<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-11287
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE MARQUEE GROUP, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7941 13-3878295
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
888 SEVENTH AVENUE, 40TH FLOOR
NEW YORK, NEW YORK 10019
(212) 977-0300
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
ROBERT M. GUTKOWSKI, PRESIDENT
888 SEVENTH AVENUE, 40TH FLOOR
NEW YORK, NEW YORK 10019
(212) 977-0300
(Name, Address and Telephone Number of Agent for Service)
----------------
COPIES TO:
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<CAPTION>
<S> <C>
John J. Hentrich, Esq. Jill M. Cohen, Esq.
Michael S. Novins, Esq. Bachner, Tally, Polevoy & Misher LLP
Baker & McKenzie 380 Madison Avenue
805 Third Avenue New York, New York 10017
New York, New York 10022 (212) 687-7000
(212) 751-5700
</TABLE>
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT
OF 1933, CHECK THE FOLLOWING BOX. [X]
----------------
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, $.01 par value, and one Warrant ..... 3,450,000(2) $5.00 $17,250,000 $ 5,948.28
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Common Stock, $.01 par value ................. 3,450,000(3) 7.50 25,875,000 8,922.41
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Unit Purchase Options (4) .................... 300,000 .001 300 .10
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Units, each consisting of one share of Common
Stock, $.01 par value, and one Warrant (5) . 300,000 7.50 2,250,000 775.86
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Common Stock, $.01 par value (5) ............. 300,000 7.50 2,250,000 775.86
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Total ...................................... $47,625,300 $16,422.51(6)
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 450,000 Units subject to the Underwriters' over-allotment
option.
(3) Issuable upon exercise of the Warrants.
(4) To be issued to the Underwriters.
(5) Issuable upon exercise of the Unit Purchase Options and/or the Warrants
issuable thereunder.
(6) The Registration Fee in the amount of $21,655.27 was paid on September
3, 1996.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares of Common Stock as may
become issuable pursuant to the anti-dilution provisions of the Warrants and
the Unit Purchase Options.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION --DATED OCTOBER 25, 1996
PROSPECTUS
- ----------
THE MARQUEE GROUP, INC.
3,000,000 UNITS CONSISTING OF 3,000,000 SHARES
OF COMMON STOCK AND 3,000,000 WARRANTS
#############################################################################
GRAPHIC OMITTED
IGT: "MARQUEE1"
#############################################################################
Each unit ("Unit") offered by The Marquee Group, Inc., a Delaware
corporation (the "Company"), consists of one share of common stock, par value
$.01 per share ("Common Stock"), and one redeemable warrant ("Warrants"). The
components of the Units will not be transferable separately until
, 1997 or such earlier date (the "Separation Date") as Royce
Investment Group, Inc., the representative of the Underwriters (the
"Representative"), shall determine. Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $7.50, subject to
adjustment, at any time from the Separation Date until the fifth anniversary
of the date of this Prospectus. Commencing one year from the date hereof, the
Warrants are subject to redemption by the Company at a redemption price of
$.05 per Warrant on 30 days' written notice, provided the closing bid price
of the Common Stock averages in excess of $11.50, subject to adjustment, for
any 20 consecutive trading days ending within five days of the notice of
redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Warrants and there can be no assurance that such a market
will develop. The Company has applied for quotation of the Units, the Common
Stock and the Warrants on the Nasdaq SmallCap Market ("Nasdaq") under the
symbols MRQEU, MRQE and MRQEW, respectively. It is anticipated that the
initial public offering price will be $5.00 per Unit. See "Underwriting" for
a discussion of factors considered in determining the initial public offering
price.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," WHICH BEGIN ON PAGE 7, AND
"DILUTION."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- -------------- ------------ -------------------------- ---------------
<S> <C> <C> <C>
Per Unit ...... $ $ $
- -------------- ------------ -------------------------- ---------------
Total (3) ..... $ $ $
- -------------- ------------ -------------------------- ---------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the
Representative and Continental Broker-Dealer Corp. (collectively, the
"Underwriters") in the form of (i) a non-accountable expense allowance
of $ , or $ per Unit ($ if the over-allotment option is exercised
in full) and (ii) options, exercisable over a period of three years
commencing two years from the date of this Prospectus, to purchase up
to 300,000 Units at $ per Unit (the "Unit Purchase Options"). In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company,
including the Underwriters' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase
up to 450,000 additional Units on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The Units are being offered on a "firm commitment" basis by the
Underwriters when, as and if delivered and accepted by the Underwriters,
subject to their right to reject orders in whole or in part and subject to
certain other conditions. It is expected that delivery of the certificates
representing the Units will be made against payment at the offices of Royce
Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York 11797 on
or about , 1996.
ROYCE INVESTMENT GROUP, INC. CONTINENTAL BROKER-DEALER CORP.
The date of this Prospectus is , 1996
<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "67355logo"
#############################################################################
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public
accountants.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
PHOTOGRAPHS
REPRESENTING SPORTING EVENTS, INCLUDING BOWLING, ICE HOCKEY, HORSE RACING,
BOXING, BASEBALL AND CELEBRITY GOLF, FOR WHICH THE COMPANY PROVIDES MANAGEMENT
OR PRODUCTION SERVICES AND ROSTER OF ATHLETES OR PERSONALITIES REPRESENTED BY
THE COMPANY.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this
Prospectus (i) reflects the Stock Split (as defined under "Certain
Transactions") effected by the Company in August 1996 and the issuance of
2,261,538 shares of Common Stock in connection with the Acquisitions (as
defined below) upon the closing of this offering (the "Offering"), (ii)
assumes an initial public offering price of $5.00 per Unit and no exercise of
the Underwriters' over-allotment option, the Warrants or the Unit Purchase
Options and (iii) gives effect to the automatic conversion, upon the closing
of this Offering, of $2,000,000 aggregate principal amount of debentures (the
"Debentures"), issued in the Company's private placement (the "Private
Placement") in August 1996, into 2,000,000 Units. Unless the context
otherwise requires, the "Company" refers to The Marquee Group, Inc. and its
subsidiaries after giving effect to the mergers of Athletes and Artists, Inc.
(the "A&A Acquisition") and Sports Marketing & Television International, Inc.
(the "SMTI Acquisition") into wholly-owned subsidiaries of the Company upon
the closing of this Offering. The consummation of this Offering is
conditioned upon the closing of the acquisition of each of Athletes and
Artists, Inc. and Sports Marketing & Television International, Inc.
(collectively, the "Acquisitions") concurrently with the closing of this
Offering. Investors should consider carefully the information set forth under
"Risk Factors."
THE COMPANY
The Marquee Group, Inc. ("Marquee" or the "Company") was organized in July
1995 to provide comprehensive management, marketing, sales, consulting and
production services to sports and entertainment-related businesses, events,
athletes, broadcasters, journalists and executives. In recent years,
significant developments in mass media, including the growth of satellite
communications and cable television, have resulted in increased national and
global exposure for sports personalities and the events and projects in which
they participate, and have created national and international audiences for
sports personalities, products and events. In addition, the recent
proliferation of sports-related television and radio stations has created an
increased demand for sports-related programming. As a result, the promotion
and sponsorship of sports events has become a major area of corporate
advertising and product development. The Company believes that the successful
exploitation of this market by sports personalities and corporations requires
integrated marketing and management services.
Marquee was organized by Robert M. Gutkowski, the Company's President and
Chief Executive Officer, who has more than 20 years of experience in the
television, sports and entertainment industries and who served as President
of Madison Square Garden Corporation from November 1991 until September 1994,
and The Sillerman Companies, Inc. ("TSC"), which provides financial advisory,
marketing and consulting services to media companies and sports-related
businesses. TSC is controlled by Robert F.X. Sillerman, Chairman of the
Company, whose principal occupation is Chief Executive Officer of SFX
Broadcasting, Inc.
The Company was formed primarily to acquire Sports Marketing & Television
International, Inc. ("SMTI"), which provides production and marketing
services to sporting events, sports television shows and professional and
collegiate leagues and organizations, and Athletes and Artists, Inc. ("A&A"),
a sports and media representation firm, to integrate these businesses and to
expand into related areas in sports and events programming and promotion.
In conjunction with SMTI's production and marketing services, SMTI
develops and implements corporate sponsorship campaigns which are designed to
promote an event, team or sponsor. SMTI's current and recently completed
principal projects include production and marketing of The Breeders' Cup
Championship and implementation of the balloting campaign for Major League
Baseball's 1996 All-Star Game. The Company has agreed to acquire SMTI, which
was formed in 1984 by Michael Trager and Michael Letis, upon the closing of
this Offering for an aggregate cash purchase price payable to Messrs. Trager
and Letis of $8,000,000, of which $6,500,000 is payable at closing and
$1,500,000 is payable
3
<PAGE>
in five equal annual installments, and the issuance of an aggregate of
1,292,307 shares of Common Stock to Messrs. Trager and Letis, each of whom
will become an executive officer and director of the Company.
A&A, which was founded in 1977 by Arthur C. Kaminsky, is a sports and
media representation firm whose roster of clients includes broadcasters
(including Al Michaels -ABC Sports, Forrest Sawyer -ABC News, Christiane
Amanpour -CNN and CBS News, Dan Dierdorf -ABC Sports and Chris Berman -ESPN
and ABC Sports), athletes (including Brian Leetch -New York Rangers, Eric
Heiden -U.S. Olympic five-time gold medalist in speed skating and Nick Lowery
- -New York Jets), authors (including Dick Schaap -author of Bo Knows Bo and
Instant Replay, Rick Reilly -author of The Boz and Missing Links and a writer
for Sports Illustrated and John Powers -author of One Goal and Mary Lou! and
a sportswriter for The Boston Globe) and media executives (including Terry
O'Neil -a sports and news executive producer, Curt Gowdy, Jr. -ABC Sports and
John Faratzis -a sports programming producer who has worked with ABC, CBS and
NBC). The Company has agreed to acquire A&A upon the closing of this Offering
for an aggregate cash purchase price payable to Mr. Kaminsky and Louis J.
Oppenheim, each of whom will become an executive officer and director of the
Company, of $3,500,000, of which $2,500,000 is payable at closing and
$1,000,000 is payable in five equal annual installments, and the issuance to
Messrs. Kaminsky and Oppenheim of an aggregate of 969,231 shares of Common
Stock.
Marquee has agreed to provide production and promotional services,
including agreements with ESPN to produce professional and amateur boxing
events and with the Outdoor Life Network to produce The National Lumberjack
Championships, and has entered into an agreement with the Professional
Bowlers Association (the "PBA") to serve as the PBA's exclusive
representative in connection with its negotiations with respect to television
broadcasting.
The Company believes that the combination of its business with those of
SMTI and A&A will provide opportunities to provide enhanced services to
clients and will enable it to construct comprehensive packages of sports
events and sports personality endorsements.
The Company was incorporated in Delaware in July 1995. The Company's
executive offices are located at 888 Seventh Avenue, 40th Floor, New York,
New York 10019 and its telephone number is (212) 977-0300.
THE OFFERING
Securities Offered ..... 3,000,000 Units, each Unit consisting of one
share of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one
share of Common Stock at an exercise price
of $7.50, subject to adjustment, at any time
from the Separation Date until the fifth
anniversary of the date of this Prospectus.
The Warrants are subject to redemption in
certain circumstances. See "Description of
Securities."
Common Stock Outstanding:
<TABLE>
<CAPTION>
NON-ESCROW SHARES ESCROW SHARES(1)
----------------- ----------------
<S> <C> <C>
Before this Offering .................................. 1,400,000 shares(2) 588,462 shares
To be issued in connection with the Acquisitions ..... 1,575,000 shares 686,538 shares
To be issued upon the conversion of the Debentures ... 2,000,000 shares(3) --
To be issued in connection with this Offering ........ 3,000,000 shares(4) --
Common Stock Outstandingafter this Offering ......... 7,975,000 shares(2)(3)(4) 1,275,000 shares
</TABLE>
Use of Proceeds ........ To fund the initial cash portion
($9,000,000) of the purchase price of the
Acquisitions, for working capital and
general corporate purposes and capital
expenditures. See "Use of Proceeds."
4
<PAGE>
Proposed Nasdaq Symbols
Units ................. MRQEU
Common Stock .......... MRQE
Warrants .............. MRQEW
Risk Factors ........... This Offering involves a high degree of risk
and immediate substantial dilution. See
"Risk Factors" and "Dilution."
- ------------
(1) In connection with this Offering, the existing stockholders have
deposited 588,462 shares of Common Stock into escrow and the persons
who are to receive shares of Common Stock in connection with the
Acquisitions have agreed to deposit 686,538 shares of Common Stock into
escrow upon completion of the Acquisitions (collectively, the "Escrow
Shares"). The Escrow Shares are subject to cancellation and will be
contributed to the capital of the Company if the Company does not
attain certain earnings levels or the market price of the Common Stock
does not achieve certain levels. If such earnings or market price
levels are met, the Company will record a substantial non-cash charge
to operations, for financial reporting purposes, as compensation
expense relating to the value of the Escrow Shares released to the
Company's officers, directors, employees and consultants. See "Risk
Factors--Future Charges to Operations," "Certain Transactions" and
"Principal Stockholders--Escrow Shares."
(2) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan (the "Plan"), under which options to
purchase 230,000 shares of Common Stock are outstanding. See
"Management--1996 Stock Option Plan."
(3) Excludes 2,000,000 shares of Common Stock issuable upon exercise of the
Warrants issuable upon conversion of the Debentures.
(4) Excludes up to (i) 900,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,000,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby and (iii) 600,000 shares of Common Stock issuable upon exercise
of the Unit Purchase Options and the Warrants contained therein.
5
<PAGE>
SUMMARY FINANCIAL DATA
The Summary Financial Data of the Company as of June 30, 1996 and for the
six-month period ended June 30, 1996 have been derived from the unaudited
financial statements of Marquee appearing elsewhere in this Prospectus.
