UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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 000-27852
PLATINUM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3802328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Butterfield Road
Downers Grove, Illinois 60515
(Address of principal executive offices, including zip code)
(630) 769-0033
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
6,847,161 Common Stock, par value $.001 per share, at May 14, 1999.
<PAGE>
PLATINUM ENTERTAINMENT, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
Part I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets March 31, 1999 (Unaudited)
and December 31, 1998 3
(Unaudited) Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 4
(Unaudited) Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Platinum Entertainment, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<CAPTION>
March 31 December 31
1999 1998
Assets ____________________________
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 21 $ 12
Accounts receivable, net 6,272 5,647
Artist advances, net 3,104 1,899
Inventories, net 6,640 7,036
Other receivable - 2,500
Other 2,724 1,986
___________________________
Total current assets 18,761 19,080
Investments 750 750
Property and equipment, net 2,479 2,461
Recorded music costs, net 1,208 1,251
Music catalog, net 21,082 21,314
Music publishing rights, net 2,988 3,026
Goodwill, net 5,549 5,610
Deferred financing costs, net 239 253
Equity investment in joint venture 2,167 2,205
Other 1,076 1,028
____________________________
Total assets $56,299 $56,978
=============================
Liabilities and stockholders' equity
Current liabilities:
Revolving line of credit $34,375 $33,965
Accounts payable 8,641 6,452
Accrued liabilities and other 2,261 3,233
Royalties payable 5,919 5,410
___________________________
Total current liabilities 51,196 49,060
Stockholders' equity:
Preferred stock:
Preferred Stock ($.001 par value); 10,000,000
shares authorized: - -
Series B, Convertible Preferred Stock, 20,000 shares
issued and outstanding - -
Series C, Convertible Preferred Stock, 2,500 shares
issued and outstanding - -
Common stock:
Common Stock ($.001 par value); 40,000,000 shares
authorized,6,904,671 and 6,626,099 shares issued,
and 6,700,590 and 6,626,099 shares outstanding,
respectively 7 7
Additional paid-in capital 71,082 71,378
Accumulated deficit (65,986) (63,467)
___________________________
Stockholders' equity 5,103 7,918
___________________________
Total liabilities and stockholders' equity $56,299 $56,978
===========================
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Platinum Entertainment, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
<CAPTION>
Quarter ended March 31
1999 1998
_______________________
(Unaudited)
<S> <C> <C>
Gross product sales $12,358 $13,665
Less: Returns (2,712) (1,423)
Less: Discounts (577) (605)
______________________
Net product sales 9,069 11,637
Licensing, publishing and other revenues 161 350
______________________
Net revenues 9,230 11,987
Cost of sales 5,181 7,604
______________________
Gross profit 4,049 4,383
Other operating expenses:
Selling, general and administrative 4,299 3,620
Depreciation and amortization 651 495
________________________
4,950 4,115
________________________
Operating loss (901) 268
Interest income - 19
Interest expense (660) (568)
Other financing costs (33) (71)
Equity gain (loss) (38) 170
________________________
Net loss (1,632) (182)
Less: Preferred dividend requirements (886) (675)
_______________________
Loss applicable to common shares $ (2,518) $ (857)
=======================
Basic and diluted loss per common share $ (0.37) $ (0.16)
Weighted-average number of common shares
outstanding 6,715,511 5,275,040
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Platinum Entertainment, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
<CAPTION>
Quarter ended March 31
1999 1998
______________________
(Unaudited)
<S> <C> <C>
Operating activities
Net loss $(1,632) $(182)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for future returns 2,712 1,423
Provision for unrecoupable artist balances 22 473
Depreciation 230 95
Amortization 421 400
Deferred financing costs 33 70
Equity (gain) loss from joint venture 38 (170)
Litigation settlement, net (1,185) -
Changes in operating assets and liabilities:
Accounts receivable (3,337) (3,707)
Inventories 396 926
Artist advances (1,227) (1,283)
Recorded music costs (46) (28)
Accounts payable 2,189 11
Accrued liabilities and other (972) (962)
Royalties payable 509 1,635
Other (808) 358
_________________________
Net cash used in operating activities (2,657) (941)
Investing activities
Acquisitions - (150)
Purchases of property and equipment (244) (229)
_________________________
Net cash used in investing activities (244) (379)
Financing activities
Net proceeds from revolving line of credit 410 1,400
Proceeds from sale of Common Stock 2,500 -
Other - (76)
_________________________
Net cash provided by financing activities 2,910 1,324
_________________________
Net increase in cash 9 4
Cash and cash equivalents, beginning of period 12 11
_________________________
Cash and cash equivalents, end of period $ 21 $ 15
=========================
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Platinum Entertainment, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
1. Basis of Presentation
The financial statements included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods presented. These financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended December 31, 1998 of Platinum Entertainment, Inc. included in the
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
April 15, 1999. The interim results presented are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
We have incurred significant net losses and negative cash flows from
operations since our inception, including a net loss of $1,632
($2,518 after preferred dividend requirements) and negative cash flows from
operations of $2,657 in the first quarter of 1999. We have historically
sustained net losses and negative cash flows, in part due to the high costs
associated with the establishment and expansion of our activities.
Historically, we have funded our operations and other activities from a variety
of capital sources,including debt and equity financing. We have continued to
obtain equity financing from time-to-time. On December 31, 1998, a private
placement of our Common Stock occurred, providing proceeds of $2,500 in
January 1999.
We have formulated plans and instituted specific measures which we believe will
improve cash flows and liquidity and enable us to continue in existence without
a significant curtailment of operations.
* We established a fiscal 1999 business plan and adopted a fiscal 1999 budget
which includes, among other things, (i) a focus on the efficiency of internal
operations, (ii) implementation of procedures to reduce costs and improve
margins, (iii) the addition of new releases in a variety of genres and (iv)
the hiring of experienced music industry executives to supplement the efforts
of management.
* On April 15, 1999, we issued shares of a new series of preferred stock and
warrants to purchase shares of our Common Stock to one of our executive
officers and a director and certain other members of our Board of Directors,
providing net proceeds of approximately $3,900 (see "Note 7").
