Letterhead of
Paradise Music & Entertainment, Inc.
September 28, 1998
Messrs. Xxxx Xxxxxxxx, Xxx Xxxxx,
Xxxxx Xxxxx and Xxxxxxx Xxxxx
C/o Paradise Music & Entertainment, Inc.
00 Xxxx 00xx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
Gentlemen:
This letter will memorialize our agreement with respect to the terms on which
amended and restated employment agreements (the "Agreements") for each of you
(the "Executives") will be prepared, negotiated and executed at the earliest
practicable opportunity.
1. Form of Agreement. Except as set forth below with respect to (i) the term of
the Agreements, (ii) certain provisions relating to compensation, and (iii)
certain provisions relating to non-competition, the form of Agreement will
reflect (without amendment, modification or supplementation) all of the
operative terms, benefits and conditions now contained in the employment
agreements covering the Executives as of the date hereof .
2. Term. The term of the Agreements (the "Term") will commence on the first
regularly scheduled pay period after the date on which such Agreements are
executed and expire on June 30, 2001. All parties agree to use their best
efforts to negotiate in good faith and to execute such Agreements as soon as
practicable after the date hereof.
3. Non-Compete.
A. Non-compete. The non-competition section of the existing
employment agreements will be amended in the new Agreements to provide
that if any Executive leaves the employ of the Company voluntarily (other
than for "Good Reason" as defined below), or is terminated for cause (but
only for cause), that such Executive will (i) surrender for cancellation
all securities of the Company owned by such Executive equal to the amount
of stock that such Executive received pursuant to that certain Exchange
Agreement dated as of October 9, 1996, (ii) forfeit all accrued, but
unpaid, compensation through the date of such Executive's departure, and
(iii) pay to the Company 25% of the gross client profit (defined as
revenues minus cost of goods sold) for any Clients or Artists (as defined
in the existing employment agreements) originated, or developed since
October 9, 1996 by the Executive or the subsidiary employing Executive
(the "Termination Payments"). Termination Payments will be paid to the
Company on all gross client profit earned by the Executive or the
subsidiary employing Executive for remainder of the Term. A list of
Clients and Artists affected by the 25% gross client profit allocation
will be provided to the Board and appended to each Employment Agreement.
The terms, conditions and payments described in subsections (i) through
(iii) above are hereafter referred to as the "Non-compete Consideration".
Messrs. Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx
Paradise Music & Entertainment, Inc.
September 28, 1998
Page 2
The definition of cause contained in Section 7(b) of the existing
employment agreements shall be amended and restated in its entirety to
read as follows:
"(b) Commission of a willful or intentional act which has
materially injured the reputation, business or business
relationships of the Employer, including the violation of the terms
of Sections 10 and 11 hereof, which is not cured within 30 days
after Executive has received a written notice from the Company
stating in reasonable detail the willful or intentional act(s) at
issue and the nature of the injury or damage."
B. Good Reason. For purposes of this Agreement, "Good Reason" shall
mean (i) any breach of this Agreement by the Company, (ii) a material
diminution of an Executive's responsibilities, loss of title or position
with the Company or the subsidiary employing the Executive, or the failure
to reelect the Executive to the Board of Directors of the Company, (iii) a
material reduction in any Executive's base salary from that stated in this
Agreement or other benefits as in effect at the time in question, or (iv)
the failure by a successor to the Company to assume this Agreement.
4. Compensation.
A. Base Salaries. The base salaries ("Base Salaries") for Messrs.
Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx will be $200,000 per annum, payable in
accordance with the Company's existing payroll practices. In recognition
of his performance for fiscal year 1998, Mr. Xxxxx's Base Salary will be
$320,000 per annum for fiscal year 1999 and for so long as Mr. Xxxxx earns
during any subsequent fiscal year of the Term an amount of Base Salary and
compensation from his Tier 3 Bonus (as described below) in an amount
greater than $320,000 per annum, Mr. Xxxxx shall be entitled to draw his
compensation at the rate of $320,000 per annum. In the event that Picture
Vision earns less than $320,000 (a "Picture Vision Shortfall")in Net
Profit (as hereafter defined) in any fiscal year, then Mr. Xxxxx's Base
Salary for the next fiscal year shall be reduced (but not below $200,000
per annum) by the amount of such Picture Vision Shortfall. The President
and CEO of the Company shall be entitled to receive a fee of $25,000 per
annum, payable in accordance with the Company's existing payroll practices
in addition to Base Salary or the compensation from any Bonus.