Marquee had no operations during the period from inception (July 11, 1995)
through December 31, 1995 and, accordingly, only pro forma financial
information relating to this Offering and the Acquisitions as if they had
occurred on January 1, 1995 is presented in the Summary Financial Data.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1996 or for any other period. The pro forma
financial data gives effect to the following transactions and adjustments for
the periods and at the dates presented: the Acquisitions and the related
contractually agreed to reductions in officers' salaries and benefits, the
Private Placement and the completion of this Offering at an assumed initial
public offering price of $5.00 per Unit and the application of the net
proceeds therefrom to complete the Acquisitions. The Acquisitions have been
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements
as a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of A&A and SMTI
following the completion of the Acquisitions. The following data should be
read in conjunction with the notes thereto, the audited and unaudited
financial statements and notes thereto contained elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
----------------- --------------------------------
PRO FORMA FOR PRO FORMA FOR
OFFERING AND OFFERING AND
ACQUISITIONS HISTORICAL ACQUISITIONS
----------------- -------------- ----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $10,341,827 $ 800,895 $7,329,177
Operating expenses ................... 5,549,887 666,796 4,662,385
General and administrative expenses . 3,129,710 707,600 2,553,385
Operating income (loss) .............. 1,662,230 (573,501) 113,407
Net income (loss) .................... $ 789,773 $ (573,501) $ 31,522
============== ================
Net income (loss) per share .......... $ .10 $ (.17) $ --
================= ============== ================
Weighted average common stock and
common stock equivalents outstanding 7,975,000(1) 3,400,000(2) 7,975,000(1)
================= ============== ================
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------
PRO FORMA FOR PRO FORMA FOR
PRIVATE OFFERING AND
BALANCE SHEET DATA: ACTUAL PLACEMENT(2) ACQUISITIONS(3)
----------- ------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 103,979 $1,388,594 $7,389,651
Current liabilities ........... 535,385 70,000 2,281,916
Total assets .................. 103,979 1,638,594 7,544,181
Long-term debt ................ 121,615 2,121,615 1,697,615
Stockholders' equity (deficit) (553,021) (553,021) 3,564,650
</TABLE>
- ------------
(1) Excludes 1,275,000 Escrow Shares. See "Principal Stockholders--Escrow
Shares" and Note 4 of the Notes to the Company's Financial Statements.
(2) Gives effect to the issuance of $2,000,000 aggregate principal amount
of Debentures subsequent to June 30, 1996 which are convertible into
2,000,000 shares of Common Stock and 2,000,000 Warrants. See
"Capitalization--Private Placement."
(3) Adjusted to give effect to the sale of the 3,000,000 Units offered
hereby at an assumed offering price of $5.00 per Unit, the application
of the net proceeds therefrom to complete the Acquisitions and a
non-cash compensation charge to operations estimated at approximately
$1,500,000 associated with the Private Placement. See "Risk
Factors--Future Charges to Operations," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Units offered hereby involves a high degree of risk, including
substantial competition, the dependence of the Company upon third parties and
risks associated with the integration of the businesses of A&A and SMTI.
Prospective investors are cautioned that the statements in this Prospectus
that are not historical facts may be forward-looking statements that are
subject to risks and uncertainties, including those set forth below. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before
purchasing the Units offered hereby.
Competition. The sports and entertainment businesses are highly
competitive and are affected by changes in consumer taste. The profitability
of projects in these industries is dependent upon subjective market appeal to
the general public and cannot be predicted with any degree of certainty.
There is a high risk that the production and sale of sports and entertainment
projects contemplated by the Company will not yield sufficient revenues to
enable the Company to compete successfully. Several competitors, such as
International Management Group, ProServ, Inc. and Advantage International
Inc. in the sports industry and the William Morris Agency, Inc. and Creative
Artists Agency, Inc. in the entertainment industry, are well-known companies
with substantially greater financial, technical and marketing resources than
the Company. Additionally, many smaller entities are involved in each of the
Company's lines of business. See "Business--Competition."
No Prior History of and Risks Associated with Combined Operations. The
Company has no operating history as a combined entity. A&A and SMTI have
operated as independent businesses with independent management since 1977 and
1984, respectively, and there can be no assurance that the businesses of such
companies will not be adversely affected as a consequence of being combined
into a larger entity. There can be no assurance that the Company will be able
to implement its business plans or achieve profitable operations.
Dependence on Key Personnel. The Company's success depends upon the
contributions of its current executive officers and those persons who have
agreed to become executive officers of the Company upon completion of the
Acquisitions, including Robert M. Gutkowski, the President and Chief
Executive Officer of the Company, Arthur C. Kaminsky, Louis J. Oppenheim,
Michael Trager and Michael Letis. Each of Messrs. Kaminsky, Oppenheim, Trager
and Letis will receive cash proceeds from this Offering and will become
principal stockholders of the Company in connection with the Acquisitions.
See "--Use of Proceeds and Offering to Benefit Insiders." Although the
Company has entered into a five-year employment agreement with Mr. Gutkowski
and will enter into five-year employment agreements with each of Messrs.
Kaminsky, Oppenheim, Trager and Letis upon completion of the Acquisitions,
there can be no assurance that these individuals will continue to devote
sufficient time to the Company's combined business following the Acquisitions
or will effectively operate as a coherent management team. The loss of the
services of, or a material reduction in the amount of time devoted to the
Company by, certain of such individuals could adversely affect the business
of the Company. In addition, SMTI's agreement with the Breeders' Cup Limited,
which has historically accounted for a substantial portion of SMTI's
revenues, may be terminated by the Breeders' Cup Limited if SMTI's employment
of Mr. Letis is terminated or Mr. Letis becomes unavailable to perform the
services necessary to enable SMTI to comply with the terms of such agreement,
which would have a material adverse effect on the business and operations of
the Company. The Company has applied to obtain key-man insurance for its
benefit in the amount of $2,000,000 on the life of Mr. Gutkowski. See
"Business--Events Production and Corporate Sponsorship," "Management" and
"Certain Transactions."
Dependence Upon Breeders' Cup Limited and Other Corporate Sponsors and
Personalities. The Company expects that a substantial portion of its revenues
will be derived from its representation of sports and entertainment
personalities and from fees and/or commissions paid by corporate sponsors.
The Company's representation agreements with its clients are generally
terminable annually on 30 days' notice and its corporate sponsorship projects
are generally on a short-term basis. The expiration or termination of a
significant amount of the Company's contracts with certain clients would have
a material adverse effect on the Company's operations. During the years ended
December 31, 1994 and 1995 and the six-month period ended June 30, 1996, the
agreement with the Breeders' Cup Limited accounted for
7
<PAGE>
approximately 78%, 75% and 55% of SMTI's revenues, respectively, and, on a
pro forma basis, after giving effect to the Acquisitions as if they had
occurred on January 1, 1995, would have accounted for approximately 47% and
36% of the Company's revenues for the year ended December 31, 1995 and the
six-month period ended June 30, 1996, respectively. The agreement between
SMTI and the Breeders' Cup Limited provides for termination on December 31,
1997, unless earlier terminated in accordance with the provisions set forth
in the agreement, including the termination, for any reason, of SMTI's
employment of Michael Letis or the unavailability of Mr. Letis to perform the
services necessary to enable SMTI to comply with the terms of the agreement.
The termination or expiration of SMTI's agreement with the Breeders' Cup
Limited would have a material adverse effect on the business and operations
of the Company. Because a limited number of customers or projects may
continue to provide a significant portion of the Company's revenues, the
Company's business, operating results and financial condition could be
materially adversely affected by the failure of anticipated projects to
materialize or by cash flow requirements to implement projects prior to the
receipt of related fees. In addition, there can be no assurance that the
Company will be able to enter into additional contracts with sports
personalities or corporate sponsors or that the Company's clients will renew
contracts prior to their expiration. See "Business--Events Production and
Corporate Sponsorship."
Estimated Operating Results; Fluctuations in Operating Results. The
Company estimates, although final amounts are not yet available, that the
Company's revenues combined with those of SMTI and A&A for the nine months
ended September 30, 1996 will be approximately $9,000,000 as compared to
combined estimated revenues of SMTI and A&A of approximately $6,100,000
for the nine months ended September 30, 1995. The Company estimates that
on a pro forma basis it will incur a net loss for the nine months ended
September 30, 1996, which loss is primarily attributable to the costs and
expenses associated with Marquee's operations. There can be no assurance,
however, that the Company's actual or pro forma results of operations for
the nine months ended September 30, 1996 will not be materially different
from the estimated results of operations. Moreover, the estimated operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be achieved for the fiscal year ending
December 31, 1996 or for any other period. The Company's revenues and results
of operations are subject to fluctuations throughout the year based upon the
timing of sports events and programming in which the Company participates.
See "Unaudited Pro Forma Condensed Combined Financial Statements" and
"Managements Discussion and Analysis of Financial Condition and Results of
Operations."
Absence of Written Agreements. Certain of the Company's corporate
sponsorship projects are not evidenced by written agreements in advance of
Company expenditures on such projects or at all. In addition, many of the
Company's representation arrangements with its clients are not evidenced by
written agreements. Although the Company believes that the lack of written
agreements is common in the industry, the lack of written agreements may
adversely affect the enforceability and term of certain agreements.
Expansion of Operations. The Company intends to expand its business into
complementary fields such as television production, sale of television
rights, program packaging and video production and distribution. The Company
has engaged in only limited activities in the communications area and there
can be no assurance that the Company will be able to successfully pursue such
production opportunities, that such operations will be profitable to the
Company or that the expansion into such businesses will not adversely affect
the Company's results of operations. See "Business--Communications."
Expansion Strategy; Need for Additional Financing. The Company's growth
strategy may include the acquisition of additional businesses in the fields
of sports management, marketing, consulting, representation and production.
However, with the exception of the SMTI Acquisition and the A&A Acquisition,
the Company has no agreements or understandings regarding future acquisitions
and there can be no assurance that the Company will be able to identify
additional businesses to acquire or obtain financing necessary to complete
such acquisitions. Any such acquisitions are likely to involve debt
financing, which would require payments of principal and interest on such
indebtedness and would adversely impact the Company's cash flow, and/or the
issuance of equity securities, which may be dilutive to the ownership
interests of the Company's then existing stockholders. In addition, any such
acquisitions
8
<PAGE>
may result in charges to operations relating to interest expense or the
recognition and amortization of goodwill, which would have the effect of
increasing the Company's loss or reducing or eliminating earnings, if any.
There can be no assurance that any future acquisitions will be successfully
integrated into the operations of the Company.
Although the Company anticipates that the proceeds of this Offering
together with cash flow expected to be generated from operations will be
sufficient to fund its operations for approximately 12 months following
completion of this Offering, there can be no assurance that the Company will
not require additional financing. The Company has no commitments to obtain
additional financing and there can be no assurance that such financing, if
required, will be available. SMTI generally is required to fund
implementation of projects for its customers prior to receipt of related fees
and accordingly has experienced, and may in the future continue to
experience, cash flow shortages.
Use of Proceeds and Offering to Benefit Insiders. In connection with the
Acquisitions, upon the closing of this Offering, the sole stockholders of
SMTI (Messrs. Letis and Trager) and of A&A (Messrs. Kaminsky and Oppenheim)
will receive (i) cash payments aggregating $9,000,000, (ii) an aggregate of
2,261,538 shares of Common Stock (representing approximately 24.4% of shares
of Common Stock to be outstanding upon completion of this Offering), (iii)
rights to installment payments aggregating $2,500,000 payable over five years
and (iv) employment agreements providing for annual salaries aggregating
$1,075,000. In addition, the Company has entered into a six-year consulting
agreement with Sillerman Communications Management Corporation ("SCMC"),
which is controlled by Robert F.X. Sillerman, the Chairman of the Company and
the controlling stockholder of TSC, a principal stockholder of the Company,
pursuant to which the Company has agreed to pay to SCMC a consulting fee of
$30,000 per month commencing nine months from the completion of this Offering
and to pay certain transaction-based fees to SCMC. In addition, the Company
has agreed to pay to Robert M. Gutkowski, the Company's President and a
principal stockholder of the Company, minimum annual compensation of
$475,000. Substantially all of the net proceeds of this Offering will be used
to make the initial purchase price payments in connection with the
Acquisitions and, to the extent funds generated from operations are not
sufficient, such installment payments, compensation and fees. Each of such
individuals and TSC purchased Debentures in the Private Placement in August
1996 which will convert into Units upon the completion of this Offering at a
conversion price of $1.00 per Unit, and have been granted options to purchase
shares of Common Stock. See "Use of Proceeds," "Management" and "Certain
Transactions."
Potential Broad Discretion of Management in Use of Proceeds. The Company's
management will have broad discretion over the use of approximately
$3,300,000 (approximately 25.8%) of the net proceeds of this Offering,
although, to the extent funds generated from operations are not sufficient,
such funds may be used by the Company to pay compensation to its executive
officers, consulting fees to SCMC and the initial installment payments in
connection with the Acquisitions. See "Use of Proceeds."
Control by Existing Stockholders; Potential Anti-takeover Provisions. Upon
completion of this Offering, the Company's existing stockholders and those
persons who will become stockholders in connection with the Acquisitions,
each of whom is or will become an officer and/or director of the Company,
will control 54.1% of the total voting power of the Company (without giving
effect to the exercise of options held by such persons to purchase shares of
Common Stock). As a result, such stockholders will be able to elect all of
the Company's directors and otherwise control the Company's operations. The
Company and each of its principal stockholders (including the stockholders of
A&A and SMTI, each of whom will become a principal stockholder of the Company
upon completion of the Acquisitions) have entered into a stockholders'
agreement (the "Stockholders' Agreement") which places certain restrictions
on the sale of shares by such stockholders and grants to such stockholders
certain rights with respect to matters affecting corporate governance,
including an agreement by such stockholders to vote for the nominees of such
stockholders to the Company's Board of Directors. The existence of such
restrictions and rights will solidify the control over the Company by its
existing stockholders. The Company is also subject to a Delaware statute
regulating business combinations, which could discourage, hinder or preclude
an unsolicited acquisition of the Company and could make it less likely that
stockholders receive a premium for their shares as a result of any such
attempt. See "Certain Transactions," "Principal Stockholders" and
"Description of Securities."
9
<PAGE>
Future Charges to Operations. In May 1996, the Company issued 50,000
shares of Common Stock to an officer of the Company in partial consideration
of such officer's entering into an employment agreement with the Company. The
Company expects that it will recognize non-cash compensation expense
estimated at approximately $118,750 over the 15-month vesting period
commencing June 30, 1996 equal to the estimated fair market value of such
shares on the date of issuance. In connection with the issuance of $750,000
principal amount of Debentures to affiliates of the Company, the Company also
expects to incur non-cash compensation charges to operations estimated at
approximately $1,500,000 during the quarter in which the closing of this
Offering occurs. The Company also expects to incur a charge to operations of
$250,000 during the quarter in which this Offering occurs, upon the automatic
conversion of the Debentures into Units, relating to the write-off of the
fees and expenses incurred by the Company in connection with the Private
Placement. In connection with the Acquisitions, the Company will incur
non-cash charges to operations aggregating $530,000 over the five-year period
commencing with the completion of the Acquisitions relating to the imputed
interest on the indebtedness to be paid to the stockholders of SMTI and A&A.
See "Capitalization--Private Placement" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Immediate and Substantial Dilution; Recent Issuances of Securities at
Prices Substantially Below Public Offering Price. All of the shares of Common
Stock outstanding prior to this Offering were acquired for a purchase price
of approximately $.01 per share. Investors participating in this Offering
will incur immediate and substantial dilution in net tangible book value of
approximately $4.55 per share (91.0%), assuming an initial public offering
price of $5.00 per Unit and giving effect to the conversion of the Debentures
into Units. See "Dilution." In August 1996, the Company completed the Private
Placement pursuant to which it sold $2,000,000 aggregate principal amount of
Debentures, of which $750,000 principal amount were issued to officers,
directors and principal stockholders of the Company. The Debentures will
automatically convert upon completion of this Offering into 2,000,000 Units,
which are identical to the Units offered hereby, resulting in a conversion
rate of $1.00 per Unit. See "Capitalization--Private Placement."