In addition to the equity placements described above, we may need additional
equity financing in order to achieve our fiscal 1999 plan. While we have been
successful in the past in raising equity as needed, there can be no assurance
that additional equity financing may be available on satisfactory terms, if
at all. Also, while we believe that our fiscal 1999 plans, if achieved, will
enable us to comply with the financial covenants in the amended debt agreement
with our lending bank, if some or all of our plans do not materialize, we may
be in violation of the financial covenants. In this case, we may require
additional funds to operate and such funds may not be available on
satisfactory terms, if at all. Failure to raise needed fundings on favorable
terms could have a material adverse effect on our business. Our plans for
fiscal 1999 and beyond are subject to uncertainties, many of which are beyond
our control, such as general economic conditions and competitive factors, and
actual results may vary significantly from our plans. The financial statements
and related notes included elsewhere herein do not include any adjustments
which might result from the outcome of this uncertainty.
<PAGE>
2. Reclassification
Certain prior period amounts in the financial statements have been reclassified
to conform with the current period presentation.
Effective with the third quarter of 1998, we changed our method for reporting
product returns in the statement of operations and balance sheet. While there
is no impact on gross margins for operations previously reported, a
reclassification between returns and cost of sales in the statement of
operations has been made to prior period amounts to reflect returns activity
consistently with our current reporting practices. In addition, inventory and
royalties payable, as impacted by returned product, have been restated from
amounts previously reported on the balance sheet.
3. Basic and Diluted Loss Per Common Share
Basic loss per common share is based upon the net loss applicable to common
shares after preferred dividend requirements and upon the weighted-average
number of common shares outstanding during the period. Diluted loss per common
share adjusts for the effect of convertible securities, stock options and
warrants only in the periods presented in which such effect would have been
dilutive. The total of such securities at March 31, 1999, was 10,704,335.
Such effect was not dilutive in any of the periods presented herein.
4. Debt
During July 1998, we entered a credit agreement with First Source Financial,
Inc. (First Source) for a $35,000 revolving line of credit. Our First Source
facility has a five year term, bears interest at the bank's base rate plus 1.5%
per annum (9.25% at March 31, 1999) and includes a LIBOR option of LIBOR plus 3
% per annum (8.1875% at March 31, 1999). Borrowings under our First Source
facility are limited to the Borrowing Base, as defined, which is based upon
eligible accounts receivable, inventory and music catalog. Our First Source
facility contains certain financial covenants, requires a lockbox arrangement
and is secured by substantially all of our assets. Because the facility
contains a subjective acceleration clause, the entire balance is classified as
current in the balance sheet. The First Source agreement was amended during
April 1999, providing for revised financial covenants through December 31,
1999. In connection with the amendment, the bank required a $60 fee, which was
paid in shares of our Common Stock on April 14, 1999.
5. Preferred Dividend Requirements
On February 28, 1999, the Series B Convertible Preferred Stock accrued a
dividend of $788 and the Series C Convertible Preferred Stock accrued a dividend
of $98. On February 28, 1998, the Series B Convertible Preferred Stock accrued
a dividend of $600 and the Series C Convertible Preferred Stock accrued a
dividend of $75. The dividends reflect a compounding per annum rate of 14%
(effective December 1998; prior to such date the per annum rate was 12%) of the
initial costs of the Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock.
<PAGE>
6. Litigation Settlement
On March 31, 1999, we settled our pending litigation with JCSHO, Inc. entitled
JCSHO, Inc. f/k/a Intersound, Inc. v. Platinum Entertainment, Inc., (D. Minn.).
The parties determined that JSCHO would retain 306,122 shares (60%) of the
510,203 shares of our Common Stock issued to JCSHO in connection with our
acquisition of Intersound in 1997 which were held in escrow pending resolution
of this litigation and that JSCHO would return 204,081 shares (40%) to us. We
also agreed to issue Donald R. Johnson, a shareholder and former employee of
Intersound, Inc., 20,000 shares of our Common Stock. The settlement results in
a reversal of charges previously expensed by us in connection with the acquired
assets and assumed liabilities of Intersound, Inc. and the recognition of a gain
of $1,185. This amount is included as an offset to our operating expenses in
the statement of operations for the first quarter of 1999.
7. Subsequent Event
On April 15, 1999, we issued and sold an aggregate of 3,938 shares of Series D
Convertible Preferred Stock and warrants (the Series D Warrants) to purchase
an aggregate of 794,163 shares of Common Stock to Steven Devick, one of our
executive officers and a director, and Craig J. Duchossois and Andrew Filipowski
, each members of our Board of Directors. The terms of the Series D Convertible
Preferred Stock and Series D Warrants were determined on April 9, 1999,
pursuant to approval be the Board of Directors on such date. We received $3,938
in gross consideration in connection with this private placement. We also paid
an aggregate of $29 to Mr. Duchossois and Mr. Filipowski as a related
transaction fee. The Series D Convertible Preferred Stock accrues dividends
compounded at an annual rate of 12% for the first year, 14% for the second year,
16% for the third year, 18% for the fourth and fifth years and 20% at all times
thereafter, of the purchase price of the Series D Convertible Preferred Stock,
in preference to any dividends on any other class of capital stock. The Series
D Convertible Preferred Stock is junior to the Series B Convertible Preferred
Stock and the Series C Convertible Preferred Stock with respect to the right
to receive dividends and to participate in any distribution of assets other
than by way of dividends. The Series D Convertible Preferred Stock is
redeemable by us at any time at a price per share equal to the purchase price
paid by the purchasers thereof plus accrued and unpaid dividends. The Series D
Convertible Preferred Stock is convertible, commencing two years from the date
of issue, into shares of Common Stock at $7.00 per share, which is equal to the
closing trading price of the Common Stock on April 9, 1999.
The Series D Warrants do not accrete. However, if the Series D Convertible
Preferred Stock is redeemed in full during the twelve month period following the
issuance of the Series D Warrants, the holders of the Series D Warrants are
required to return 1% of the Series D Warrants (or Common Stock representing
shares received upon exercise of the Series D Warrants), determined on a pro
rata basis, for each month remaining in such twelve month period; provided,
however, that the holders of the Series D Warrants are not required to return
more than 12% of the aggregate number of Series D Warrants originally issued.
The Common Stock underlying the Series D Warrants may be purchased at an
exercise price per share of $6.126, which is equal to the average of the
closing trading price of the Common Stock for the trailing 30 consecutive
trading days commencing April 9, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information in this section should be read together with the consolidated
financial statements and related notes contained elsewhere herein.