B. Tier 1, Tier 2 and Tier 3 Bonuses. For purposes hereof, the term
"Net Profit" shall mean pretax income as determined by the Company's
auditors in accordance with generally accepted accounting principles
consistently applied ("GAAP") (without any chargeback of corporate
overhead but after accounting for the payment of the Base Salary actually
received by such Executive in such year. A Tier 1 Net Profit threshold
will be established for each Executive as follows:
Name: Tier 1 Net Profit Threshold:
Xxxx Xxxxxxxx $200,000 in Net Profit from Rave.
Xxx Xxxxx $0 from Picture Vision for any fiscal year that Mr.
Xxxxx's Base Salary is $320,000, otherwise up to
$200,000 in Net Profits from Picture Vision.
Xxxxx Xxxxx An aggregate of $400,000 in Net Profits from the
and Xxxxxxx Xxxxx operations of All Access Entertainment, Inc. ("All
Access") and PUSH Records, Inc. ("PUSH").
For purposes hereof, the losses of one subsidiary, if any, will not be
offset against the Net Profits generated by the other subsidiary other
than as set forth in subsection D below.
Messrs. Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx
Paradise Music & Entertainment, Inc.
September 28, 1998
Page 3
(i) An Executive will be entitled to receive (the "Tier 1
Bonus") 50% of each dollar of Net Profit earned by the operating
subsidiary that pays his Base Salary up to the Net Profit Xxxxxxxxx.
(ii) Messrs. Xxxxxxxx, Xxxxx and Xxxxx will be entitled to
receive (the "Tier 2 Bonus") equal to 15% of each dollar of Net
Profit earned by the operating subsidiary that pays his Base Salary
above the Net Profit Threshold. Mr. Xxxxx shall have no Tier 2 Bonus
for so long as his Base Salary is $320,000. In such event, the first
$200,000 in Net Profit shall be allocated 100% to the Company until
the Company has earned $200,000 and thereafter (the "Tier 3 Bonus"),
Net Profit from Picture Vision shall be allocated 75% to the Company
and 25% to Mr. Xxxxx. In the event that Mr. Xxxxx's Base Salary has
been reduced by any Picture Vision Shortfall, then the next $X in
Net Profit (where "X" equals the Picture Vision Shortfall for the
previous year) shall be allocated to Mr. Xxxxx (in lieu of a Tier 2
Bonus) such that Mr. Xxxxx shall have received compensation in such
year up to $320,000, then the next $200,000 in Net Profits shall be
allocated to the Company. Thereafter, Net Profits shall be allocated
75% to the Company and 25% to Mr. Xxxxx.
X. Xxxxxx. Xxxxx and Xxxxx shall prepare (prior to the execution of
the Agreements) a realistic projection of the anticipated results of
operations for PUSH for fiscal year 1998 (the "PUSH Budget"). The PUSH
Budget shall be reviewed and approved by the Board of Directors of the
Company. If PUSH amends the PUSH Budget to produce, license, market or
distribute records which are not reflected on the PUSH Budget as approved
(as was the case with the signing of Blessid Union of Souls in fiscal year
1998), such amendments must be approved by the Board of Directors and the
results of operations projected in such amended budget shall be deemed the
new PUSH Budget. Prior to June 1 of each fiscal year, PUSH shall prepare a
PUSH Budget for the next fiscal year which budget shall be submitted to
the Board for its approval. Once approved by the Board, such PUSH Budget
will establish the operating budget, subject to amendment as provided
above, for the ensuing fiscal year.