Limited Indemnification in Connection with the Acquisitions. Pursuant to
the SMTI Acquisition Agreement (as defined below) and the A&A Acquisition
Agreement (as defined below), the sellers of each of SMTI and A&A have made
certain representations and warranties to the Company. The SMTI Acquisition
Agreement and the A&A Acquisition Agreement both provide that the
representations and warranties contained therein shall survive for a period
of six months following the closing of the Acquisitions, after which time the
indemnification obligations for breaches of representations and warranties
will be limited to claims asserted during such six-month period. Moreover,
the indemnity from Messrs. Trager and Letis in connection with the SMTI
Acquisition is limited each to $1,000,000, and the indemnity from Messrs.
Kaminsky and Oppenheim in connection with the A&A Acquisition is limited to
$500,000 and $250,000, respectively. See "Certain Transactions."
Charge to Earnings in the Event of Release of Escrow Shares. Following
completion of this Offering, the Company will have outstanding 1,275,000
Escrow Shares which will be released from escrow if the Company attains
certain earnings levels over the next one to three years or if the Common
Stock trades at certain levels during the period from , 1998 until
December 31, 1999. The Escrow Shares will not be deemed to be outstanding for
the purpose of calculating earnings per share until either of such conditions
is probable of being met. The position of the Securities and Exchange
Commission (the "Commission") with respect to such escrow arrangements
provides that in the event any shares are released from escrow to the
stockholders of the Company who are officers, directors, employees or
consultants of the Company, a non-cash compensation expense will be recorded
for financial reporting purposes. Accordingly, in the event of the release of
the Escrow Shares, the Company will recognize during the period in which the
earnings thresholds are probable of being met or such stock levels achieved,
a substantial non-cash charge to operations, which will not be deductible for
income tax purposes, equal to the then fair value of such shares, which would
have the effect of significantly increasing the Company's loss or reducing or
eliminating earnings, if any, at such time. The recognition of such
compensation expense may have a depressive effect on the market price of the
Company's
10
<PAGE>
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Principal Stockholders--Escrow Shares."
Notwithstanding the foregoing discussion, there can be no assurance that the
Company's earnings or its stock price will attain the targets that would
enable the Escrow Shares to be released from escrow.
Lack of Dividends. The Company has never declared or paid a cash dividend
on its Common Stock. The Company intends to retain its earnings, if any, for
use in its business and does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
No Public Market for Securities; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to this Offering, there has
been no market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after
this Offering. The initial public offering price of the Units and the
exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Underwriters and are not necessarily
related to the Company's asset value, net worth, results of operations or any
other criteria of value and may not be indicative of the prices that may
prevail in the public market. The market prices of the Units, Common Stock
and Warrants could also be subject to significant fluctuations in response to
variations in the Company's quarterly operating results, general trends in
the industry, market conditions and other factors. See "Underwriting."
Outstanding Warrants and Options. Upon completion of this Offering, the
Company will have outstanding (i) Warrants which are components of the Units
offered hereby to purchase an aggregate of 3,000,000 shares of Common Stock,
(ii) Warrants issuable upon conversion of the Debentures to purchase
2,000,000 shares of Common Stock and (iii) Unit Purchase Options to purchase
an aggregate of 600,000 shares of Common Stock, assuming exercise of the
underlying Warrants. In addition, the Company has 500,000 shares of Common
Stock reserved for issuance under the Plan, under which options to purchase
230,000 shares have been granted. Holders of such warrants and options are
likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by the
warrants and options. Further, while these warrants and options are
outstanding, the Company's ability to obtain additional financing on
favorable terms may be adversely affected. See "Management--1996 Stock Option
Plan," "Description of Securities" and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company
at a redemption price of $.05 per Warrant upon not less than 30 days' prior
written notice if the closing bid price of the Common Stock shall have
averaged in excess of $11.50 per share for 20 consecutive trading days ending
within five days of the notice. Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price therefor at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to
hold the Warrants or to accept the nominal redemption price which, at the
time the Warrants are called for redemption, is likely to be substantially
less than the market value of the Warrants. See "Description of
Securities--Warrants."
Current Prospectus and State Registration to Exercise Warrants. Holders of
Warrants will only be able to exercise the Warrants if (i) a current
prospectus under the Securities Act relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states
in which the various holders of Warrants reside. Although the Company has
undertaken and intends to use its best efforts to maintain a current
prospectus covering the securities underlying the Warrants following
completion of this Offering to the extent required by Federal securities
laws, there can be no assurance that the Company will be able to do so. The
value of the Warrants may be greatly reduced if a prospectus covering the
securities issuable upon the exercise of the Warrants is not kept current or
if the securities are not qualified, or exempt from qualification, in the
states in which the holders of Warrants reside. If and when the Warrants
become redeemable by the terms thereof, the Company may exercise its
redemption right even if it is unable to qualify the underlying securities
for sale under all applicable state securities laws. As indicated above,
holders of Warrants called for redemption residing in states where the
underlying securities have not been qualified for sale would generally still
be able to sell their Warrants at the then market price thereof. See
"Description of Securities--Warrants."
11
<PAGE>
Possible Restrictions on Market-Making Activities in Company's
Securities. The Underwriters have advised the Company that they each intend
to make a market in the Company's securities. Rule 10b-6 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may
prohibit the Underwriters from engaging in any market-making activities with
regard to the Company's securities for the period from nine business days (or
such other applicable period as Rule 10b-6 may provide) prior to such
solicitation by the Underwriters of the exercise of Warrants until the later
of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriters may have to receive a
fee for the exercise of Warrants following such solicitation. As a result,
the Underwriters may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable. Any
temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities. See "Underwriting."
Possible Delisting of Securities from the Nasdaq Stock Market. While the
Company's Units, Common Stock and Warrants meet the current Nasdaq listing
requirements and are expected to be initially included on the Nasdaq SmallCap
Market, there can be no assurance that the Company will meet the criteria for
continued listing. Continued inclusion on Nasdaq generally requires that (i)
the Company maintain at least $2,000,000 in total assets and $1,000,000 in
capital and surplus, (ii) the minimum bid price of the Common Stock be $1.00
per share, (iii) there be at least 100,000 shares in the public float valued
at $1,000,000 or more, (iv) the Common Stock have at least two active markets
makers and (v) the Common Stock be held by at least 300 holders.
If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in
the Units, Common Stock and Warrants would thereafter be conducted in the
over-the-counter market in the so called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which
could be bought and sold, but also through delays in the timing of
transactions, reduction in security analysts' and the news media's coverage
of the Company and lower prices for the Company's securities than might
otherwise be attained.
Risks of Low-Priced Stock. If the Company's securities were delisted from
Nasdaq (see "--Possible Delisting of Securities from the Nasdaq Stock
Market"), they could become subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers which
sell such securities to persons other than established customers and
"accredited investors" (generally, individuals with net worths in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received
the purchaser's written consent to the transaction prior to sale.
Consequently, such rule may adversely affect the ability of broker-dealers to
sell the Company's securities and may adversely affect the ability of
purchasers in this Offering to sell any of the securities acquired hereby in
the secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or
meet certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will qualify for exemption
from these restrictions. In any event, even if the Company's securities were
exempt from such restrictions, it would remain subject to Section 15(b)(6) of
the Exchange Act, which gives the Commission the authority to prohibit any
person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating
12
<PAGE>
with a broker-dealer or participating in a distribution of a penny stock, if
the Commission finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities could be severely adversely
affected.
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders (including those persons who are to receive shares of Common
Stock in connection with the Acquisitions) pursuant to Rule 144 under the
Securities Act or otherwise could have an adverse effect on the price of the
Company's securities. None of the 5,000,000 shares of Common Stock held by
existing stockholders (including shares issuable upon conversion of the
Debentures and shares issuable in connection with the Acquisitions) are
eligible for sale under Rule 144 until July 1997 and 1,275,000 of such shares
are Escrow Shares. In addition, the existing stockholders (including those
persons who will become stockholders upon completion of the Acquisitions)
have agreed not to sell or otherwise dispose of any shares of Common Stock,
including those issuable upon conversion of the Debentures, for a period of
two years from the closing of this Offering, except, after consent from the
Representative, to affiliates of such stockholders who agree to be bound by
the terms of such lock-up agreement. The existing stockholders (including
those persons who will become stockholders upon completion of the
Acquisitions) and the persons who are to become stockholders upon conversion
of the Debentures have demand and "piggyback" registration rights covering
the securities included in the Units issuable upon conversion of the
Debentures, and the Underwriters have demand and "piggyback" registration
rights covering the securities underlying the Unit Purchase Options. Sales of
Common Stock, or the possibility of such sales, in the public market may
adversely affect the market price of the securities offered hereby. See
"Concurrent Offering" and "Shares Eligible for Future Sale."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") authorizes the issuance of 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), on terms which may be
fixed by the Company's Board of Directors without further stockholder action.
The terms of any series of Preferred Stock, which may include priority claims
to assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock. The issuance of the Preferred Stock,
while providing flexibility in connection with possible acquisitions,
financing transactions and other corporate transactions, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring capital stock of the Company, which
may adversely affect the market price of the Common Stock. The Company has no
present plans to issue shares of Preferred Stock. See "Description of Capital
Stock--Preferred Stock."
13
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, after deducting
underwriting discounts and commissions and other estimated expenses of this
Offering payable by the Company, are estimated to be approximately
$12,800,000 (approximately $14,825,000 if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$5.00 per Unit. The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
AMOUNT OF NET OF NET
PROCEEDS PROCEEDS
--------------- ------------
<S> <C> <C>
Initial cash portion of acquisition price for SMTI $ 6,500,000(1) 50.8%
Initial cash portion of acquisition price for A&A . 2,500,000(2) 19.5
Working capital .................................... 3,300,000(3) 25.8
Capital expenditures ............................... 500,000 3.9
--------------- ------------
Total .............................................. $12,800,000 100.0%
=============== ============
</TABLE>
- ------------
(1) Does not include $1,500,000 to be paid in equal annual installments
during the five-year period commencing on April 1, 1997. See "Certain
Transactions--SMTI Acquisition Agreement."
(2) Does not include $1,000,000 to be paid in equal annual installments
during the five-year period commencing on April 1, 1997. See "Certain
Transactions--A&A Acquisition Agreement."
(3) To the extent funds generated from operations are not sufficient, the
Company will use proceeds from this Offering to pay compensation to its
executive officers, consulting fees to SCMC and the initial installment
payments referred to in footnotes (1) and (2) above. See "Management"
and "Certain Transactions."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based on the current status of its
business. Future events, including changes in competitive conditions, the
ability of the Company to identify appropriate acquisition candidates, the
availability of other financing and funds generated from operations and the
status of the Company's business from time to time, may make changes in the
allocation of the net proceeds of this Offering necessary or desirable,
except with respect to the Acquisitions, the consummation of which is a
condition to the completion of this Offering. Pending application, the net
proceeds will be invested in short-term, interest-bearing investments. The
Company estimates that the net proceeds from this Offering will be sufficient
to fund its working capital requirements for a period of approximately 12
months from the closing of this Offering. The Company expects that any
proceeds received upon exercise of the Underwriters' over-allotment option or
the Warrants will be added to working capital.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for use in the expansion of
the Company's business. The declaration and payment of future dividends, if
any, will be at the sole discretion of the Board of Directors and will depend
upon the Company's profitability, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) pro forma as of June 30, 1996 to reflect the Private
Placement and (iii) pro forma as of June 30, 1996 to reflect the sale of the
Units offered hereby at an assumed initial public offering price of $5.00 per
Unit and the Acquisitions. This table should be read in conjunction with the
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------
PRO FORMA FOR PRO FORMA FOR
PRIVATE OFFERING AND
ACTUAL PLACEMENT ACQUISITIONS
------------- ------------- ---------------
<S> <C> <C> <C>
Debentures (1) ................................ $ -- $ 2,000,000 $ --
Acquisition indebtedness--selling
stockholders, net (2) ........................ -- -- 1,576,000
Loan payable to related party ................. 121,615 121,615 121,615
Stockholders' Equity:
Preferred Stock, $.01 par value; 5,000,000
shares authorized; no shares issued and
outstanding ................................. -- -- --
Common Stock, $.01 par value; 25,000,000
shares authorized; 1,988,462 shares issued
and outstanding actual and pro forma for
Private Placement; 9,250,000 shares issued
and outstanding pro forma for Offering and
Acquisitions (3)(4) ......................... 19,885 19,885 92,500
Additional paid-in capital .................... 595 595 5,545,651
Accumulated deficit ........................... (573,501) (573,501) (2,073,501)
------------- ------------- ---------------
Total stockholders' equity (deficit) ......... (553,021) (553,021) 3,564,650 (5)
------------- ------------- ---------------
Total capitalization .......................... $ (431,406) $1,568,594 $ 5,262,265
============= ============= ===============
</TABLE>
- ------------
(1) Represents Debentures issued in connection with the Company's Private
Placement completed in August 1996, which will automatically convert
into Units upon completion of this Offering. See "--Private Placement."
(2) Represents the installment payments payable to the stockholders of SMTI
and A&A, net of imputed interest ($530,000) and the current installment
payment ($394,000). See Note 4 of the Notes to the Company's Financial
Statements.
(3) Excludes (i) up to 900,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,000,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby, (iii) 600,000 shares of Common Stock issuable upon exercise of
the Unit Purchase Options and the Warrants contained therein, (iv)
2,000,000 shares of Common Stock issuable upon exercise of the Warrants
to be issued upon conversion of the Debentures and (v) 500,000 shares
of Common Stock reserved for issuance under the Plan, under which
options to purchase 230,000 shares are outstanding. See
"Management--1996 Stock Option Plan" and "Underwriting."
(4) Includes 1,275,000 Escrow Shares. See "Principal Stockholders--Escrow
Shares."
(5) Includes a non-cash compensation charge to operations and a
corresponding credit to paid-in capital estimated to be $1,500,000
relating to the Private Placement. See "Risk Factors--Future Charges to
Operations" and "--Private Placement."
PRIVATE PLACEMENT
In August 1996, the Company completed the Private Placement of $2,000,000
principal amount of Debentures in which it received net proceeds of
approximately $1,363,000. The amount of net proceeds
15
<PAGE>
reflects the issuance of $445,104 in principal amount of Debentures to the
Company's principal stockholders (including persons who are to become
stockholders upon completion of the Acquisitions), which were purchased
through cancellation of the Company's promissory notes to such stockholders
in such aggregate principal amount. See "Certain Transactions--Private
Placement and Corporate Indebtedness." The Debentures bear interest at the
rate of 6% per annum commencing one year from the date of issuance (provided
that if the closing of this Offering occurs prior to February 15, 1997,
accrued interest on the Debentures will be deemed waived) and are payable,
together with accrued and unpaid interest thereon, on June 30, 1999, unless
previously converted. The Debentures will automatically convert upon
completion of this Offering into 2,000,000 Units (resulting in a conversion
rate of $1.00 per Unit), each of which will be identical to the Units offered
hereby.