Overview
Our primary business is the production, distribution, marketing and sale of
music. Our pre-recorded music products include new releases, typically by
established artists, as well as compilations featuring various artists and
repackagings of previously recorded music from our master music catalog and
under licenses from third party record companies. We sell music products,
including compact discs, tape cassettes and digital versatile discs (DVDs)
mainly to retailers and wholesalers primarily in the United States. We
currently release music in a variety of genres including classical, urban, adult
contemporary,blues, gospel and country and on our Intersound Classical,
Platinum, River North, House of Blues, CGI Platinum and Platinum Nashville
labels. Our headquarters are located in Downers Grove, Illinois, our
primary distribution facility is located in Roswell, Georgia, and we have a
promotional office in Nashville,Tennessee.
We distribute our products through a multi-channel system comprised of (i)
Platinum Distribution, our proprietary distribution system, (ii) Universal
Music and Video Distribution (Universal), our third party, major label
distributor, (iii) internationally, primarily through licensing agreements as
well as production and distribution agreements on a territory-by-territory
basis and (iv) Internet distribution. We are increasing the volume of
products distributed through Platinum Distribution compared to Universal;
this results in reduced incremental costs per record sold, due to the lack of
a third party distribution fee. Our gross revenues through Universal were
$2,089,000 and $4,616,000 for the first quarter of 1999 and 1998, respectively,
reflecting a 55% decrease. Management believes that this decrease is related
to the acquisition by Universal of our former third party, major label
distributor, PolyGram Group Distribution, during the summer of 1998. This
decrease was offset by increased sales volume through Platinum Distribution.
Gross revenues through Platinum Distribution were $9,951,000 and $6,808,000 for
the first quarter of 1999 and 1998, respectively, reflecting a 46% increase.
While we have historically distributed records for a limited number of outside
labels, it is our strategy to increase the volume of outside labels we
distribute in order to generate additional revenues and to expand our Platinum
Distribution system. Under these arrangements, we generate a distribution fee
of approximately 20% to 30%, depending on the volume and range of services
provided. The gross margin from these sales ranges from a low of 6% (for third
party product distributed by Universal to which we owe a distribution fee) to
27% (for product distributed through our proprietary systems). These
activities represented 10% of our gross revenues in the first quarter of 1999,
as compared to 5% in the first quarter of 1998. We believe that increasing the
volume of products distributed for select third parties will contribute
significantly to offsetting the fixed costs of maintaining Platinum
Distribution as well as provide incremental revenue and income. We intend to
pursue additional third party distribution opportunities in the future.
We distribute via the Internet through our website, www.PlatinumCD.com, and our
equity investment and revenue sharing arrangement with musicmaker.com, Inc.
(musicmaker.com), the first and largest digital download and "burn and mail"
company. Through musicmaker.com our customers can create custom compilation
CDs or download songs onto the hard drive of their own computers using Liquid
Audio and Secure-MP3, two downloading formats used to protect the copyrights of
the record label and the recording artist. We also are an affiliate with
Amazon.com, a leader in the Internet commerce industry, to provide customers who
visit our website access to hundreds of thousands of commercially available
titles.
<PAGE>
On March 31, 1999, we settled our pending litigation with JCSHO, Inc. entitled
JCSHO, Inc. f/k/a Intersound, Inc. v. Platinum Entertainment, Inc., (D. Minn.).
The parties determined that JSCHO would retain 306,122 shares (60%) of the
510,203 shares of our Common Stock issued to JCSHO in connection with our
acquisition of Intersound in 1997 which were held in escrow pending resolution
of this litigation and that JSCHO would return 204,081 shares (40%) to us. We
also agreed to issue Donald R. Johnson, a shareholder and former employee of
Intersound, Inc., 20,000 shares of our Common Stock. The settlement results in
a reversal of charges previously expensed by us in connection with the acquired
assets and assumed liabilities of Intersound, Inc. and the recognition of a gain
of $1,185,000. This amount is included as an offset to our operating expenses
in the statement of operations for the first quarter of 1999.
Product sales are recognized upon shipment. In accordance with industry
practice, our music products are sold on a returnable basis. Our allowance for
future returns is based upon our historical returns, SoundScan data, and the
return rate of Universal. Our returns as a percentage of gross revenues were
22% and 10% for the first quarter of 1999 and 1998, respectively. The return
rate for the first quarter of 1998 was unusually low; the return rate for the
first quarter of 1999 approximates our overall 1998 return rate and we believe
the current period return rate approximates our anticipated future returns. It
is our policy to inventory all returned product and resell such product at
market value.
We have historically sustained losses and negative operating cash flows, in part
due to the high costs associated with the establishment and expansion of our
activities. We require significant recurring funds for artist and repertoire
(A&R) expenses, which include recorded music costs. We make substantial
payments each year for recording costs and advances to artists and producers in
order to maintain and enhance our artist roster. Advances to established artists
and producers and direct costs associated with the creation of record masters
are capitalized and are charged to cost of sales as the related albums earn
revenues or when the amounts are determined to be unrecoverable. See
"Liquidity and Capital Resources" following.
<PAGE>
Results of Operations
Effective with the third quarter of 1998, we changed our method for reporting
product returns in the statements of operations and balance sheet. While there
is no impact on gross margins for operations previously reported, a
reclassification between returns and cost of sales in the statements of
operations has been made to prior period amounts to reflect returns activity
consistently with our current reporting practices.
The following table sets forth for the periods indicated the percentage of gross
revenues represented by certain items included in our "Consolidated Statements
of Operations." Operating performance for any period is not necessarily
indicative of performance for any future periods.
