Audio and/or audiovisual Material contained on standard audio compact
disc(s), DVD(s), and/or any other digital format on which such Material may be
embodied and from which such Material may be reproduced.
b. Artwork, including, without limitation, record covers and liner notes,
in the highest
2
<PAGE>
resolution available to Licensor so as to enable MCY to make quality
reproductions Material in computer file format and/or physical copies thereof.
c. Photographs, biographies and other promotional material relating to the
artists whose performance is embodied on the Material in computer file format
and/or physical copies thereof.
3. Limitations on MCY's Distribution: Notwithstanding anything to the contrary
---------------------------------
stated in paragraph 1 above, Licensor hereby acknowledges that any Material
delivered to MCY may be Distributed and/or Promoted by MCY at MCY's discretion
as set forth herein except as Licensor shall notify MCY specifically in writing
upon delivery of such Material. By way of example only and without limitation,
if Licensor shall deliver to MCY a full-length compact disc package containing
twelve Masters, cover artwork and lyrics, and Licensor intends to limit
Distribution and Promotion by MCY to one particular Master and to prohibit the
Distribution, Promotion or display of printed lyrics, such Licensor shall
specify, in writing, the particular Master(s) that MCY shall not Distribute
and/or Promote and shall specify, in writing, that lyrics shall not be
displayed, Distributed or Promoted. No casual or inadvertent failure by MCY to
adhere to Licensor's requested limitations shall be deemed a breach hereof,
provided that MCY shall use reasonable efforts to cure such failure
prospectively upon receipt of notice from Licensor.
4. Distribution Fee: In respect of each distinct work embodied in the
----------------
Material which is sold to each MCY customer by Digital Distribution as provided
herein, MCY shall retain an amount as indicated by the "Pricing Schedule"
attached hereto and as applied by Licensor to each distinct work on Schedule "A"
subject to paragraph 5 herein below.
5. Accounting:
----------
a. MCY shall collect all payments made by customers in respect of Digital
Distribution sales as provided herein. Accounting statements setting forth all
such sales shall be sent to Licensor quarterly within sixty (60) days from the
end of each calendar quarter ending on March 31/st/, June 30/th/, September
30/th/, and December 31/st/, respectively. Simultaneously with the delivery of
such accounting statement, MCY shall pay to Licensor the total amount of gross
monies received by MCY in respect of such sales less the Distribution Fee (see
pricing schedule) and any other charges, fees or advances incurred, with
Licensor's consent, by MCY.
b. During the Term, and for a period of one year thereafter, MCY shall
permit Licensor to appoint a certified public accountant, at Licensor's expense,
who is not then currently engaged in an audit of MCY to examine, no more than
once per year, only such books and records of MCY that relate to Distribution of
the Material; provided, however, that any such examination shall be for a
reasonable duration, shall take place at MCY's office during normal business
hours and upon prior written notice of not less than thirty (30) days. If such
audit reveals a deficit payment of more than 10%, MCY shall repay the deficit
amount plus interest at the prime rate.
6. Representations and Warranties: Licensor warrants and represents that:
------------------------------
3
<PAGE>
a. Licensor has the full right, power and authority to enter into this
Agreement and grant all the rights which it purports to grant herein;
b. All Material Delivered by Licensor to MCY hereunder, and any use thereof
made by MCY in accordance with this Agreement, shall not violate any law and
shall not infringe upon the rights of any party, and Licensor has obtained all
approvals, rights, permissions, consents, clearances and licenses of the rights
granted hereunder which MCY may request; and
c. Licensor shall be responsible for and shall pay the applicable recording
artists, producers and all other third parties (excluding the copyright
proprietor of the Compositions which shall be paid by MCY) entitled to be paid
in connection with MCY's sale of the Material, including, without limitation,
all applicable unions. Licensor shall provide MCY with all relevant Mechanical
Rights Payee information (contact, address, etc.)
7. Indemnification: Each of the parties hereto agrees to indemnify, save and
---------------
hold the other and anyone claiming through the other free and harmless from any
and all liability, loss, damage, cost or expense, including reasonable attorneys
fees, arising out of, connected with or related to any claim by any party that
is inconsistent with any of their respective covenants, warranties or
representations hereunder including the representation by Licensor of ownership
of licensed materials, which results in a final adverse judgment or settlement
with the consent of the indemnitor (not to be unreasonably withheld). The
indemnified parties agree to give the indemnitor notice of any action which the
foregoing indemnity applies and the indemnitor may participate in the defense of
same, at its expense and through counsel of its choosing. Pending resolution of
such claim arising from Licensor's alleged breach of it's covenants, warranties
and representations hereunder, MCY may withhold sums due Licensor in an amount
consistent with such claim or potential loss unless Licensor posts a bond in a
form and from a bonding company acceptable to MCY in an amount equal to the
amount of the claim. Such withheld sums shall released if a suit is not filed
within eighteen (18) months after MCY is notified with respect to such claim.
8. Notice: Any notice required or permitted under this Agreement be in writing
------
and shall be personally delivered, or served by certified or registered mail,
return receipt requested, or by overnight mail service such as Federal Express,
all charges prepaid, to the respective addresses listed above. Except as
otherwise provided herein, such notices shall be deemed given three (3) days
after mailing or delivery to an overnight mail service.