The holders of $1,250,000 aggregate principal amount of Debentures, none
of whom is an affiliate of the Company, have agreed not to sell any of the
securities included in the Units issuable upon conversion of such Debentures
for a period of 90 days from the closing of this Offering and have been
granted registration rights relating to the resale of such securities. The
holders of the remaining $750,000 aggregate principal amount of Debentures
are held by executive officers, directors and/or principal stockholders of
the Company, or persons who will become such upon completion of the
Acquisitions, and such persons have agreed not to sell any of the securities
included in the Units issuable upon conversion of such Debentures for a
period of two years from the closing of this Offering. All of the holders of
the Debentures have agreed not to exercise the Warrants issuable upon the
automatic conversion thereof for a period of one year from the closing of
this Offering. See "Shares Eligible for Future Sale."
16
<PAGE>
DILUTION
The negative net tangible book value of Marquee as of June 30, 1996 was
$(553,021), or $(.40) per share. Net tangible book value per share represents
the amount of the Company's total tangible assets less its total liabilities
divided by the total number of shares of Common Stock outstanding (exclusive
of the Escrow Shares). After giving effect to the automatic conversion of the
Debentures into Units and the completion of the Acquisitions, the negative
pro forma net tangible book value as of June 30, 1996 would have been
$(9,235,350), or $(1.86) per share. In addition, after giving effect to the
sale of the Units offered hereby at an assumed initial public offering price
of $5.00 per Unit, the pro forma net tangible book value would have been
$3,564,650 or $.45 per share. This represents an immediate increase in net
tangible book value of $.85 per share to existing stockholders, and an
immediate dilution of $4.55 per share (91.0%) to persons purchasing shares at
the initial public offering price (the "New Investors"). The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price of the Units ................... $ 5.00 (1)
Marquee negative net tangible book value per share at June 30, 1996 . $ (.40)
Increase in negative net tangible book value per share attributable
to the Acquisitions and the conversion of Debentures (2) ........... (1.46)
Increase in net tangible book value per share attributable to
purchase by the New Investors ....................................... 2.31
--------
Pro forma net tangible book value per share after this Offering ..... .45
----------
Dilution per share to New Investors .................................. $ 4.55
==========
</TABLE>
- ------------
(1) Assumes no allocation of the offering price to the Warrants included in
the Units.
(2) Does not reflect the completion of this Offering, which will occur
simultaneously with these transactions.
If the over-allotment option is exercised in full, the pro forma net
tangible book value after this Offering would be $.66 per share, which would
result in dilution to New Investors of $4.34 per share.
The following table summarizes the differences between the original
stockholders, the stockholders who are to receive shares of Common Stock in
connection with the Acquisitions (the "Acquisition Stockholders"), the
stockholders who are to receive shares of Common Stock upon the conversion of
the Debentures and the New Investors (at an assumed initial public offering
price of $5.00 per share) with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------------------------------- -------------------------
NON-ESCROW ESCROW AVERAGE PRICE
SHARES SHARES TOTAL NUMBER PERCENT AMOUNT (1) PERCENT PER SHARE
------------ ----------- -------------- --------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Original stockholders .. 1,400,000 588,462 1,988,462 21.5% $ 20,000 0.1% $0.01
Acquisition stockholders 1,575,000 686,538 2,261,538 24.5 --(2) -- --(2)
Stockholders resulting
from conversion of the
Debentures ............. 2,000,000 -- 2,000,000 21.6 2,000,000(3) 11.8 $1.00(4)
New Investors ........... 3,000,000 -- 3,000,000 32.4 15,000,000 88.1 $5.00(4)
------------ ----------- -------------- --------- -------------- ---------
Total ................... 7,975,000 1,275,000 9,250,000 100.0% $17,020,000 100.0%
============ =========== ============== ========= ============== =========
</TABLE>
- ------------
(1) Prior to deduction of costs of issuance.
(2) Exclusive of the consideration provided in connection with the
Acquisitions. See "Certain Transactions--SMTI Acquisition Agreement"
and "--A&A Acquisition Agreement."
(3) Includes $445,103 paid through the cancellation of promissory notes in
an equal aggregate principal amount. See "Capitalization--Private
Placement" and "Certain Transactions--Private Placement and Corporate
Indebtedness."
(4) Assumes no allocation of the offering price to the Warrants included in
the Units.
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet at June
30, 1996 and the Unaudited Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 1996 give effect to the
following transactions and adjustments as if they had occurred as of June 30,
1996 and January 1, 1995, respectively: (i) the Private Placement, (ii) the
Acquisitions and related contractually required reductions in salaries and
benefits and (iii) the completion of this Offering at an assumed initial
public offering price of $5.00 per Unit and the application of the net
proceeds therefrom to complete the Acquisitions.
The following Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1995 gives effect to the following
transactions and adjustments as if they had occurred as of January 1, 1995:
(i) the Private Placement, (ii) the Acquisitions and related contractually
required reductions in salaries and benefits and (iii) the completion of this
Offering at an assumed initial public offering price of $5.00 per Unit and
the application of the net proceeds therefrom to complete the Acquisitions.
The Acquisitions have been reflected in the Unaudited Pro Forma Condensed
Combined Financial Statements as a consolidation at historical cost due to
the significance of the equity interests in the Company to be held by the
stockholders of SMTI and A&A following the completion of the Acquisitions.
The Unaudited Pro Forma Condensed Combined Financial Statements are based
upon the historical audited and unaudited financial statements of the
Company, SMTI and A&A and give effect to the assumptions and adjustments in
the accompanying notes thereto. This pro forma information may not be
indicative of the results of operations or financial position that would have
occurred or existed if the transactions described above had been consummated
on the date assumed and do not purport to project the Company's financial
position or results of operations for any future date or period. In the
opinion of the Company's management, all adjustments considered necessary for
a fair presentation of the Unaudited Pro Forma Condensed Combined Financial
Statements have been included. The Unaudited Pro Forma Condensed Combined
Financial Statements should be read in conjunction with the notes thereto,
the audited and unaudited financial statements and notes thereto of the
Company, SMTI and A&A contained elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
18
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996(1)
<TABLE>
<CAPTION>
PRO FORMA FOR
HISTORICAL PRO FORMA PRIVATE
MARQUEE ADJUSTMENTS PLACEMENT
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets ...... $ 103,979 $1,284,615 (2) $1,388,594
Noncurrent assets .. -- 250,000 (2) 250,000
------------ --------------- -------------
Total assets ...... $ 103,979 $1,534,615 $1,638,594
============ =============== =============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities $ 535,385 $ (465,385)(2) $ 70,000
Long-term debt ...... 121,615 2,000,000 (2) 2,121,615
Stockholders' equity (553,021) -- (553,021)
(deficit) ..........
------------ --------------- -------------
Total liabilities
and stockholders'
equity ............. $ 103,979 $1,534,615 $1,638,594
============ =============== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA THE OFFERING AND
SMTI A&A ADJUSTMENTS ACQUISITIONS
------------ ---------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ...... $2,067,442 $468,615 $ 12,800,000 (3) $7,389,651
(9,000,000)(4)
(335,000)(5)
Noncurrent assets .. 75,548 78,982 (250,000)(6) 154,530
------------ ---------- --------------- ----------------
Total assets ...... $2,142,990 $547,597 $ 3,215,000 $7,544,181
============ ========== =============== ================
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities $1,382,392 $435,524 $ 394,000 (4) $2,281,916
Long-term debt ...... -- -- 1,576,000 (4) 1,697,615
(2,000,000)(6)
Stockholders' equity 760,598 112,073 12,800,000 (3) 3,564,650
(deficit) ..........
(10,970,000)(4)
(335,000)(5)
1,750,000 (6)
------------ ---------- --------------- ----------------
Total liabilities
and stockholders'
equity ............. $2,142,990 $547,597 $ 3,215,000 $7,544,181
============ ========== =============== ================
</TABLE>
- ------------
(1) The acquisition by merger of each of SMTI and A&A will be accounted for
as a consolidation at historical cost due to the significance of the
equity interest in the Company to be held by the stockholders of these
companies following the completion of the Acquisitions. Accordingly,
the acquired assets and liabilities of SMTI and A&A will be recorded at
their historical amounts. The capital stock of SMTI and A&A will be
included in additional paid-in capital.
(2) To reflect the estimated net proceeds received from the Private
Placement, without giving effect to additional loans to the Company
from certain of its stockholders subsequent to June 30, 1996 which were
exchanged for Debentures in connection with the Private Placement in
August 1996:
<TABLE>
<CAPTION>
<S> <C>
Private Placement ................. $2,000,000
Less:Fees and expenses ............ 250,000
Exchange of stockholder loans 340,385
Payment of stockholder loans 125,000
------------
Net proceeds from Private
Placement ........................ $1,284,615
============
</TABLE>
(3) To reflect the estimated net proceeds from this Offering:
<TABLE>
<CAPTION>
<S> <C>
Offering ....................... $15,000,000
Less:Fees and expenses ......... 2,200,000
-------------
Net proceeds from this Offering $12,800,000
=============
</TABLE>
(4) To reflect payments to the stockholders of SMTI and A&A of $6,500,000
and $2,500,000, respectively, in cash, and the Company's incurrence of
indebtedness to such stockholders of $1,500,000 and $1,000,000,
respectively, less imputed interest of $530,000, payable to such
stockholders in connection with the Acquisitions.
(5) To reflect the payment of an S Corporation distribution to the
stockholders of SMTI representing 40% of the taxable earnings of SMTI
prior to this Offering ($335,000 at June 30, 1996).
(6) To reflect the issuance of 2,000,000 Units upon the conversion of the
Debentures and the related non-cash compensation charge to operations,
estimated to be $1,500,000, related to 750,000 of these Units (which
have been issued to affiliates of the Company) and the write-off of
$250,000 of deferred financing costs.
19
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996(1)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA THE OFFERING AND
MARQUEE SMTI A&A ADJUSTMENTS THE ACQUISITIONS
------------ ------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 800,895 $4,734,836 $1,793,446 -- $7,329,177
Operating expenses ................... 666,796 3,229,525 766,064 -- 4,662,385
General and administrative expenses . 707,600 692,428 1,153,357 -- 2,553,385
------------ ------------ ------------ -------------- ----------------
Income (loss) from operation ......... (573,501) 812,883 (125,975) -- 113,407
Interest income (expense) ............ -- 4,938 490 $(53,000)(2) (47,572)
------------ ------------ ------------ -------------- ----------------
Income (loss) before income taxes ... (573,501) 817,821 (125,485) (53,000) 65,835
Income taxes (provision) benefit .... -- (94,000) 57,687 2,000 (3) (34,313)
------------ ------------ ------------ -------------- ----------------
Net income (loss) .................... $ (573,501) $ 723,821 $ (67,798) $(51,000) $ 31,522
============ ============ ============ ============== ================
Net income (loss) per share .......... $ (.17) $ --
============ ================
Weighted average common stock and
common stock equivalents outstanding 3,400,000 7,975,000
============ ================
</TABLE>
- ------------
(1) The acquisition by merger of each of SMTI and A&A will be accounted for
as a consolidation at historical cost due to the significance of the
equity interest in the Company to be held by the stockholders of these
companies following the completion of the Acquisitions. Accordingly,
the historical revenues and expenses of SMTI and A&A for the six months
ended June 30, 1996 have been combined with Marquee.
(2) To record imputed interest expense on the indebtedness to the
stockholders of SMTI and A&A incurred in connection with the
Acquisitions ($530,000 amortized over five years).
(3) To record income taxes as if SMTI had not been an S corporation
($239,000), to record the income tax benefit of the adjustments set
forth in footnote (1) above ($25,000) and the pro forma tax benefit for
the separate net loss of Marquee ($216,000).
20
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995(1)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SMTI A&A ADJUSTMENTS COMBINED
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Commissions and fee income .......... $6,263,892 $3,846,487 -- $10,110,379
Income from joint venture ........... 231,448 -- -- 231,448
------------ ------------ -------------- -------------
6,495,340 3,846,487 -- 10,341,827
Operating expenses .................. 4,080,477 1,469,410 -- 5,549,887
General and administrative expenses 2,331,393 2,308,317 (1,510,000)(2) 3,129,710
------------ ------------ -------------- -------------
Operating income (loss) ............. 83,470 68,760 1,510,000 1,662,230
Interest income (expense) ........... 9,972 7,571 (106,000)(3) (88,457)
------------ ------------ -------------- -------------
Income before taxes ................. 93,442 76,331 1,404,000 1,573,773
Income taxes (provision) benefit ... (9,000) (77,172) (697,828)(4) (784,000)
------------ ------------ -------------- -------------
Net income (loss) ................... $ 84,442 $ (841) $ 706,172 $ 789,773
============ ============ ============== =============
Net income per share ................ $ .10
=============
Weighted average number of common
stock and common stock equivalents
outstanding ........................ 7,975,000
</TABLE>
- ------------
(1) The acquisition by merger of each of SMTI and A&A will be accounted for
as a consolidation at historical cost due to the significance of the
equity interest in the Company to be held by the stockholders of these
companies following the completion of the Acquisitions. Accordingly,
the historical revenues and expenses of SMTI and A&A for the year ended
December 31, 1995 have been combined.
(2) Reflects contractually agreed to reductions in officers' salaries and
employee benefits ($1,370,000) and in benefits ($140,000) which
commenced during the six-month period ended June 30, 1996.
(3) To record imputed interest expense on the indebtedness to the
stockholders of SMTI and A&A incurred in connection with the
Acquisitions ($530,000 amortized over five years).
(4) To record income taxes as if SMTI had not been an S corporation
($46,000) and to record the income tax effect of the adjustments set
forth in footnotes (1) and (2) above ($651,828).
21
<PAGE>
SELECTED FINANCIAL DATA
The Selected Financial Data of the Company as of June 30, 1996 and for the
six-month period ended June 30, 1996 have been derived from the unaudited
financial statements of Marquee appearing elsewhere in this Prospectus.