<TABLE>
Quarter ended
March 31
1999 1998
<CAPTION>
__________________
<S> <C> <C>
Gross revenues
Platinum labels 89% 93%
Distributed labels 10% 5%
Licensing, publishing and other 1% 2%
__________________
Total gross revenues 100% 100%
Less: Returns -22% -10%
Less: Discounts -5% -4%
__________________
Net revenues 73% 86%
Cost of sales 41% 54%
__________________
Gross profit 32% 32%
Other operating expenses:
Selling, general and administrative 34% 26%
Depreciation and amortization 5% 4%
__________________
39% 30%
__________________
Operating income (loss) -7% 2%
Interest expense -5% -4%
Other financing costs - -1%
Equity gain (loss) - 1%
___________________
Net loss -12% -2%
Less: Preferred dividend requirements -7% -5%
___________________
Loss applicable to common shares -19% -7%
===============
</TABLE>
Gross Revenues. Gross revenues decreased $1,496,000 or 11% to $12,519,000 for
the first quarter of 1999, compared to the first quarter of 1998. Gross
revenues through Universal were down $2,527,000 or 55% in the first quarter of
1999 compared to the first quarter of 1998. Management believes that this
decrease is related to the acquisition by Universal of our former third party,
major label distributor,PolyGram Group Distribution, during the summer of 1998.
This decrease was offset by increased sales through our own distribution system,
particularly in the classical genre and third-party release. Gross revenues
through Platinum Distribution were $9,951,000 and $6,808,000 for the first
quarter of 1999 and 1998, respectively, reflecting a 46% increase. The first
quarter of 1999 included the initial shipments of Rick Springfield's Karma, the
continued success of T. Graham Brown's Wine into Water, the new gospel
compilation Today's Gospel Music II, the catalog sales of the box set Classical
Music for People Who Hate Classical Music and Crystal Bernard's second release,
Don't Touch Me There.
<PAGE>
Returns. We record an estimate of future returns at the time product is sold
(see "Overview").
Returns as a percentage of gross revenues were 22% for the first quarter of 1999
, compared to 10% for the
first quarter of 1998. The return rate for the first quarter of 1998 was
unusually low; the return rate for the
first quarter of 1999 approximates our overall 1998 return rate and we believe
the current period return rate
approximates our anticipated future returns.
Discounts. Discounts as a percentage of gross revenues increased slightly to 5%
for the first
quarter of 1999, compared to 4% for the first quarter of 1998.
Cost of Sales. Cost of sales as a percentage of gross revenues decreased to 41%
for the first
quarter of 1999, from 54% for the first quarter of 1998. The decrease resulted
from increased proprietary
and third party distribution through Platinum Distribution compared to Universal
, for which we are charged
a distribution fee. In addition, a larger portion of our first quarter 1999
sales were in the classical genre as
compared to the first quarter of 1998; classical sales typically have a lower
artist royalty rate than our other
genres.
Gross Profit. Gross profit decreased $334,000 or 8% to $4,049,000 for the first
quarter of 1999, compared to $4,383,000 for the first quarter of 1998. As a
percentage of gross revenues, gross profit remained unchanged at 32%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $679,000 or 19% to $4,299,000 for the first
quarter of 1999, compared to the first quarter of 1998. The current period
includes a net gain from litigation settlements of $1,185,000 (see "Overview").
Excluding these settlements, selling, general and administrative expenses
increased 51% from the first quarter of 1998. As a percentage of gross
revenues, selling, general and administrative expenses increased to 34% in the
first quarter of 1999 from 26% in the first quarter of 1998. This increase is
primarily attributable to increased promotional spending on our urban releases,
a genre which management believes requires significant promotional expenditures
in order for us to capitalize on the opportunities for
significant sales in this genre. Our adult contemporary releases also involve
higher promotional spending than our other genres. Our adult contemporary
sales were most impacted by the decline in sales volume through Universal, which
resulted in a higher expense to revenue ratio.
Operating Loss. As a result of the factors described above, we incurred an
operating loss of $901,000 for the first quarter of 1999, compared to an
operating gain of $268,000 for the first quarter of 1998.
Interest Expense. Interest expense for the first quarter of 1999, totaled
$660,000 compared to $568,000 for the first quarter of 1998. The current period
increase resulted from a higher outstanding line of credit balance than in the
first quarter of 1998. See "Liquidity and Capital Resources" below for details
of our current debt structures.
Income Taxes. No income tax expense or benefit has been recorded through March
31, 1999, due to our net operating loss carryforward and related valuation
allowance, as required under generally accepted accounting principles.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, our
net operating loss carryforward of approximately $57,857,000 at December 31,
1998,
expiring in years 2008 through 2013, is subject to annual limitations due to a
change in ownership as a result of our initial public offering. Accordingly,
approximately $6,185,000 of the net operating loss carryforward is subject to
an annual limitation of approximately $2,200,000.
Preferred Dividend Requirements. During the first quarter of 1999, the Series
B and Series C Convertible Preferred Stock outstanding accrued a dividend of
$886,000 (representing a 14% return on investment). These dividends are
compounding quarterly, and represented a 12% return on investment during 1998.
<PAGE>
Loss Applicable to Common Shares. The loss applicable to common shares for the
first quarter of 1999, totaled $2,518,000, including preferred dividend
requirements of $886,000, compared to a loss applicable to common shares of
$857,000, including preferred dividend requirements of $675,000, for the
first quarter of 1998.
Fluctuations in Our Quarterly Operating Results and Seasonality
Our results of operations are subject to seasonal variations. In particular,
our revenues and operating income are affected by end-of-the-year holiday sales.
In accordance with industry practice, we record product sales when products
are shipped to retailers. In anticipation of holiday sales, retailers
purchase products from us prior to December. As a result, our revenues and
operating income typically decline during December, January and February. In
addition, timing of a new release may materially affect our business, financial
condition and results of operations. For example, if releases planned for the
peak holiday season are delayed, our business, financial results and operating
results could be materially, adversely affected.
Liquidity and Capital Resources
We have incurred significant net losses and negative cash flows from operations
since our inception, including a net loss of $1,632,000 ($2,518,000 after
preferred dividend requirements) and negative cash flows from operations of
$2,657,000 in the first quarter of 1999. We have historically sustained net
losses and negative cash flows, in part due to the high costs associated with
the establishment and expansion of our activities.
Historically, we have funded our operations and other activities from a variety
of capital sources, including debt and equity financing. We have continued to
obtain equity financing from time-to-time. On December 31, 1998, a private
placement of our Common Stock occurred, providing proceeds of $2,500,000
in January 1999.
We have formulated plans and instituted specific measures which we believe will
improve cash flows and liquidity and enable us to continue in existence without
a significant curtailment of operations.