D. Net Profit for each operating subsidiary shall be computed on a
quarterly basis prior to the date on which the Company files its
consolidated results of operation with the SEC for the period covered. To
the extent that the results of operations for a subsidiary indicate that
they have earned Net Profit, then a Tier 1 Bonus (but not a Tier 2 or Tier
3 Bonus) shall be paid to the appropriate Executive on such Net Profit.
The maximum Tier 1 Bonus that will be paid for any quarter is 25% of the
maximum Tier 1 Bonus that an Executive could earn over the course of a
full year. If the results of operation for such quarter indicate that the
operating subsidiary has an operating loss, then such loss shall be
carried forward (as would any earned but unpaid Tier 1 Bonus amounts from
the previous quarter) and aggregated into the results for the next
succeeding quarter; provided, however, that any cumulative losses for any
fiscal year up to $200,000 shall not be carried forward into the next
succeeding fiscal year. Losses in excess of $200,000 for any operating
subsidiary (and, in the case of PUSH, $200,000 worse than the PUSH Budget,
as amended, for the year at issue) ("Excess Losses"), shall be carried
forward into the next fiscal year and these losses must be recouped before
any Tier 1, Tier 2 and Tier 3 Bonuses are paid to the Executive affiliated
with such operating subsidiary. In the case of PUSH and All Access
Entertainment Management Group, Inc. ("All Access"), Excess Losses for
either PUSH or All Access shall offset, on a dollar-for-dollar basis, Net
Profit from the other entity before any Bonus is paid to either Messrs.
Xxxxx and Xxxxx.
E. Tier 2 and Tier 3 Bonuses shall only be paid on Net Profit earned
above the Tier 1 Net Bonus Threshold on a subsidiary's operating results
for any fiscal year after such results have been (i) audited by the
Company's auditors and (ii) reported to the SEC on Form 10-K or any
successor form.
F. It is understood and agreed that Tier 1 and Tier 2 Bonuses earned
on the results of operations for PUSH and/or All Access can be allocated
to Messrs. Xxxxx and Xxxxx 50%/50% or in such other manner as mutually
determined in their sole discretion.
Messrs. Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx
Paradise Music & Entertainment, Inc.
September 28, 1998
Page 4
G. Tier 1, Tier 2 and Tier 3 Bonuses earned for any fiscal year can
be taken in cash or stock, at the option of the Executive, and paid
currently, or paid into the Company's deferred compensation plan to be
established prior to the Offering. If paid into the deferred compensation
plan in cash, the trustee of the plan will invest them in the same manner
as if they were pension funds contributions (e.g., in mutual funds, etc.).
If paid into the deferred compensation plan in the form of stock, the
Company will promptly issue to the plan for the benefit of the
contributing Executive an amount of stock equal to (i) the amount of the
deferred bonus contributed by the Executive, (ii) divided by the market
price of the Company's common stock (as determined under the plan). For
the first $30,000 contributed in stock, the Company shall contribute an
additional $30,000 in stock.
H. If a subsidiary earns over $500,000 in Net Profit in any year
(after deducting Tier 1, Tier 2 and Tier 3 Bonuses paid), the Executive
will earn one restricted share of stock for each $5.00 in Net Profit over
the $500,000 threshold up to an aggregate of 25,000 shares.
I. In addition to participation in all of the above-described plans,
after PUSH has recouped (i) all cumulative losses for such subsidiary (as
determined as of June 30th of each previous fiscal year , plus (ii) a
cumulative 20% annualized return on such investment, plus (iii) the cost
(as computed by the Company's auditors in accordance with GAAP) associated
with the distribution of the Bonus Shares (as defined), the Messrs. Xxxxx
and Xxxxx will be awarded 291,000 shares (the "Bonus Shares"). Such Bonus
Shares can be (i) earned on a pro rata basis as cumulative Net Profit is
earned by the label and (ii) allocated as determined by Messrs. Xxxxx and
Xxxxx. If the Bonus Shares are taken as deferred compensation, they will
not be matched by the Company.
5. Prior Advances; 144 Stock Sales. In exchange for the Non-compete
Consideration, any amounts deemed advances relating to the existing employment
agreements in place for fiscal year 1998 are forgiven. The proceeds from Xx.
Xxxxxxxx'x Rule 144 stock sales will be applied towards repayment of $63,000 of
the currently outstanding $129,000 loan which has previously been advanced to
Xx. Xxxxxxxx by the Company. The proceeds from the sale of stock pursuant to SEC
Rule 144 for Messrs. Xxxxx, Xxxxx, and Xxxxx are to be converted into stock at
the rate of $2 7/8ths per share.