Marquee had no operations during the period from inception (July 11, 1995)
through December 31, 1995 and, accordingly, only pro forma financial
information relating to this Offering and the Acquisitions as if they had
occurred on January 1, 1995 is presented in the Selected Financial Data.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1996 or for any other period. The pro forma
financial data gives effect to the following transactions and adjustments for
the periods and at the dates presented: the Acquisitions and the related
contractually agreed to reductions in officers' salaries and benefits, the
Private Placement and the completion of this Offering at an assumed initial
public offering price of $5.00 per Unit and the application of the net
proceeds therefrom to complete the Acquisitions. The Acquisitions have been
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements
as a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of A&A and SMTI
following the completion of the Acquisitions. The following data should be
read in conjunction with the notes thereto, the audited and unaudited
financial statements and notes thereto contained elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
----------------- --------------------------------
PRO FORMA FOR PRO FORMA FOR
OFFERING AND OFFERING AND
ACQUISITIONS HISTORICAL ACQUISITIONS
----------------- -------------- ----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $10,341,827 $ 800,895 $7,329,177
Operating expenses ................... 5,549,887 666,796 4,662,385
General and administrative expenses . 3,129,710 707,600 2,553,385
Operating income (loss) .............. 1,662,230 (573,501) 113,407
Net income (loss) .................... $ 789,773 $ (573,501) $ 31,522
============== ================
Net income (loss) per share .......... $ .10 $ (.17) $ --
================= ============== ================
Weighted average common stock and
common stock equivalents outstanding 7,975,000(1) 3,400,000(2) 7,975,000(1)
================= ============== ================
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------
PRO FORMA FOR PRO FORMA FOR
PRIVATE OFFERING AND
ACTUAL PLACEMENT(2) ACQUISITIONS(3)
----------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets ................ $ 103,979 $1,388,594 $7,389,651
Current liabilities ........... 535,385 70,000 2,281,916
Total assets .................. 103,979 1,638,594 7,544,181
Long-term debt ................ 121,615 2,121,615 1,697,615
Stockholders' equity (deficit) (553,021) (553,021) 3,564,650
</TABLE>
- ------------
(1) Excludes 1,275,000 Escrow Shares. See "Principal Stockholders--Escrow
Shares" and Note 4 of the Notes to the Company's Financial Statements.
(2) Gives effect to the issuance of $2,000,000 aggregate principal amount
of Debentures subsequent to June 30, 1996 which are convertible into
2,000,000 shares of Common Stock and 2,000,000 Warrants. See
"Capitalization--Private Placement."
(3) Adjusted to give effect to the sale of the 3,000,000 Units offered
hereby at an assumed offering price of $5.00 per Unit, the application
of the net proceeds therefrom to complete the Acquisitions and a
non-cash compensation charge to operations estimated at approximately
$1,500,000 associated with the Private Placement. See "Risk
Factors--Future Charges to Operations," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Marquee was formed in July 1995 for the purpose of providing comprehensive
management, marketing, sales, consulting and production services to sports
and entertainment related businesses, events, athletes, broadcasters,
journalists and executives. Marquee has had limited activities since it
commenced operations in January 1996, primarily consisting of negotiating the
SMTI Acquisition Agreement and the A&A Acquisition Agreement and limited
sports marketing and consulting activities. The Company will use a
significant portion of the proceeds from this Offering to make initial
payments of $9,000,000 to the stockholders of SMTI and A&A in connection with
the Acquisitions. See "Use of Proceeds."
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Unaudited
Pro Forma Condensed Combined Financial Statements, the Selected Financial
Data and the financial statements and notes thereto appearing elsewhere in
this Prospectus. For all periods presented, the discussion of the combined
results of operations on a pro forma basis for the Company include the
activities of Marquee, SMTI and A&A, as if they had always been members of
the same operating group.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed under "Risk Factors."
The primary sources of the Company's revenues are commissions from the
representation of sports and entertainment personalities and fees from
providing marketing, sales and event development, production and consulting
services in the sports and entertainment industry. Commissions from the
Company's personal representation services are recognized as revenue when
they become payable to the Company under the terms of the Company's
agreements with its clients. Generally, such commissions are payable by
clients upon their receipt of payments for performance of services or upon
the delivery or use of material created by them. Commissions on profit or
gross receipt participations are recorded upon the determination of such
amounts. Revenues from production services (television and video) are
recognized when the programs are available for broadcast. Licensing
sponsorship and merchandise revenues are recognized for guaranteed amounts
when contractual obligations thereunder are met.
The Company's most significant costs and expenses are salaries and
promotional expenditures. Historically, selling, general and administrative
expenses have been impacted by the amount of compensation and related
benefits that the stockholders of A&A and SMTI received from their respective
businesses during the periods when the companies were entrepreneurially
managed. Pursuant to the agreements relating to the Acquisitions, such
persons have agreed to certain reductions in their salaries which were given
effect to as of January 1, 1996, and reductions of $1,370,000 are reflected
in the Unaudited Pro Forma Condensed Combined Financial Statements for 1995.
Additionally, the Unaudited Pro Forma Condensed Combined Financial Statements
are adjusted to reflect annual reductions of $140,000 related to the
termination of employee benefit plans.
In addition to the employment agreements to be entered into upon
completion of the Acquisitions, Marquee has entered into employment
agreements with two officers, providing for aggregate annual compensation in
the first year of $725,000, of which $260,000 (based upon the date employment
commenced) has been charged to Marquee's operations for the six-month period
ended June 30, 1996. In addition, the Company has entered into a lease for
office space which requires no payments until October 1997. The annual
minimum charge to operations for rent is $488,000 per year commencing in
October 1996. Marquee has also entered into a six-year consulting agreement
with Sillerman Communications Management Corporation ("SCMC"), which is
controlled by Robert F.X. Sillerman, the Chairman of the Company and the
controlling stockholder of TSC, a principal stockholder of the Company, that
provides for a monthly fee of $30,000 commencing nine months from the closing
of this Offering. See "Certain
23
<PAGE>
Transactions--Consulting Agreement with Sillerman Communications Management
Corporation." The minimum annual charge to operations for the consulting
arrangement will be $315,000. These costs are not included in the pro forma
condensed combined financial statements for 1995.
Since it commenced operations, Marquee has also entered into several
contracts to provide sports production and consulting services. Revenues
generated from these contracts are reflected only in Marquee's operations for
the six-month period ended June 30, 1996 and are not included in the Pro
Forma Condensed Combined Financial Statements for 1995.
The Company estimates, although final amounts are not yet available,
that the Company's revenues combined with those of SMTI and A&A for the
nine months ended September 30, 1996 will be approximately $9,000,000 as
compared to combined estimated revenues of SMTI and A&A of approximately
$6,100,000 for the nine months ended September 30, 1995. The Company
estimates that on a pro forma basis it will incur a net loss for the
nine months ended September 30, 1996, which loss is primarily attributable
to the costs and expenses associated with Marquee's operations. There can
be no assurance, however, that the Company's actual or pro forma results
of operations for the nine months ended September 30, 1996 will not be
materially different from the estimated results of operations. Moreover,
the estimated operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results that may be achieved for the
fiscal year ending December 31, 1996 or for any other period. The Company's
revenues and results of operations are subject to fluctuations throughout
the year based upon the timing of sports events and programming in which
the Company participates. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
The Company's fourth fiscal quarter, during which the Company recognizes its
highest percentage of revenues from its production of The Breeders' Cup
Championship and receives revenues from its representation agreements with
professional hockey players upon the commencement of the National Hockey League
season, generally produces the Company's highest revenues, and during the second
fiscal quarter of 1996, the Company's revenues were impacted by the receipt of
revenues from the Company's production of the Major League Baseball All-Star
Game balloting program.
In May 1996, the Company issued 50,000 shares of Common Stock to an
officer in partial consideration of such officer entering into an employment
agreement with the Company. The Company expects that it will recognize
non-cash compensation expense estimated at approximately $118,750 over the
15-month vesting period equal to the estimated fair market value of such
shares on the date of issuance. In connection with the issuance of $750,000
principal amount of Debentures to affiliates of the Company, the Company also
expects to incur non-cash compensation charges to operations estimated at
approximately $1,500,000 during the quarter in which the closing of this
Offering occurs. See "Capitalization--Private Placement" and Note 3 of the
Notes to the Company's Financial Statements. The Company also expects to
incur a charge to operations of $250,000 during the quarter in which this
Offering occurs, upon the automatic conversion of the Debentures into Units,
relating to the write-off of the fees and expenses incurred by the Company in
connection with the Private Placement. In connection with the Acquisitions,
the Company will incur non-cash charges to operations aggregating $530,000
over the five-year period commencing with the completion of the Acquisitions
relating to the imputed interest on the indebtedness to be paid to the
stockholders of SMTI and A&A.
The Company contemplates that the release of the Escrow Shares to
officers, directors, employees and consultants of the Company, should it
occur, will result in a substantial non-cash compensation charge to
operations, based on the then fair market value of the shares. Such charge
could substantially increase the Company's loss or reduce or eliminate the
Company's net income, if any, for financial reporting purposes for the period
during which such shares are or become probable of being released from
escrow. Although the amount of compensation expense recognized by the Company
will not affect the Company's total stockholders' equity, it may have a
depressive effect on the market price of the Company's securities. See
"Principal Stockholders--Escrow Shares."
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RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Marquee commenced operations in January 1996, and since such time its
activities have primarily consisted of negotiating the A&A Acquisition
Agreement and the SMTI Acquisition Agreement and engaging in limited sports
marketing and consulting activities.
For the six-month period ended June 30, 1996, Marquee generated revenues
of approximately $801,000, principally from Marquee's performance under its
contract for production and tabulation of ballots for the Major League Baseball
All-Star Balloting Program. Revenues were also derived from production of boxing
programs broadcast on ESPN and ESPN2 and miscellaneous other productions.
Marquee's total operating expenses for the six-month period ended June 30,
1996 were approximately $667,000 and consisted of production expenses for the
Major League Baseball All-Star Balloting Program and ESPN boxing. General and
administrative expenses of $708,000 included salary and other employee
benefit expenses of approximately $475,000, legal and professional fees of
$75,000, office expenses of approximately $85,000 and all other expenses of
approximately $90,000. Marquee's operating loss for the six-month period
ended June 30, 1996 was approximately $574,000.
On a pro forma basis, as if the Acquisitions had occurred on January 1,
1995, the Company would have had revenues of $7,329,000 for the six-month
period ended June 30, 1996, compared to revenues of $4,844,000 for the six
month period ended June 30, 1995, an increase of $2,485,000 or 51.3%. The
increase was primarily due to the addition of the Major League Baseball
All-Star Balloting Program. New production clients included boxing events
broadcast on ESPN and ESPN2. Media representation fees increased as a result
of the representation of new broadcast personalities as well as increased
fees from the existing client base. The increased revenue was partially
offset by the cancellation of the Baseball Network and the expiration of the
Cotton Bowl representation agreement. On a pro forma basis, for the six-month
period ended June 30, 1996, each of the Breeders' Cup Limited and the Major
League Baseball All-Star Balloting Program would have accounted for in excess
of 10% of the Company's revenues and three clients would have accounted for
approximately 60% of such revenues.
On a pro forma basis, as if the Acquisitions had occurred on January 1,
1995, the Company would have incurred operating expenses for the six-month
period ended June 30, 1996 of $4,662,000, compared to operating expenses of
$2,802,000 for the same period in 1995, an increase of approximately
$1,860,000 or 66.4%. The increase was primarily the result of increased
expenses resulting from the Company's new business ventures for the Major
League Baseball All-Star Balloting Program and the production of ESPN and
ESPN2 boxing. On a pro forma basis for the six-month period ended June 30,
1996, general and administrative expenses increased $942,000, or 58.5%,
principally related to costs and expenses associated with Marquee's
operations, as described above. The pro forma adjustments for the six-month
period ended June 30, 1995 reflect contractually required reductions in
salaries and benefits of approximately $480,000. See "--Introduction."
For the six-month period ended June 30, 1996, the Company's pro forma
income before taxes would have been $66,000 as compared to a $384,000 for the
same period in 1995. Pro forma net income for the six-month period ended June
30, 1996 would have been $32,000 after provision for taxes of $34,000. Pro
forma net income for the 1995 period would have been $195,000 after provision
for taxes of $188,000.
Year ended December 31, 1995 Compared to Year Ended December 31, 1994
Marquee began its operations in January 1996 and therefore the pro forma
results of operations for 1995 and 1994 include only the results of
operations of SMTI and A&A.
On a pro forma basis, revenue for the year ended December 31, 1995 would
have been $10,342,000, an increase of $740,000, or 7.7%, over revenues for
the year ended December 31, 1994. The increase was primarily the result of an
increase in commissions earned on talent representations ($562,000) while
production and consulting revenue increases contributed an additional
$216,000. Media representation fees increased as a result of the
representation of new broadcast personalities as well as increased fees from
the existing client base. Sports representation fees increased in part due to
a full National Hockey League season in 1995 compared to the strike-shortened
1994 season. Production and consulting fees increased as a result of
increased fees from the Breeder's Cup and the addition of revenues from a
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consulting agreement pursuant to which the Company handled sports marketing
and advertising for the True Value hardware stores. These revenue increases
were partially offset by the cancellation of the Baseball Network, for which
the Company provided consulting services, and $31,000 in reduced revenue from
the Celebrity Golf Championship Tournament.
Total expenses after pro forma adjustments would have been $8,680,000 in
1995 as compared to $9,182,000 for 1994. Pro forma adjustments reflect the
reductions in salaries and benefits required by the
agreements relating to the Acquisitions ($1,510,000 in 1995 and $529,000 in
1994). The decrease of $502,000, or 5.5%, was principally the result of
decreases in production costs applicable to the Breeders Cup ($278,000),
reduction in travel and entertainment expenses ($95,000) and salary costs
($101,000). See "--Introduction."
For the year ended December 31, 1995, the Company's pro forma income
before taxes would have been $1,574,000 as compared to $323,000 for the year
ended December 31, 1994. Pro forma income tax expense for the year ended
December 31, 1995 would have been $784,000 as compared to $158,000 in 1994.
Pro forma net income would have been $790,000 in 1995 and $165,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Marquee's principal sources of working capital has been net proceeds of
approximately $1,363,000 from the Private Placement, which was completed in
August 1996, and advances by shareholders aggregating $692,000. Of the
shareholder advances, promissory notes evidencing approximately $445,000 of
shareholder indebtedness were exchanged for Debentures in the Private
Placement, $125,000 was repaid from the proceeds of the Private Placement and
$122,000 is payable on January 1, 1998. The net proceeds of the Private
Placement reflect the cancellation of the notes referred to above and
expenses of the Private Placement and are being used for working capital and
certain expenses of this Offering. The Private Placement consisted of
$2,000,000 principal amount of Debentures which will automatically convert
into 2,000,000 Units upon the closing of this Offering. At June 30, 1996, the
Company had a working capital deficiency of $431,406; on a pro forma basis,
after giving effect to this Offering and the Acquisitions as if they had
occurred on such date, the Company would have had working capital of
$5,107,735. Although the Company anticipates that the proceeds of this
Offering together with cash flow expected to be generated from operations
will be sufficient to fund its operations for approximately 12 months, there
can be no assurance that the Company will not require additional financing.
The Company has no commitments to obtain additional financing and there can
be no assurance that such financing, if required, will be available.
The principal source of funding for SMTI and A&A has been from operations.
SMTI generally is required to fund implementation of projects for its
customers prior to receipt of related fees and accordingly has experienced,
and may in the future continue to experience, cash flow shortages.