* We established a fiscal 1999 business plan and adopted a fiscal 1999 budget
which includes, among other things, (i) a focus on the efficiency of internal
operations, (ii) implementation of procedures to reduce costs and improve
margins, (iii) the addition of new releases in a variety of genres and (iv)
the hiring of experienced music industry executives to supplement the efforts
of
management.
* On April 15, 1999, we issued shares of a new series of preferred stock and
warrants to purchase shares of our Common Stock to one of our executive officer
s and a director and certain other members of our Board of Directors, providing
net proceeds of approximately $3,900,000 (see "Note 7" in the notes to the
consolidated financial statements).
In addition to the equity placements described above, we may need additional
equity financing in order to achieve our fiscal 1999 plan. While we have been
successful in the past in raising equity as needed, there can be no assurance
that additional equity financing may be available on satisfactory terms, if
at all. Also, while we believe that our fiscal 1999 plans, if achieved, will
enable us to comply with the financial covenants in the amended debt agreement
with our lending bank, if some or all of our plans do not materialize, we may
be in violation of the financial covenants. In this case, we may require
additional funds to operate and such funds may not be available on satisfactory
terms, if at all. Failure to raise needed fundings on favorable terms could
have a material adverse effect on our business. Our plans for fiscal 1999
and beyond are subject to uncertainties, many of which are beyond our control,
such as general economic conditions and competitive factors, and actual
results may vary significantly from our plans. The financial statements and
related notes included elsewhere herein do not include any adjustments which
might result
from the outcome of this uncertainty.
<PAGE>
During the first quarter of 1999, we experienced negative cash flow from
operations of $2,657,000. This resulted from continued operating losses and
approximately $1,273,000 of new project funding. Investing activities for
the quarter totaled $244,000, related to capital expenditure. Operating and
investing activities were funded from operations, our line of credit with First
Source Financial, Inc. and proceeds of $2,500,000 from a private placement of
our Common Stock.
During the first quarter of 1998, we experienced negative cash flow from
operations of $1,609,000. This resulted from continued operating losses and
approximately $1,311,000 of new project funding. Investing activities for the
period totaled $379,000, related to capital expenditures and the purchase of
a classical catalog. Operating and investing activities were funded from
operations and our then-outstanding banking line of credit.
We require significant recurring funds for A&R expenses, which include recorded
music costs. We make substantial payments each period for recording costs and
advances to artists and producers in order to maintain and enhance our artist
roster. Advances to established artists and producers and direct costs
associated with the creation of record masters are capitalized and are charged
to cost of sales as the related albums earn revenues or when the amounts are
determined to be unrecoverable. Royalties are not paid to the artist until
all advances made to the artist have been recouped by us. Also, we establish
and maintain reserves relative to royalty payments for a period of 18 to 24
months to allow for product returns activity, as royalties are not owed on
returned product.
During July 1998, we entered a credit agreement with First Source Financial,
Inc. (First Source) for a $35,000,000 revolving line of credit. Our First
Source facility has a five year term, bears interest at the bank's base rate
plus 1.5% per annum (9.25% at March 31, 1999) and includes a LIBOR option of
LIBOR plus 3% per annum (8.1875% at March 31, 1999). Borrowings under our
First Source facility are limited to the Borrowing Base, as defined, which
is based upon eligible accounts receivable, inventory and music catalog.
Our First Source facility contains certain financial covenants, requires a
lockbox arrangement and is secured by substantially all of our assets.
Because the facility contains a subjective acceleration clause, the entire
balance is classified as current in the balance sheet. The First Source
agreement was amended during April 1999, providing for revised financial
covenants through December 31, 1999. In connection with the amendment,
the bank required a $60,000 fee, which was paid in shares of our Common
Stock on April 14, 1999.
Stockholders' equity at March 31, 1999, totaled $5,103,000 compared to
$7,918,000 at December 31, 1998. This net decrease of $2,815,000 or 36% is
primarily due to continued operating net losses and the redemption of shares
of our Common Stock in connection with a certain litigation settlement (see
"Part II " Other Information, Item 1. Legal Proceedings").
Our near and long-term capital requirements will depend on numerous factors,
including the rate at which we grow and acquire new artists and products.
We have various on-going needs for capital, including working capital for
operations, artist advances and recorded music costs, and capital expenditures
to maintain and expand our operations. In addition, as part of our strategy,
we evaluate potential acquisitions of music catalogs, publishing rights and
labels. We may in the future consummate acquisitions which may require us to
make additional capital expenditures, and such expenditures may be significant.
Future acquisitions, as well as other on-going capital needs, may be funded with
institutional financing, seller financing and/or additional equity or debt
offerings. We currently do not have any material commitments for capital
expenditures for the next twelve months.
Inflation
The impact of inflation on our operating results has been moderate in recent
years, reflecting generally lower rates of inflation in the economy. While
inflation has not had a material impact on operating results, there is no
assurance that our business will not be affected by inflation in the future.
<PAGE>
Year 2000 Risks
Many existing computer programs use only two digits (rather than four) to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results
by or at the Year 2000.
In 1998, we started analyzing, reprogramming and replacing our computer systems
to address the Year 2000 problem. We have completed a significant portion of
the reprogramming, replacing and testing, but have not yet completed our
review of the significant software and equipment used in our business operations
and the operations of our key business partners. Until these reviews are
complete, we cannot be sure that our efforts to address Year 2000 issues are
appropriate, adequate or complete.
Based on our current assessment of our Year 2000 issues detailed below, we plan
to be Year 2000 compliant by July 31, 1999:
* We are dependent on personal computer systems for internal electronic
information processing. To bring our systems into Year 2000 compliance we
have spent approximately $250,000 since January 1, 1998, to replace existing
hardware.
* We are currently operating one financial accounting software package that
is Year 2000 compliant. We intend to either install distribution software
already purchased that is Year 2000 compliant in the near future or, in the
worst case, modify our existing distribution software used in both locations
to be Year 2000 compliant at no material incremental cost. We have spent
approximately $330,000 on software since January 1, 1998. We have also paid
$500,000 in consulting services since January 1, 1998.
* We are currently assessing the state of readiness for Year 2000 of our
material vendors, suppliers, customers and other material third parties.
We expect to have sent the letters by July 31, 1999. If any of our material
vendors, suppliers or customers, particularly Universal, has a serious Year
2000 problem, we could experience a loss of revenues from their operations
and/or incur a
significant amount of expenses.