6. Client Accounts and Funds. "Client Funds", which shall be defined herein to
mean monies advanced by a third party to any subsidiary of the Company for use
by that subsidiary in connection with the production of a particular project,
shall not be available to or used by the Company for any other purpose
whatsoever including, without limitation, for capital expenditures unrelated to
such production or as collateral for any pledge or security interest granted by
the Company, it being understood that, at all times the subsidiary in receipt of
such Client Funds shall have the sole right to deposit and maintain such Client
Funds within a bank account or accounts maintained and managed by such
subsidiary and the Company shall have no right to access any such account(s).
Should the Company violate the terms and conditions of the preceding sentence
and attempt, in any way, to access or utilize such Client Funds for any purpose,
the parties hereto agree that such attempt shall subject the applicable
subsidiary to irreparable injury, for which money damages are insufficient as a
remedy, and, therefore, in addition to such legal remedies to which the
subsidiary and its principal(s) may be entitled, the subsidiary and its
principal(s) shall be entitled to enjoin the Company from accessing or utilizing
such Client Funds in any manner. Notwithstanding the foregoing, the Company
shall have the right to require each subsidiary to remit to the Company only
those amounts from available cash flow (after payment of production
expenditures, SG&A and a reasonable reserve) which constitute net profits of
such subsidiary not previously distributed. The Company agrees to cause its
Board of Directors to adopt a proper resolution approving the terms and
conditions of this provision and to take all other corporate action necessary to
ensure that this provision is enforceable, including without limitation, making
any required amendments to the Company's Certificate of Incorporation and
Bylaws. This provision is the essence of this Agreement and shall survive the
termination this Agreement for any reason.
Messrs. Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx
Paradise Music & Entertainment, Inc.
September 28, 1998
Page 5
7. Termination of This Agreement. In the event that the Company has not obtained
a firm commitment for a bridge financing in an amount equal to or greater than
$600,000 and closed on at least the first advance under such financing on or
before October 30, 1998 (and such date has not been extended in writing by all
of the parties hereto), then this letter agreement and the terms and conditions
set forth herein, including, without limitation, Section 3 hereof, shall
immediately terminate and be deemed of no force and effect.
8. Miscellaneous. This letter may be amended, modified, superseded, canceled,
renewed or extended, and the terms and conditions hereof may be waived, only by
a written instrument signed by each of the parties hereto, or in the case of a
waiver, signed by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity. This letter
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of law. All of the
parties hereto, for themselves and their respective officers and directors
individually, jointly and severally, hereby consent to the jurisdiction of the
courts in and for the State of New York with respect to any disputes or other
matters arising over this letter and the transactions contemplated hereby. This
letter is not assignable except by operation of law or as specifically set forth
herein. All pronouns and any variations thereof refer to the masculine, feminine
or neuter, singular or plural, as the identity of the person or persons may
required. This letter may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
Messrs. Xxxxxxxx, Xxxxx, Xxxxx and Xxxxx
Paradise Music & Entertainment, Inc.
September 28, 1998
Page 6
If the above is satisfactory to you and adequately reflects our understanding,
please acknowledge by executing in the space below provided.
PARADISE MUSIC & ENTERTAINMENT, INC.
By: /s/ Xxxx Xxxxxxxx
--------------------------
Xxxx Xxxxxxxx, Chairman
/s/ Xxxx Xxxxxxxx /s/ Xxx Xxxxx
----------------------------- -----------------------------
Xxxx Xxxxxxxx, an Executive Xxx Xxxxx, an Executive
/s/ Xxxxx Xxxxx /s/ Xxxxxxx Xxxxx
----------------------------- -----------------------------
Xxxxx Xxxxx, an Executive Xxxxxxx Xxxxx, an Executive
ACKNOWLEDGED AND ACCEPTED BY:
/s/ Xxxxxx Xxxxxxx /s/ X. Xxxxxx Xxxxx
----------------------------- -----------------------------
Xxxxxx Xxxxxxx, Director X. Xxxxxx Xxxxx, Director