The net proceeds from this Offering are estimated at approximately
$12,800,000, of which $9,000,000 will be paid to the stockholders of SMTI and
A&A. In addition, the Company has agreed to pay such stockholders installment
payments aggregating $2,500,000 over the five-year period commencing April 1,
1997. Further, the SMTI Acquisition Agreement provides that immediately prior
to the closing of the SMTI Acquisition, SMTI will distribute to its
shareholders, by means of a dividend, an amount equal to 40% of the
accumulated adjustments account of SMTI. SMTI has advised the Company that as
of June 30, 1996, the distribution would have been approximately $335,000.
The Company will also enter into five-year employment agreements with the
stockholders of A&A and SMTI providing for annual salaries aggregating
$1,075,000.
In October 1996, the Company entered into a lease for new facilities which
requires initial annual rent of $537,000, commencing one year after
occupancy, subject to certain increases. Following completion of this
Offering, the Company intends to incur capital expenditures of approximately
$500,000 to furnish its new office space, complete leasehold improvements and
install television edit facilities. See "Use of Proceeds" and
"Business--Properties."
Marquee has entered into employment agreements with two officers that
provide for annual compensation aggregating $725,000 per year. The Company
has also entered into a six-year consulting agreement with SCMC that provides
for a monthly fee of $30,000 commencing nine months from the closing of this
Offering. Such monthly fee will increase annually by the percentage increase
in the consumer price index.
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BUSINESS
GENERAL
The Company was organized in July 1995 to provide comprehensive
management, marketing, sales, consulting and production services to sports
and entertainment-related businesses, events, athletes, broadcasters,
journalists and executives. In recent years, significant developments in mass
media, including the growth of satellite communications and cable television,
have resulted in increased national and global exposure for sports
personalities and the events and projects in which they participate, and have
created national and international audiences for sports personalities,
products and events. In addition, the recent proliferation of sports-related
television and radio stations has created an increased demand for
sports-related programming. As a result, the promotion and sponsorship of
sports events has become a major area of corporate advertising and product
development. The Company believes that the successful exploitation of this
market by sports personalities and corporations requires integrated marketing
and management services.
Marquee was organized by Robert M. Gutkowski, the Company's President and
Chief Executive Officer, who has more than 20 years of experience in the
television, sports and entertainment industries and who served as President
of Madison Square Garden Corporation from November 1991 until September 1994,
and TSC, which provides financial advisory, marketing and consulting services
to media companies and sports-related businesses. TSC is controlled by Robert
F.X. Sillerman, Chairman of the Company, whose principal occupation is Chief
Executive Officer of SFX Broadcasting, Inc.
The Company was formed primarily to acquire SMTI, which provides
production and marketing services to sporting events, sports television shows
and professional and collegiate leagues and organizations, and A&A, a sports
and media representation firm, to integrate these businesses and to expand
into related areas in sports and events programming and promotion.
In conjunction with SMTI's production and marketing services, SMTI
develops and implements corporate sponsorship campaigns which are designed to
promote an event, team or sponsor. SMTI's current and recently completed
principal projects include production and marketing of The Breeders' Cup
Championship and implementation of the balloting campaign for Major League
Baseball's 1996 All-Star Game. The Company has agreed to acquire SMTI, which
was formed in 1984 by Michael Trager and Michael Letis, upon the closing of
this Offering for an aggregate cash purchase price payable to Messrs. Trager
and Letis of $8,000,000, of which $6,500,000 is payable at closing and
$1,500,000 is payable in five equal annual installments, and the issuance of
an aggregate of 1,292,307 shares of Common Stock to Messrs. Trager and Letis,
each of whom will become an executive officer and director of the Company.
A&A, which was founded in 1977 by Arthur C. Kaminsky, is a sports and
media representation firm whose roster of clients includes broadcasters
(including Al Michaels -ABC Sports, Forrest Sawyer -ABC News, Christiane
Amanpour -CNN and CBS News, Dan Dierdorf -ABC Sports and Chris Berman -ESPN
and ABC Sports), athletes (including Brian Leetch -New York Rangers, Eric
Heiden -U.S. Olympic five-time gold medalist in speed skating and Nick Lowery
- -New York Jets), authors (including Dick Schaap -author of Bo Knows Bo and
Instant Replay, Rick Reilly -author of The Boz and Missing Links and a writer
for Sports Illustrated and John Powers -author of One Goal and Mary Lou! and
a sportswriter for The Boston Globe) and media executives (including Terry
O'Neil -a sports and news executive producer, Curt Gowdy, Jr. -ABC Sports and
John Faratzis -a sports programming producer who has worked with ABC, CBS and
NBC). The Company has agreed to acquire A&A upon the closing of this Offering
for an aggregate cash purchase price payable to Mr. Kaminsky and Louis J.
Oppenheim, each of whom will become an executive officer and director of the
Company, of $3,500,000, of which $2,500,000 is payable at closing and
$1,000,000 is payable in five equal annual installments, and the issuance to
Messrs. Kaminsky and Oppenheim of an aggregate of 969,231 shares of Common
Stock.
Marquee has agreed to provide production and promotional services,
including agreements with ESPN to produce professional and amateur boxing
events and with the Outdoor Life Network to produce The National Lumberjack
Championships, and has entered into an agreement with the PBA to serve as the
PBA's exclusive representative in connection with its negotiations with
respect to television broadcasting.
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The Company believes that the combination of its business with those of
SMTI and A&A will provide opportunities to provide enhanced services to
clients and will enable it to construct comprehensive packages of sports
events and sports personality endorsements.
EVENTS PRODUCTION AND CORPORATE SPONSORSHIP
Through SMTI, the Company intends to provide production and promotion
services to major sporting events, sports television shows and professional
and collegiate leagues and organizations. In conjunction with its production
and marketing services, SMTI develops and implements corporate sponsorship
campaigns which are designed to promote an event, team or sponsor.
Although it may vary from event to event, events production includes site
selection, recruitment of athletes or personalities, procurement of
television coverage, merchandising and administration of concessions, sale of
corporate sponsorship, creation of corporate hospitality programs and general
administrative duties, including contract negotiation and scheduling. For
each client, the Company will generally receive a fixed fee and/or commission
generally ranging from 15% to 40% of the contracted amount, although these
fees and commissions are negotiated between the parties on an event-by-event
basis and the amount of fees and/or commissions the Company will receive
depends to a large extent upon its performance. The Company's corporate
sponsorship projects are generally on a short-term basis and may not be
evidenced by written agreements in advance of Company expenditures or at all,
which the Company believes is common in its industry.
The Company anticipates that its events management and corporate
sponsorship businesses will be primarily conducted by SMTI, under the
direction of Michael Trager, the Chairman of SMTI, and Michael Letis, the
President of SMTI. See "Management" and "Certain Transactions--SMTI
Acquisition Agreement."
SMTI provides events management services for the following events:
o The Breeders' Cup Championship --In 1984, SMTI, together with the
Thoroughbred Racing Association and NBC Sports, created The Breeders'
Cup Championship, an annual series of thoroughbred horse races held at
a rotating series of racetracks, including Churchill Downs, Santa Anita
and Belmont Park. In July 1994, SMTI entered into a marketing agreement
(the "Breeders' Cup Agreement") with the Breeders' Cup Limited ("BCL"),
pursuant to which SMTI was granted the right to provide general
marketing consultation, broadcast and sponsorship rights sales,
advertising production and media placement, publicity and public
relations, television and video production, production of promotional
materials and merchandising and licensing of BCL in connection with The
Breeders' Cup Championship. SMTI also supervises the televising of the
event and has sold the television rights to NBC-TV, with which it works
to create a four-hour broadcast.
The Breeders' Cup Agreement terminates on December 31, 1997, unless
terminated earlier in accordance with the terms of the agreement,
including the termination, for any reason, of SMTI's employment of
Michael Letis or the unavailability of Mr. Letis to perform the
services necessary to enable SMTI to comply with the terms of the
Breeders' Cup Agreement.
o Major League Baseball --SMTI represents Major League Baseball in its
negotiations with potential corporate sponsors and in creating
sponsorship campaigns. SMTI also implemented Major League Baseball's
All-Star Balloting Program for the 1996 All-Star Game.
o Celebrity Golf Association --In January 1995, SMTI and NBC formed
Celebrity Golf Championship, LLC ("CGC") to conduct the annual golfing
tournament known as the Celebrity Golf Championship, an annual
celebrity professional golf tournament, where the competitors include
well-known sports, entertainment and media personalities. In connection
therewith, SMTI organized and conducted the 1996 Celebrity Golf
Championship held in Lake Tahoe, Nevada. SMTI also supervised the
televising of the tournament and arranged for the tournament to be
televised on NBC and ESPN.
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o The Hambletonian --In July 1995, SMTI entered into an agreement with
The Hambletonian Society to act as exclusive television agent for The
Hambletonian, a premier event in harness racing held annually at The
Meadowlands, which agreement, unless renewed by mutual agreement, will
terminate in March 1998.
o The Big 12 Conference --In September 1995, SMTI agreed with The Big 12
Conference to represent this athletic conference, which includes
universities such as The University of Texas, The University of
Oklahoma and The University of Nebraska, in negotiations with broadcast
and cable television networks of the conference's basketball games.
A significant portion of SMTI's revenues have been derived from a small
number of clients or one-time events. During the years ended December 31,
1994 and 1995 and the six-month period ended June 30, 1996, the Breeders' Cup
Agreement accounted for approximately 78%, 75% and 55% of SMTI's revenues,
respectively, and, on a pro forma basis, after giving effect to the
Acquisitions as if they had occurred on January 1, 1995, would have accounted
for approximately 47% and 36% of the Company's revenues for the year ended
December 31, 1995 and the six-month period ended June 30, 1996, respectively.
On a pro forma basis, for the six-month period ended June 30, 1996, three
clients would have accounted for approximately 60% of the Company's revenues.
The Company may continue to be dependent upon a limited number of customers
or projects for a significant portion of its revenues in future periods.
PERSONAL REPRESENTATION
Through A&A, the Company intends to provide personal representation
services for well-known and up-and-coming sports and entertainment
personalities, which services will encompass the negotiation of primary
employment agreements and evaluation of business, promotional and endorsement
opportunities for such personalities. Fees for services can be fixed but
ordinarily will represent a percentage of income realized by the Company's
clients through its efforts, typically ranging from three to ten percent. The
Company's representation agreements with its clients are generally terminable
on 30 days' notice and the Company does not have written agreements with many
of its clients, which the Company believes is common in its industry.
The Company anticipates that its personal representation services will be
primarily overseen by Arthur C. Kaminsky, the President and Chief Executive
Officer of A&A, and Louis J. Oppenheim, the Vice President of A&A. See
"Management" and "Certain Transactions--A&A Acquisition Agreement."
At September 30, 1996, A&A's client roster included 79 national
broadcasters, consisting of the following persons:
Al Michaels -ABC Sports
Forrest Sawyer -ABC News
Christiane Amanpour -CNN and CBS News
Dan Dierdorf -ABC Sports
Sean McDonough -CBS Sports and WABU-TV(Boston)
Chris Berman -ESPN and ABC Sports
Len Berman -NBC Sports and WNBC-TV (New York)
Jim Lampley -NBC Sports and
Home Box Office
John Hockenberry -NBC News and MSNBC
Bill Geist -CBS News
Robert Krulwich -ABC News
Hannah Storm -NBC Sports
Al Trautwig -MSG and Class Sports Network
Fred Hickman -CNN
Mark Jones -ABC Sports and ESPN
Andrea Joyce -CBS Sports
Bob McKeown -NBC News
Craig James -CBS Sports
Dick Vermeil -ABC Sports
Willow Bay -ABC News and NBC Sports
Dick Schaap -ABC News and ESPN
Russ Mitchell -CBS News
Brad Nessler -ESPN
Bill Walton -NBC Sports
Antonio Mora -ABC News
John Spagnola -ABC Sports
Thom Brennaman -Fox Sports
Bob Carpenter -ESPN
John Naber -Television analyst (U.S. Olympic gold
medalist in swimming)
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Jane Whitney -Nationally-syndicated
talk-show host
Bud Collins -NBC Sports
Kevin Harlan -Fox Sports
Vince Cellini -CNN and TNT Sports
Bill Clement -ESPN
Mike Emrick -Fox Sports and SportsChannel
Craig Masback -NBC Sports
Todd Blackledge -ABC Sports
Len Dawson -Home Box Office
John Dockery -NBC Sports
Terry Gannon -ABC Sports
Ken Albert -Fox Sports
Jim Gray -NBC Sports
Paul Crane -CNN
Kevin Kiley -TNT Sports
Marty Liquori -ABC Sports
Mike Tirico -ESPN
Joe Micheletti -Fox Sports
Anthony Munoz -Television analyst (formerly Fox
Sports)
Jimmy Roberts -ESPN
Ted Robinson -CBS Sports and USA Network
Danny Sheridan -CBS Sports
Dwight Stones -NBC Sports
Reggie Theus -TNT Sports and NBC Sports
Eric Clemons -Fox Sports
Leon Harris -CNN
Regina Blakely -CBS News
Madeline McFadden -Inside Edition
Robyn Carter -Day & Date
Elizabeth Kaledin -CBS News
Mark Litke -ABC News
Matt Meagher -Inside Edition
Beth Nissen -ABC News
Diana Olick -CBS News
Janice Lieberman -CNBC
Brian Holloway -ABC Sports
Steve Melnyk -ABC Sports
Frank Hannigan -ABC Sports
Larry Beil -ESPN
Gary Miller -ESPN
Lisa Kim -MSNBC
Dan Lothian -NBC News
Jim Axelrod -CBS News
Jody Davis -CNNfn
Craig Miller -MSNBC
Gary Matsumoto -NBC News
Scott Engler -CNN
Kathy Wolff -Fox News
Michael Kim -ESPN
Bill Maas -Fox Sports
At September 30, 1996, A&A's client roster included 33 professional
athletes, consisting of the following persons:
Brian Leetch -New York Rangers
Eric Heiden -U.S. Olympic five-time gold medalist
in speed skating
Nick Lowery -New York Jets
Ken Dryden -Montreal Canadiens (retired) and member
of the Hockey Hall of Fame
Sergei Zubov -Dallas Stars
Adam Oates -Boston Bruins
Rico Brogna -New York Mets
Keith Elias -New York Giants
William Gaines -Washington Redskins
Darren Turcotte -San Jose Sharks
Jeff Blatnick -U.S. Olympic gold medalist in
Greco-Roman wrestling
Sean Jones -Green Bay Packers
Mike Remlinger -Cincinnati Reds
Beth Heiden -U.S. Olympic gold medalist in speed
skating
Joe Grahe -Montreal Expos
Tommy John -Former Major League Baseball player and
television analyst for the Minnesota Twins
Quinn Buckner -Former National Basketball
Association player and coach and CBS Sports
commentator
Calle Johansson -Washington Capitals
Harry Carson -Former New York Giants
linebacker and analyst for the MSG Network
Bernard King -Former National Basketball
Association player and broadcaster on WFAN-FM (New
York)
Tim Daggett -U.S. Olympic gold medalist in
gymnastics and NBC Sports commentator
Jody Hull -Florida Panthers
Tommy Albelin -Calgary Flames
Jozef Stumpel -Boston Bruins
Nikolai Khabibulin -Phoenix Coyotes
Willie Jackson -Jacksonville Jaguars
Kris King -Phoenix Coyotes
Dainius Zubrus -Philadelphia Flyers
Andrei Zyuzin -San Jose Sharks
Alexander Volchkov -Washington Capitals
Sergei Samsonov -Detroit Vipers (International
Hockey League) and projected top-pick in the 1997
National Hockey League draft
Jerry Bailey -Jockey and member of the Horse Racing
Hall of Fame
Mike Golic -Former National Football League player
and ESPN analyst
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At September 30, 1996, A&A's client roster included 37 local broadcasters,
consisting of the following persons:
Dave Jennings -WFAN-AM and MSG
(New York)
Trish Brown -WMOV-TV (St. Louis)
Mike Harris -SportsChannel and WCBS-TV (New
York)
Celeste Ford -WABC-TV (New York)
Eric Thomas -KGO-TV (San Francisco)
Paul Olden -WFAN-AM and WPIX-TV
(New York)
Dr. Jay Adlersberg -WABC-TV (New York)
Tracey Neale -WTTG-TV (Washington, D.C.)