If we are unable to manage the Year 2000 date change successfully, we may
suffer the following consequences:
* We may experience a significant number of operational inconveniences and
inefficiencies for us and our customers that may divert our time and attention
and financial and human resources from our ordinary business activities.
* We may suffer serious systems failures that may require significant efforts
by us or our customers to prevent or alleviate material business disruptions.
* We may be in default of a number of agreements, including our credit
agreement, if we fail to respond to our Year 2000 issues in a timely manner.
* We may experience significant loss of revenues or incur a significant amount
of unanticipated expenses.
* We may incur liability for the losses incurred by our customers or others
where business is disrupted by our system failures or incur significant costs
of defending claims made against us for the recovery of such losses.
<PAGE>
Safe Harbor Provision
Some of the information in this filing contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "anticipate," "believe,"
"estimate" and "expect" or similar words. You should read statements that
contain these words because they (1) discuss our future expectations, (2)
contain projections of our future results of operations or of our financial
condition or (3) state other "forward-looking" information. We believe it
is important to communicate our expectations to our investors. There may
be events in the future, however, that we are
not accurately able to predict or over which we have no control. A number
of important factors could cause our actual results, performance and
achievements for fiscal 1999 and beyond to differ materially from those
expressed in such forward-looking statements. Reference is made to our prior
filings with the Securities and Exchange Commission, in particular the "Risk
Factors" section of our Prospectuses dated January 13, 1999, as amended, and
March 12, 1996, for a discussion of some of these factors. These risk factors
include, without limitation, commercial success of our repertoire, risks of
inadequate financing,charges and costs related to acquisitions, management
of growth, relationships with artists, producers and licensees, attraction
and retention of key personnel, general economic and business conditions
and competition in the recorded music industry.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
The principal market risk (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed is interest rates on debt.
On March 31, 1999, we had $34,375,000 of debt outstanding under a $35,000,000
revolving bank line of credit. The line of credit expires during July 2003.
The line of credit bears interest at the bank's base rate plus 1.5% per
annum (9.25% at March 31, 1999) and includes a LIBOR option of LIBOR pl
us 3% per annum (8.1875% at March 31, 1999). At March 31, 1999, the
portion of the outstanding debt subject to the LIBOR option totaled
$29,900,000.
We do not hold and have not issued derivative financial instruments for
speculation or trading purposes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 31, 1999, we settled our pending litigation with JCSHO, Inc. entitled
JCSHO, Inc. f/k/a Intersound, Inc. v. Platinum Entertainment, Inc., No. 97-2479
MJD/AJB (D. Minn.). The parties determined that JSCHO would retain 306,122
shares (60%) of the 510,203 shares of our Common Stock issued to JCSHO in
connection with our acquisition of Intersound in 1997 which were held in escrow
pending resolution of this litigation and that JSCHO would return 204,081 shares
(40%) to us. We also agreed to issue Donald R. Johnson, a shareholder and
former employee of Intersound, Inc., 20,000 shares of our Common Stock. The
settlement results in a reversal of charges previously expensed by us in
connection with the acquired assets and assumed liabilities of Intersound,
Inc. and the recognition of a gain of $1,185,000 during the first quarter of
1999. This settlement results in the mutual release of all claims and actions
the parties have or ever had against each other arising from conduct occurring
before March 31,1999, including all claims that were asserted or that could
have been asserted by Donald R. Johnson, a shareholder and former employee of
Intersound, Inc., in the action entitled Donald R. Johnson v. Intersound, Inc.
(Del), f/k/a River North Studios, Inc., No. E-64885, Superior Court in Fulton
County Georgia. The parties have filed all documents necessary to effectuate
the dismissal with prejudice, and without attorneys' fees and costs, of all
claims asserted in the pending litigation.
<PAGE>
On April 7, 1999, Ichiban Records, Inc. filed a lawsuit in the Superior Court
of Fulton County, State of Georgia, captioned Ichiban Records, Inc. v.
Platinum Entertainment, Inc., Civil Action No. 1999 CV 07215 ("Ichiban Claim"),
seeking termination of its distribution agreement with us and damages in excess
of $10,000,000, for alleged breaches of its distribution agreement by us.
Ichiban Records, Inc. also filed a complaint for injunction and temporary
restraining order and appointment of a receiver under the same caption.
On April 21, 1999, Ichiban Records, Inc. also filed a voluntary petition to
commence a case under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Georgia, Atlanta Division, Case
No. 99-66017. Further, we removed the Ichiban Claim from the State of Georgia
court to the United States District Court for the Northern District of Georgia,
Atlanta Division,
Case No. 1:99 CV-1113. The Ichiban Claim will now be asserted through the
bankruptcy action. We believe the claims of Ichiban Records, Inc. are without
merit and that the matter will be successfully resolved without a material
impact on our financial position or results of operations. We are presently in
discussions with Ichiban Records, Inc. concerning a restructuring of the
distribution relationship between the parties in order to recover advances
and other monies owed by Ichiban Records, Inc. to us. However, because the
bankruptcy and lawsuit are at early stages, there can be no assurances that
the matter can be resolved in our favor. A decision adverse to us in this
matter could have a material adverse impact on our financial position and
results of operations.
We are a party in various other lawsuits which have arisen in the normal course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate outcome of these lawsuits will not have a material
impact on our financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
During February 1999, Bank of Montreal exercised in full their warrant to
purchase 235,366 shares of our Common Stock for $.01 per share, resulting in
proceeds of $2,354.
During March 1999, PPM America Special Investments Fund L.P. exercised in
full their warrant to purchase 23,206 shares of our Common Stock for $.01
per share, resulting in proceeds of $232.
On March 31, 1999, we settled two lawsuits resulting in the issuance of
20,000 shares of our Common Stock to Donald R. Johnson and the redemption of
204,081 shares of our Common Stock from JSCHO, Inc. See "Item 1.
Legal Proceedings."
These transactions were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 as transactions not involving a public offering.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Employment Agreement, dated December 15, 1998, between the Registrant
and Brent Gordon.
27. Financial Data Schedule.
B. Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify that
we have reasonable grounds to believe that we meet all of the requirements
for filing on Form 10-Q and we have duly caused this Report to be signed on
our behalf by the undersigned, thereunto duly authorized, in the City of
Downers
Grove, State of Illinois, on May 17, 1999.