Copies of all notices shall be simultaneously sent to:
If to MCY: Wallace Collins If to Licensor:
270 Madison Avenue # 1410 Attention:
New York, New York 10016 Telephone:
Telephone: (212) 683-5320 Facsimile:
Facsimile: (212) 686-2182
4
<PAGE>
with copy to: Contract Administrator
MCY Music World, Inc.
307 7/th/ Avenue, 23rd Floor
New York, NY 10001
9. Termination: The failure by either party to perform any of its material
-----------
obligations hereunder shall be deemed a breach of this Agreement. The non-
breached party shall have the option of terminating the Term of this Agreement
unless the non-breaching party has provided written notice of such failure to
perform and such failure is corrected within thirty (30) days from and after
receipt of such notice. The failure of parties to come to a mutual extension
agreement as defined in "Certain Definitions: Term" shall be considered
termination of the agreement and shall be effective upon expiration of the
existing Term.
Licensor shall have the right to terminate the Term of this Agreement on the
happening of any of the following events:
a. if MCY has materially breached an obligation imposed upon it under this
Agreement, and fails to take appropriate steps to remedy such breach within
thirty (30) days after receipt by MCY of a written notice of breach from
Licensor;
b. if a court order is issued for the winding-up or liquidation of MCY,
which order is not revoked within ninety (90) days or if a receiver is appointed
for management or disposition of the assets and affairs of MCY which appointment
is not revoked within ninety (90) days.
c. Upon the expiration of the Term, or the earlier termination of this
Agreement, all rights herein granted by Licensor to MCY shall revert to Licensor
and MCY shall promptly return all Materials to Licensor; however, MCY shall have
the right to fulfill any orders for Materials that have been received by MCY on
or before the effective date or expiration of termination.
10. Miscellaneous:
-------------
a. Approval of Material: MCY shall maintain full editorial discretion over
--------------------
any material displayed on its Website, hosted on its servers or databases or
published, Promoted and/or Distributed by MCY in any media, and MCY shall have
no obligation to Distribute, Promote, make available for sale, reproduce,
publicly perform, use or otherwise exploit any Material that MCY, in its sole
discretion, deems obscene, offensive, or in any way adverse to its corporate
image or policy.
b. Control of Website: MCY reserves the right to include, exclude or
------------------
present any Material on the MCY Website in any placement or categorization, to
display its logo, to place advisories on any Material and to add or delete
hyper-links to other internet websites which MCY, in its sole discretion, deems
appropriate.
5
<PAGE>
c. Limitations of Liability: MCY makes no representations or warranties,
------------------------
express or implied, regarding the functionality, operation or maintenance of
MCY's Website, hardware, software, or the accuracy of any information or data
available thereon or therefrom. MCY shall be liable to Licensor only for
payments in respect of Distribution related sales as provided herein. MCY shall
not be responsible for, and makes no warranties or representations with regard
to the ability of unauthorized persons to duplicate the Material as same is
transmitted and/or broadcast hereunder.
d. Assignment: MCY shall have the right to assign this Agreement, in
----------
whole or in part, to any subsidiary, parent company, affiliate, or to any third
party acquiring a substantial portion of MCY's assets or stock. However, MCY
shall remain secondarily liable for payment of royalties.
e. Independent Contractor. It is understood and agreed that in entering
----------------------
into this Agreement, Licensor has, and shall have, the status of an independent
contractor and nothing herein contained shall contemplate or constitute a
partnership or joint venture or employment relationship between Licensor and
MCY.
f. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING BETWEEN THE
PARTIES, AND NO MODIFICATION, WAIVER OR AMENDMENT HEREOF SHALL BE BINDING UNLESS
IN WRITING, SIGNED BY THE PARTY SOUGHT TO BE CHARGED. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS ENTERED INTO IN SAID STATE AND TO BE WHOLLY TO BE PERFORMED THEREIN.
THE PARTIES HERETO AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
OR STATE COURTS LOCATED IN NEW YORK COUNTY, NEW YORK IN ANY ACTION WHICH MAY
ARISE OUT OF THIS AGREEMENT AND FURTHER AGREE THAT SAID COURTS SHALL HAVE
EXCLUSIVE JURISDICTION OVER ALL DISPUTES BETWEEN LICENSOR AND MCY PERTAINING TO
THIS AGREEMENT AND ALL MATTERS RELATING THERETO.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first hereinabove written.
MCY MUSIC WORLD, INC. AND (Licensor)
By: Mr. Bernhard Fritsch By: Mr. Randy Jackson
Sign: \s\ Bernhard Fritsch Sign: \s\ Randy Jackson
----------------------- -----------------
Its: CEO Its:
MCY Sales Representative:
MCY Referral Name (if any): Richard de Bois
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JULY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 123,729
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 138,167
<PP&E> 44,341
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,165,069
<CURRENT-LIABILITIES> 986,051
<BONDS> 0
0
0
<COMMON> 3,824,907
<OTHER-SE> (3,673,082)
<TOTAL-LIABILITY-AND-EQUITY> 1,165,069
<SALES> 0
<TOTAL-REVENUES> 301,494
<CGS> 0
<TOTAL-COSTS> 1,129,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (827,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> (827,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (827,835)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