Carolyn Gusoff -WNBC-TV (New York)
Leo Alexander -WRC-TV (Washington)
Bob Papa -WOR-AM (New York), ESPN and NBC
Sports
Tony Segreto -WTVJ-TV (Miami)
Roseanne Colletti -WCBS-TV (New York)
Monica Kaufman -WSB-TV (Atlanta)
Lara Spencer -WABC-TV (New York)
Vic Carter -WJZ-TV (Baltimore)
Sean Mooney -WWOR-TV (New York)
Kelly Ring -WTVT-TV (Tampa)
Tim Fleischer -WABC-TV (New York)
Beverly Burke -WUSA-TV (Washington, D.C.)
Krista Bradford -WWOR-TV (New York)
Bebe Emerman -KCAL-TV (Los Angeles)
Corey McPherrin -WFLD-TV (Chicago)
Walter Richards -KTLA-TV (Los Angeles)
Ukee Washington -KYW-TV (Philadelphia)
Ileana Varela -WFOR-TV (Miami)
Mike Bush -KSDK-TV (St. Louis)
Angela Davis -KSTP-TV (Minneapolis)
Marion Brooks -WSB-TV (Atlanta)
Randy Paige -KCAL-TV (Los Angeles)
Shern-Min Chow -KPRC-TV (Houston)
Noel Cisneros -KRON-TV (San Francisco)
Sonja Gantt -WGN-TV (Chicago)
Lyanne Melendez -KGO-TV (San Francisco)
Lila Orbach -WDIV-TV (Detroit)
Gretchen Carlson -WOIO-TV (Cleveland)
Michael Barkann -WLVI-TV (Boston), USA
Network and CBS Sports
At September 30, 1996, A&A's client roster included six authors,
consisting of the following persons:
Dick Schaap -author of Bo Knows Bo and Instant Replay
Rick Reilly -author of The Boz and Missing Links and a writer for Sports
Illustrated
John Powers -author of One Goal and Mary Lou! and a sportswriter for The
Boston Globe
Gene Wojociechowski -author of Nothing but Net and I Love Being the Enemy
and a sportswriter for The Chicago Tribune
Ken Dryden -author of The Game and Home Game
Michael Silver -author of Sports with an Attitude and currently working with
Jerry Rice on a project for Sports Illustrated
At September 30, 1996, A&A's client roster included nine television
producers and directors, consisting of the following persons:
Terry O'Neil -executive producer of both sports and news programming
Curt Gowdy, Jr. -ABC Sports
John Faratzis -a sports-programming producer who has worked with ABC, CBS
and NBC
Craig Silver -CBS Sports
Andy Kindle -Fox Sports
Larry Cavolina -ESPN and NBC Sports
Rick Paiva -ESPN
Joel Feld -a sports-programming producer who has worked with ABC Sports and
Fox Sports
Michael Ireland -ESPN and KTLA-TV (Los Angeles), which broadcasts Los
Angeles Dodgers baseball games
COMMUNICATIONS
The Company intends to expand its business by providing services relating
to television production, sale of television rights, program packaging and
video production and distribution, through which it may derive revenue from
commissions on sales of broadcast rights to television networks and cable
stations,
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commissions for packaging an event for a particular corporate sponsor, fees
for production of television programs or videos and royalties for video
distribution.
Marquee is, or has recently, engaged in the following projects in the
sports and events programming and productions area:
o In September 1996, the Company entered into an agreement (the "PVI
Agreement") with PVI, Inc. ("PVI"), pursuant to which the Company was
retained by PVI to market the PVI System (a procedure by which a
sponsor's logo can be graphically inserted at strategic locations
during a televised sporting event) to advertisers and advertising
agencies and to sports teams, leagues and broadcasters. The PVI
Agreement has a term of two years, subject to early termination by
either party in March 1997 or September 1997.
o In September 1996, the Company entered into an agreement with the PBA
Tour pursuant to which the Company agreed to serve as the exclusive
representative of the PBA in connection with its negotiations with
respect to television broadcasting through December 31, 1999.
o In October 1996, the Company entered into an agreement with a
representative of Subaru of America ("Subaru"), pursuant to which
Subaru has engaged the Company to produce Subaru American Outback, an
outdoor programming series of 24 half-hour episodes which are expected
to be televised commencing in 1997 on ESPN2 and ESPN.
o In July 1996, the Company entered into an agreement with The Univision
Network Limited Partnership ("Univision"), which owns and operates a
Spanish-language television network, pursuant to which Univision was
granted the right to broadcast a welterweight championship fight and
the undercard fights, held at the Sports Arena, Los Angeles, California
on October 6, 1996, which matches were organized and promoted by the
Company.
o In March 1996, the Company entered into a one-year agreement with ESPN
to provide production services with respect to approximately 30
televised boxing matches which are to be broadcast on ESPN and ESPN2.
The Company's production services in connection with these boxing
matches include site reviewal, arranging for television cameras,
lighting, audio and video equipment and technical facilities and
coordinating the use of on-air broadcasters.
o In December 1995, the Company entered into an oral joint venture
program development arrangement with Cosette Productions, which has
developed television, theatrical and movie productions such as The
Grammy Awards, The Will Rogers Follies, television specials starring
Harry Connick Jr. and Kathie Lee Gifford, made-for-TV movies starring
Valerie Bertinelli and Rick Schroeder and the television mini-series
Alcatraz.
o The Company has agreed with The Outdoor Life Network, LLC ("OLN") to
provide production services with respect to 22 half-hour episodes of
Ironjack --The National Lumberjack Championships for OLN, a new cable
network devoted to outdoor programming. The Company is currently
producing the series, which it expects will be available for televising
in 1997.
OPERATING STRATEGY
The Company believes that the combination of its business with those of
SMTI and A&A will enable it to maximize the performance of its events
production and corporate sponsorship, personal representation and
communications businesses by constructing comprehensive packages of sports
events and sports personality endorsements. In addition, as a means of
reducing operating costs, the Company intends to engage the services of
independent contractors or "stringers" to perform certain services in
connection with the Company's business, which may enable the Company to limit
the number of its employees. The Company believes that the experience of its
management team will provide access to qualified independent contractors,
although there can be no assurance that the Company will be able to obtain
such services on commercially reasonable terms or at all.
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COMPETITION
Events production, corporate sponsorship and personal representation are
highly-competitive industries which are dominated by a few large companies,
such as International Management Group, ProServ, Inc. and Advantage
International Inc. in the sports industry and the William Morris Agency, Inc.
and Creative Artists Agency, Inc. in the entertainment industry, which have
substantially greater financial and other resources than the Company. In
addition, the Company will compete with many smaller entities. The success of
the Company will be dependent upon its ability to obtain event, client and
production opportunities and to generate revenues from such activities. The
Company believes that it will compete with other companies primarily on the
basis of the experience of its management and the breadth of the services
that the Company will be able to offer, including events production and
corporate sponsorship, personal representation and communications services.
There can be no assurance, however, that the Company will be able to compete
successfully in the sports management and representation industry.
PROPERTIES
The Company's executive offices are currently located at 888 Seventh
Avenue, New York, New York, and are occupied pursuant to a lease which
provides for an initial annual rent, commencing in October 1997, of
approximately $537,000, subject to certain increases, and expiring in October
2007. The Company intends to perform certain capital improvements to furnish
its new office space, complete leasehold improvements and install television
edit facilities. See "Use of Proceeds." The Company believes that its current
facility will be sufficient for its planned operations for the foreseeable
future.
EMPLOYEES
Following completion of the Acquisitions, the Company will have 44
full-time employees, none of whom will be covered by a collective bargaining
agreement. Each of the Company, A&A and SMTI considers its relations with its
employees to be good. In addition, the Company intends to engage independent
contractors to provide many of the services required by its business.
LEGAL PROCEEDINGS
Neither the Company, A&A nor SMTI is a party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company and the persons expected to
become executive officers or directors of the Company upon completion of this
Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert M. Gutkowski .. 48 President, Chief Executive Officer and Director
Robert F.X. Sillerman 48 Chairman
Arthur C. Kaminsky ... 49 Director and Executive Vice President
Michael Letis ......... 55 Director and Executive Vice President
Louis J. Oppenheim ... 38 Director and Executive Vice President
Michael Trager ........ 54 Director and Executive Vice President
James E. Sileo ........ 43 Chief Financial Officer
Howard J. Tytel ....... 50 Director
Arthur R. Barron ...... 62 Director
Myles W. Schumer ...... 50 Director
Kraig G. Fox .......... 28 Secretary
</TABLE>
ROBERT M. GUTKOWSKI has served as President, Chief Executive Officer and
Director of the Company since December 1995. Mr. Gutkowski has more than 20
years of experience in the television, sports and entertainment industries.
From September 1994 until December 1995, Mr. Gutkowski was a consultant to
sports-related businesses. From November 1991 to September 1994, he served as
President and Chief Executive Officer of Madison Square Garden Corporation,
where he oversaw the operations of the New York Knicks, the New York Rangers,
the MSG Entertainment Group, the MSG Cable Network, Madison Square Garden and
the Paramount Theater. From July 1990 to November 1991, Mr. Gutkowski served
as President of MSG Communications Group, having served as Executive Vice
President thereof from September 1987 to July 1990. From October 1985 to
September 1987, he served as President of Madison Square Garden Network.
Prior to his tenure at Madison Square Garden, Mr. Gutkowski was Vice
President-Sales for Paramount Television Domestic Distribution. From February
1981 to September 1983, Mr. Gutkowski was Vice President-Programming for
ESPN. Mr. Gutkowski earned a B.A. from Hofstra University.
ROBERT F.X. SILLERMAN has been Chairman of the Company since July 1995.
Mr. Sillerman has been Chief Executive Officer of SFX Broadcasting, Inc.
("SFX"), a publicly-traded company which owns and operates radio stations,
since June 1996, and from 1992 through June 1996 he served as Executive
Chairman, Chairman and/or Chief Executive Officer of SFX. Since 1985, Mr.
Sillerman has been Chairman of the Board and Chief Executive Officer of SCMC,
a private investment company which makes investments in and provides
financial consulting services to companies engaged in media and
sports-related businesses, including the Company, and, through privately-held
entities, he controls the general partner of Sillerman Communications
Partners, L.P. ("SCP"), an investment partnership. Since 1985, he has been
Chairman and Chief Executive Officer of TSC, a private investment company
which provides financial advisory, marketing, consulting and investment
banking services to media companies and sports-related businesses and which
is a principal stockholder of the Company. See "Certain Transactions" and
"Principal Stockholders." Mr. Sillerman earned a B.A. from Brandeis
University. In 1993, Mr. Sillerman became the Chancellor of the Southampton
campus of Long Island University.
ARTHUR C. KAMINSKY has been a Director of the Company since March 1996 and
will become an Executive Vice President of the Company concurrently with the
completion of the A&A Acquisition. Mr. Kaminsky has served as President and
Chief Executive Officer of A&A since 1977, and he is expected to continue in
that position following the A&A Acquisition. From 1974 to 1990, Mr. Kaminsky
was a partner with the law firm of Taft & Kaminsky. Mr. Kaminsky earned a
B.A. from Cornell University and a J.D. from Yale University.
MICHAEL LETIS will become a Director and Executive Vice President of the
Company concurrently with the SMTI Acquisition. Mr. Letis has served as
President of SMTI since 1984, and he is expected to continue in that position
following the SMTI Acquisition. Mr. Letis earned a B.A. from Dartmouth
College.
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LOUIS J. OPPENHEIM will become a Director and Executive Vice President of
the Company concurrently with the A&A Acquisition. Mr. Oppenheim has served
as Vice President of A&A since 1985, and he is expected to continue in that
position following the A&A Acquisition. From 1981 to 1985, he served as a
talent representative for A&A. Mr. Oppenheim earned a B.A. from The
University of Pennsylvania and a J.D. from Fordham University.
MICHAEL TRAGER has been a Director of the Company since March 1996 and
will become an Executive Vice President of the Company concurrently with the
completion of the SMTI Acquisition. Mr. Trager has served as Chairman of SMTI
since 1984, and he is expected to continue in that position following the
SMTI Acquisition. From November 1994 to December 1995, Mr. Trager served as a
Director of Select Media Communications, Inc., which filed a petition under
the federal bankruptcy laws in October 1995. Mr. Trager earned a B.A. and
M.S. from Bucknell University.
JAMES E. SILEO has served as the Chief Financial Officer of the Company
since November 1995. From November 1994 to December 1995, Mr. Sileo served as
Chief Financial Officer and a Director of Select Media Communications, Inc.,
which filed a petition under the federal bankruptcy laws in October 1995.
From June 1985 to November 1994, Mr. Sileo held various positions at Madison
Square Garden Corporation, including Vice President-Finance and Network
Operations from April 1992 to November 1994, Vice President-Finance,
Communications Group from June 1988 to March 1992 and Director of Financial
Planning for the MSG Communications Group. Mr. Sileo earned a B.B.A. in
accounting from Bernard M. Baruch College.
HOWARD J. TYTEL has served as a Director of the Company since July 1995.
Mr. Tytel has been a Director, Executive Vice President and Secretary of SFX
since 1992. Mr. Tytel has also been Executive Vice President and General
Counsel of SCMC since 1985, a Director of SCMC since 1989, and Executive Vice
President and General Counsel of TSC since 1985. Since March 1995, Mr. Tytel
has been a director of Interactive Flight Technologies, Inc., a company
providing computer-based in-flight entertainment. Mr. Tytel is Of Counsel to
the law firm of Baker & McKenzie, which represents the Company, SFX, SCMC and
TSC. Mr. Tytel earned a J.D. from Washington University.