Platinum Entertainment, Inc.
By: /s/STEVEN DEVICK
Steven Devick
Chairman, President and Chief Executive Officer
/s/DOUGLAS C. LAUX
Douglas C. Laux
Chief Operating Officer, Chief Financial Officer
and Director
19
12
Exhibit 10.1 Employment Agreement
December 15, 1998
Brent Gordon
10464 Garden Grove Avenue
Northridge, California 91326
Dear Brent:
The following are the terms of your employment by Platinum Entertainment, Inc.
("Platinum") as Executive Vice President, Sales and Distribution.
1. You shall exercise all of the executive and administrative
responsibilities of Executive Vice President, Sales and Distribution, subject
to the by-laws of Platinum and the supervision of the Chief Executive Officer
of Platinum. You also agree to perform such other duties and services as may
be entrusted to you by the Chief Executive Officer and the Board of Directors
of Platinum that are consistent with your position and title and shall report
to the Chief Executive Officer and the Chief Operating Officer of Platinum.
You agree to discharge your responsibilities diligently, in good faith, and to
the best of your abilities and to at all times give Platinum full information
and truthful explanation of all matters relative to your employment
responsibilities. You shall devote all of your time during ordinary business
hours to the interests and business of Platinum and shall not, except as
otherwise agreed to by the Board of Directors, work with or receive any
compensation or consideration from any other party for services performed or to
be performed by you.
2. (a) Your employment will be for a term of three (3) years, beginning
January 1, 1999 (the "Term"), at the annual base salary of $230,000.00, less
withholding ("Base Salary"), which will be paid in accordance with Platinum's
regular payroll policies. Your Base Salary shall be increased by the amount of
$10,000.00 in each of the second and third annual periods of the Term. In
addition, during the term of your employment, you and your family will be
entitled to participate in Platinum's regular health and dental insurance plan
under Platinum's policies with respect to such plans. The amount of your Base
Salary shall be increased by an amount sufficient, after taking into effect
federal and state taxes, to pay the cost of health and dental insurance for you
and your wife. During each annual period of your employment you shall be
entitled to up to four (4) weeks of vacation, and five (5) personal leave days.
You shall also be eligible to participate in the 401(K), life insurance, and
all other benefit plans of Platinum under Platinum's policies with respect to
such plans for its employees. You shall also be reimbursed for reasonable
expenses incurred by you for promoting the business of Platinum and in
performance of your duties hereunder in accordance with Platinum's expense
policies. You will be issued a company credit card and long distance telephone
charge card.
(b) Platinum hereby acknowledges that, at the date hereof, you reside in
Northridge, California. Platinum has asked you to relocate to Atlanta, Georgia
area, and you hereby agree to such relocation. Accordingly, promptly following
any such relocation of the principal residence of you and your family, Platinum
shall reimburse you for the expense of such relocation upon your delivery to
Platinum of proper documentation evidencing such expense. Temporary housing
for you and your family, not to exceed seventy-five (75) days, will be paid
for by Platinum.
3. (a) In further consideration of your services hereunder, Platinum agrees
to grant to you an option (the "Purchase Option") to purchase an aggregate of
Thirty Thousand (30,000) shares of Platinum's common stock at a purchase price
established pursuant to the 1995 Employee Incentive Compensation Plan, as
amended in 1996, at the next grant date as approved by the Board of Directors
of shareholders of Platinum (the "Grant Date"). The Purchase Option shall be
exercisable with respect to a portion of the shares subject to the Purchase
Option over the course of the option period as follows: up to and including
one-third (1/3) of the shares subject to the Purchase Option shall be
exercisable on and after the first anniversary of the Grant Date; up to and
including two thirds (2/3) of the shares subject to the Purchase Option shall
be exercisable on and after the second anniversary of the Grant Date; and up to
and including one hundred percent (100%) of the shares subject to the Purchase
Option shall be exercisable on and after the third anniversary of the Grant
Date. The Purchase Option shall be subject to the provisions of a separate
stock option agreement, in the form of other Platinum employee stock options,
to be entered between Platinum and you, as well as the terms of Platinum's
Stock Option Plan existing as of the Grant Date. In the event your employment
with Platinum continues for the complete Term of this Agreement but terminates
thereafter by action of Platinum without cause prior to the third anniversary
of the Grant Date, the Purchase Option with respect to the portion of shares
vesting on the third anniversary of the Grant Date shall be exercisable by you
effective upon the date of such termination.
(b) In further consideration of your services hereunder, Platinum agrees that
you shall be entitled to receive such bonuses, including stock options, as are
determined by the Compensation Committee of the Board of Directors of Platinum
for each annual period of the term of this Agreement. Platinum agrees that
the formula for the calculation of your bonus shall be based upon the EBIDA
performance of Platinum's proprietary distribution system presently entitled
Platinum Distribution, and that your portion of the bonus pool for the
employees of Platinum Distribution shall be twenty-five percent (25%).
Platinum agrees that options to purchase Ten Thousand (10,000) shares of
Platinum's common stock ("Incentive Options") shall be awarded to you during
each annual period of this Agreement upon your achieving certain levels of Net
Sales of product owned by Platinum and distributed through Platinum
Distribution ("Incentive Product"), which levels shall be determined annually
by the Compensation Committee of the Board of Directors of Platinum. For
purposes of this Agreement, the term "Net Sales" shall mean gross sales of
Incentive Product, less returns and credits. The Incentive Options shall be
exercisable on or after the respective dates of your achievement of the
applicable levels of Net Sales in each period of this Agreement (the
"Incentive Grant Dates"). The Incentive Options shall be subject to the
provisions of separate stock option agreements, in the form of other Platinum
employee stock options, to be entered between Platinum and you, as well as the
terms of Platinum's Stock Option Plan existing as of the respective Incentive
Grant Dates.
4. Unless otherwise mutually extended, this agreement shall terminate on
December 31, 2001, or the first to occur of the following:
(a) Your death.
(b) Your absence or inability to render the services required hereunder by
reason of a state of physical or mental incapacity for more than a period of
fifteen (15) consecutive weeks and upon thirty (30) days prior written notice
by Platinum to you of an intent to terminate because of such absence or
inability.
(c) (i) Your act or acts which constitute a felony;
(ii) Your act or acts in the course of your employment that constitute a
fraud, misappropriation of property of Platinum or any of its affiliates, or
dishonesty;
(iii) Your act or acts which constitute any crime involving moral turpitude; or
(iv) Your willful engagement in one or more acts, or your willful failure to
act, which is damaging to Platinum or any of its affiliates in a material
manner, or your willful failure to comply with reasonable directions of the
Chief Executive Officer or Chief Operating Officer of Platinum, after (A)
written notice is delivered to you describing such willful failure or
engagement in one or more acts and (B) you fail to cure such willful failure
or engagement after a reasonable period of time as determined by the Chief
Executive Officer or Chief Operating Officer in their reasonable discretion
(not to be less than five (5) days).
(d) In the event Platinum terminates this Agreement for any reason other than
those reasons set forth in Paragraph 4(a), 4(b) or 4(c), Platinum shall
continue to pay you, as severance compensation, all compensation payable
hereunder in the form of Base Salary for a period beginning on the date of
your termination and ending on the end of the Term. You shall not be required
to mitigate the amount of any payment provided for pursuant to this Paragraph
4(d) by seeking other employment or otherwise.
5. (a) You acknowledge that the relationship between the parties hereto is
exclusively that of employer and employee and that Platinum's obligations to
you are exclusively contractual in nature. Platinum shall be the sole owner of
all the fruits and proceeds of your services hereunder, including but not
limited to all ideas, concepts, formats, suggestions, developments,
arrangements, designs, packages, programs, promotions, musical compositions,
inventions pertaining to or useful in or to the activities of Platinum, and
other such intellectual properties which you may create during the Term of
your employment hereunder (all of the foregoing being collectively referred to
herein as "Work Product"), free and clear of any claims by you (or anyone
claiming under you) of any kind or character whatsoever, other than your right
to compensation hereunder, provided however that this shall only apply to Work
Product that is conceived or made on Platinum's time or with the use of
Platinum's facilities or materials. You shall, at the request of Platinum,
execute such assignments, certificates or other instruments as Platinum may
from time to time deem necessary or desirable to evidence, establish,
maintain, perfect, protect, enforce or defend its right, title and interest in
or to any Work Product of which Platinum shall be the sole owner as
hereinabove provided.
(b) All memoranda, notes, business records and other documents made or
compiled by you or made available to you during the Term of this Agreement
concerning the business of Platinum shall be Platinum's property and on
request shall be delivered to Platinum on the termination or expiration of
this Agreement or at any other time on request.
(c) You agree that, during the term of this agreement and at all times
thereafter, you will maintain the confidentiality of all Confidential
Information regarding Platinum and its subsidiaries, affiliates, successors,
and assigns (hereinafter collectively the "Protected Entities") that you have,
or will have received or had access to as an employee, officer or director and
that you will not make any disclosure thereof to anyone else except as to
matters that have been the subject of public announcement or disclosure, is
generally available to the public from sources not subject to confidentiality
agreements with Platinum, or except as required by law. "Confidential
Information" shall mean any information relating to the business or affairs of
the Protected Entities, including but not limited to information relating to
plans, developments, financial statements, customer identities, potential
customers, employees, suppliers, servicing methods, equipment, programs,
strategies and information, analyses, profit margins, inventions, improvements,
copyrightable work, or other proprietary information used by the Protected
Entities in connection with their businesses. Nothing herein shall prevent
you subsequent to the termination or expiration of your employment pursuant to
this Agreement from using and availing yourself of your general technical
skills, knowledge and experience, including that pertaining to or derived from
the non-secret or non-confidential aspects of the Protected Entities.
(d) For a period of one year after the Term of this Agreement, unless approved
by the Board of Directors of Platinum, you will not, directly or indirectly,
except for secretarial or clerical employees who have theretofore rendered
services for you:
(i) solicit any employee of the Protected Entities, or any performing artist or
other person then under contract with or rendering services to or making
phonograph or other recordings for the Protected Entities to terminate his or
her employment by, or contractual relationship with, the Protected Entities,
or to refrain from extending or renewing the same (upon the same or new terms)
or to refrain from rendering services to or making phonograph or other
recordings for the Protected Entities, or to become employed by or to enter
into contractual relations with, or to make phonograph or other recordings for,
persons other than the Protected Entities;
(ii) approach any such employee, performing artist, producer or other person
for any of the foregoing purposes; or
(iii) authorize or knowingly approve or assist in the taking of any such
actions by any other person.
(e) Platinum shall be entitled, in addition to any other right or remedy it
may have, to an injunction, without the posting of any bond or other security,
enjoining or restraining you from any violation or threatened violation of any
part of Paragraphs 5(a), 5(b), 5(c), or 5(d).
6. This agreement (a) represents the entire agreement between you and
Platinum;(b) is not to be amended, supplemented, varied or discharged except
by an instrument in writing; (c) may be executed in counterparts, each of which
shall be deemed an original; and (d) shall be interpreted in accordance with
and in all respects governed by the laws of the State of Illinois. If any
provision of this agreement is declared void, or otherwise unenforceable, such
provision shall be deemed to have been severed from this agreement, which shall
otherwise remain in full force and effect.
If the foregoing correctly states our agreement, please so confirm by signing
below where indicated.
Platinum Entertainment, Inc.
By:/s/THOMAS R. LEAVENS
Accepted and Agreed:
/s/ BRENT GORDON
Brent Gordon
12/17/98
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR
PLATINUM ENTERTAINMENT, INC. AND THE ACCOMPANYING NOTES THERETO FOR THE
PERIOD INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 15,254
<ALLOWANCES> (8,982)
<INVENTORY> 8,238
<CURRENT-ASSETS> 18,761
<PP&E> 3,998
<DEPRECIATION> (1,519)
<TOTAL-ASSETS> 56,299
<CURRENT-LIABILITIES> 51,196
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 5,096
<TOTAL-LIABILITY-AND-EQUITY> 56,299
<SALES> 12,358
<TOTAL-REVENUES> 12,519
<CGS> 5,128
<TOTAL-COSTS> 5,181
<OTHER-EXPENSES> 4,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 660
<INCOME-PRETAX> (1,632)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,632)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