ARTHUR R. BARRON will become a Director of the Company concurrently with
the completion of this Offering. In May 1995, Mr. Barron retired from
Time-Warner Inc. ("Time-Warner"), where he served from February 1970 to May
1995 as Chairman of Time-Warner International, which is engaged in
international strategic development activities in the media and entertainment
industries, and as Chairman of Time-Warner Enterprises, the strategic and
business development unit of Time-Warner. From 1984 until July 1989, Mr.
Barron served as President of Paramount Communications Inc.'s entertainment
group, which includes Paramount Pictures, Madison Square Garden, the New York
Knicks and the New York Rangers.
MYLES W. SCHUMER will become a Director of the Company concurrently with
the completion of this Offering. For more than the past five years, Mr.
Schumer has been a partner, specializing in tax matters, of Cornick, Garber &
Sandler, New York, independent public accountants. Since July 1993, Mr.
Schumer has served as a director of Multi-Market Radio, Inc., a
publicly-traded company engaged in the ownership and operation of radio
stations.
KRAIG G. FOX has served as Secretary of the Company since July 1995. Since
December 1993, Mr. Fox has been the Manager-Business and Legal Affairs for
TSC. Since April 1995 and July 1996, Mr. Fox has been the Secretary of
Multi-Market Radio, Inc. and Triathlon Broadcasting Company, respectively,
both of which are publicly-traded companies engaged in the ownership and
operation of radio stations. Mr. Fox earned a J.D. from Hofstra University in
1993.
Directors serve until the next annual meeting or until their successors
are elected and qualified subject to the provisions of the Stockholders'
Agreement. See "Certain Transactions--Stockholders' Agreement." Officers
serve at the discretion of the Board of Directors, subject to rights, if any,
under contracts of employment with the Company.
The Representative has the right to appoint an observer to be present at
the Company's Board of Directors meetings for a period of five years from the
completion of this Offering, although it has not yet selected any such
observer. Such observer may be a director, officer, partner, employee or
affiliate of the Representative. In addition, the Company has agreed with the
Underwriters that for a period of five years from the date of this Prospectus
it will have at least two non-affiliated independent directors on its Board
of Directors.
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The General Corporation Law of the State of Delaware permits a corporation
through its Certificate of Incorporation to eliminate the personal liability
of its directors to the corporation or its stockholders for monetary damages
for breach of fiduciary duty of loyalty and care as a director, with certain
exceptions. The exceptions include a breach of fiduciary duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct
or knowing violation of law, improper declarations of dividends and
transactions from which the directors derived an improper personal benefit.
The Company's Certificate of Incorporation exonerates its directors from
monetary liability to the fullest extent permitted by this statutory
provision but does not restrict the availability of non-monetary and other
equitable relief. The Company has been advised that it is the position of the
Commission that insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, that provision is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Director Compensation
Each Director who is not an employee of the Company receives, in addition
to reimbursement for travel expenses, $1,250 for each Board of Directors'
meeting attended and $500 for each committee meeting extended. See
"--Employment Agreements."
Executive Compensation
During the period from inception (July 11, 1995) through December 31,
1995, the Company had no operations and no officer of the Company received
compensation from the Company. In March 1996, the Company and Mr. Gutkowski
entered into an employment agreement pursuant to which Mr. Gutkowski receives
an annual base salary of $325,000 and an annual bonus of at least $150,000.
See "--Employment Agreements."
Employment Agreements
The Company and Robert M. Gutkowski have entered into an employment
agreement dated as of March 21, 1996 pursuant to which Mr. Gutkowski agreed
to serve as the Company's President and Chief Executive Officer for an
initial term of five years. The employment agreement also provides that Mr.
Gutkowski shall serve as a director of each of A&A and SMTI at such time as
the Company causes his election to such positions. The employment agreement
provides that Mr. Gutkowski shall receive an annual base salary of $325,000
plus an annual bonus of at least $150,000 (which bonus may be increased in
the discretion of the Board of Directors of the Company).
The employment agreement provides that the Company may terminate Mr.
Gutkowski's employment agreement prior to the expiration of its term in the
event of his death, disability for a period of 26 consecutive weeks or for
"cause," which, for purposes of the employment agreement, is defined as the
conviction of a felony, the commission of an act of fraud or embezzlement
upon the Company, a material breach by Mr. Gutkowski of his agreement not to
compete with the Company or the wilful malfeasance or gross negligence by Mr.
Gutkowski in the performance of his duties under the employment agreement or
his failure to perform his duties thereunder, which malfeasance, negligence
or failure has a material adverse effect on the business of the Company and
which shall remain uncured for a period of 15 days following written notice
from the Company.
Pursuant to his employment agreement, Mr. Gutkowski has agreed not to
compete with the Company or solicit any of the Company's clients or employees
(the "Prohibited Activities") during the term of the agreement. In addition,
the employment agreement provides that Mr. Gutkowski is prohibited from
engaging in the Prohibited Activities for certain periods of time in the
event he voluntarily terminates his employment agreement, the Company
terminates his employment agreement or the employment agreement is not
extended on substantially similar terms.
The Company will enter into employment agreements upon the closing of this
Offering with each of Messrs. Kaminsky, Letis, Oppenheim and Trager, on
substantially the same terms and conditions as Mr. Gutkowski's employment
agreement with the Company, pursuant to which each such person has agreed to
serve as an Executive Vice President of the Company for an initial term of
five years. In addition, pursuant to such agreements, the Company has agreed
to cause Messrs. Letis and Trager to be elected to the Board of Directors of
SMTI, has agreed to cause Messrs. Kaminsky and Oppenheim to be elected to the
Board of Directors of A&A, and has agreed to use its best efforts to cause
each of such persons to be nominated to serve as a member of the Board of
Directors of the Company. The employment
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<PAGE>
agreements provided that each of Messrs. Kaminsky, Letis and Trager will
receive an annual base salary of $300,000 and the employment agreement with
Mr. Oppenheim provides that he will receive an annual base salary of
$175,000.
1996 STOCK OPTION PLAN
The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 Stock Option Plan (the "Plan"). The Plan, which
provides for grants of non-qualified and incentive stock options to purchase
up to 500,000 shares of Common Stock to eligible employees and consultants,
is designed to attract and retain the best available personnel for the
positions of substantial responsibility, to provide additional incentive to
key employees, officers, and consultants of the Company and its subsidiaries
and to promote the success of the Company's business.
In October 1996, options to purchase an aggregate of 230,000 shares of
Common Stock were granted under the Plan. Of such options, 100,000 have been
granted to 14 employees of the Company and have an exercise price of $5.00
per share, and 130,000 have been granted to the Company's executive officers
and directors (including persons who will become such upon completion of the
Acquisitions) and have an exercise price of $6.25 per share, all of which
options vest in equal annual installments over the four-year period
commencing one year from the date of grant. See "Principal Stockholders."
Each option granted pursuant to the Plan is designated at the time of
grant as either an "Incentive Stock Option" or as a "Non-Qualified Stock
Option." Grants to executive officers may be made only at the fair market
value of the underlying stock on the date of issuance. The issuance of
options at fair market value on grant date constitutes a performance goal
under Section 162(m) of the Internal Revenue Code. The following summary
description of the Plan is qualified in its entirety by reference to the Plan
itself, which is filed as an exhibit to the registration statement of which
this Prospectus is a part.
Administration of the Plan. The Plan is administered by a Stock Option
Committee (the "Committee") which is appointed by the Board of Directors. The
Committee determines who among those eligible will be granted options, the
time or times at which options will be granted, the number of shares to be
subject to options, the duration of options, any conditions to the exercise
of options and the manner in and price at which options may be exercised.
The Plan may be amended without stockholder approval, except stockholder
approval is required to (i) decrease the minimum exercise price for incentive
stock options ("ISOs"); (ii) extend the term of the Plan beyond ten years;
(iii) extend the maximum terms of the options granted thereunder beyond ten
years; (iv) withdraw the administration of the Plan from the Committee; (v)
expand the class of eligible participants; (vi) increase the aggregate number
of shares of Common Stock which may be issued pursuant to the provisions of
the Plan and (vii) change the material terms of the performance goal within
the meaning of Section 162(m) of the Internal Revenue Code.
Unless the Plan is terminated earlier by the Board of Directors, it will
terminate on the earlier of (i) the date when all shares of the Common Stock
reserved for issuance under the Plan have been acquired through the exercise
of options granted thereunder, (ii) July 2006 or (iii) such earlier date as
the Board of Directors may determine.
Shares Subject to the Plan. The Plan provides that options may be granted
with respect to a total of 500,000 shares of Common Stock. Under certain
circumstances involving a change in the number of Common Stock without
receipt by the Company of any consideration therefor, such as a stock split,
stock consolidation or payment of a stock dividend, the class and aggregate
number of shares subject to each outstanding option and the option price per
share will be proportionately adjusted. In addition, if the Company is
involved in a merger, consolidation, dissolution or liquidation, the options
granted under the Plan will be adjusted. If any option expires or terminates
for any reason without having been exercised in full, the unpurchased shares
subject to such option will be available again for the purposes of the Plan.
Participation. Grants under the Plan may be granted to employees and any
other individual who in the judgment of the Committee performs valuable and
important services for the Company. All employees are eligible to participate
in the Plan. Non-employee directors are not eligible to participate in the
Plan.
Option Price. The exercise price of each option will be determined by the
Committee, but in the case of an incentive stock option may not be less than
100% of the fair market value of the shares of Common Stock covered by the
option on the date the option is granted. If an incentive stock option is to
be granted to an employee who owns over 10% of the total combined voting
power of all classes of the
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<PAGE>
Company's stock, then the exercise price may not be less than 110% of the
fair market value of the Common Stock covered by the option on the date the
option is granted. The exercise price of non-qualified stock options may be
any price determined by the Committee; provided that the exercise price of
any grant to any executive officer shall not be lower than the fair market
value of the underlying Common Stock on the date of grant. The issuance of
options at fair market value on the date of grant constitutes a performance
goal under Section 162(m) of the Internal Revenue Code. Accordingly, grants
under the Plan should qualify as performance-based compensation.
Terms of Options. The Committee shall fix the term of each option,
provided that the maximum term of each option shall be ten years. Incentive
stock options granted to an employee who owns 10% of the total combined
voting power of all classes of stock of the Company shall expire not more
than five years after the date of grant. The Plan will provide for the
earlier expiration of options of a participant in the event of certain
terminations of employment. The options must be paid for in United States
currency, or, at the Company's discretion, in shares of the Company's Common
Stock which the optionee already owns.
Restrictions on Grant and Exercise. An option may not be transferred other
than to members of the option holder's family, trusts and charities. Other
transfers are permissible upon the prior written approval of the Committee.
The aggregate fair market value (determined at the time the option is
granted) of the shares as to which an employee may first exercise incentive
stock options in any one calendar year may not exceed $100,000. The Committee
may impose any other conditions to exercise it deems appropriate.
Federal Income Tax Consequences.
Incentive Stock Options: Options granted under the Plan which constitute
ISOs will, in general, be subject to the following Federal income tax
treatment:
(i) The grant of an ISO will give rise to no Federal income tax
consequences to either the Company or the participant.
(ii) A participant's exercise of an ISO will result in no Federal income
tax consequences to the Company.
(iii) A participant's exercise of an ISO will not result in ordinary
Federal taxable income to the participant, but may result in the
imposition of an increase in the alternative minimum tax. If shares
acquired upon exercise of an ISO are not disposed of within the same
taxable year the ISO is exercised, the excess of the fair market value of
the shares at the time the ISO is exercised over the option price is
included in the participant's computation of alternative minimum taxable
income.
(iv) If shares acquired upon the exercise of an ISO are disposed of
within two years of the date of the option grant, or within one year of
the date of the option exercise, the participant will realize ordinary
Federal taxable income at the time of the disposition to the extent that
the fair market value of the shares at the time of exercise exceeds the
option price, but not in an amount greater than the excess, if any, of the
amount realized on the disposition over the option price.
Short-term or long-term capital gain will be realized by the participant
at the time of such a disposition to the extent that the amount of proceeds
from the sale exceeds the fair market value at the time of the exercise of
the ISO. Short-term or long-term capital loss will be realized by the
participant at the time of such a disposition to the extent that the option
price exceeds the amount of proceeds from the sale. If a disposition is made
as described in this section, the Company will be entitled to a Federal
income tax deduction in the taxable year in which the disposition is made in
an amount equal to the amount of ordinary Federal taxable income realized by
the participant. If shares acquired upon the exercise of an ISO are disposed
of after the later of two years from the date of the option grant or one year
from the date of the option exercise, the participant will realize long-term
capital gain or loss in an amount equal to the difference between the amount
realized by the participant on the disposition and the participant's Federal
income tax basis in the shares, usually the option exercise price. In such
event, the Company will not be entitled to any Federal income tax deduction
with respect to the ISO.
Non-Qualified Stock Options ("NQSOs"): Options granted under the Plan
which constitute NQSOs will, in general, be subject to the following Federal
income tax treatment:
(i) The grant of a NQSO will give rise to no Federal income tax
consequences to either the Company or the participant.
(ii) The exercise of an Option will generally result in ordinary Federal
taxable income to the participant in an amount equal to the excess of the
fair market value of the shares at the time of exercise over the option
price.
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<PAGE>
(iii) A deduction from Federal taxable income will be allowed to the
Company in an amount equal to the amount of ordinary income recognized by
the participant, provided the Company deducts and withholds all
appropriate Federal withholding tax.
(iv) Upon a subsequent disposition of shares, a participant will
recognize a short-term or long-term capital gain or loss equal to the
difference between the amount received and the tax basis of the shares,
usually fair market value at the time of exercise.
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CERTAIN TRANSACTIONS
FOUNDERS' STOCK
In connection with the organization of the Company, in July 1995 the
Company sold 333 shares of Common Stock and in August 1995 the Company sold
666 shares of Common Stock, respectively, to Robert M. Gutkowski, the
Company's President and Chief Executive Officer, and to TSC, which is
controlled by Robert F.X. Sillerman, the Company's Chairman, for an aggregate
purchase price of $19,980, or approximately $.01 per share (on a post-Stock
Split basis). In May 1996, the Company sold one share of Common Stock to an
officer of the Company, for a purchase price of $500 or $.01 per share (on a
post-Stock Split basis). In August 1996, the Company increased by means of a
stock split (the "Stock Split") the number of shares held by Mr. Gutkowski to
646,154 shares, TSC to 1,292,308 shares and such officer to 50,000 shares.
PRIVATE PLACEMENT AND CORPORATE INDEBTEDNESS
From January 3, 1996 through June 30, 1996, Robert M. Gutkowski made loans
to the Company in the aggregate principal amount of $362,000, which loans
accrued interest at the rate of 12% per annum and which interest was waived
by Mr. Gutkowski. The funds advanced by Mr. Gutkowski were used by the
Company for working capital purposes. In August 1996, the Company repaid
$125,000 of such amount to Mr. Gutkowski from the proceeds of the Private
Placement and Mr. Gutkowski purchased $115,385 in principal amount of
Debentures through the cancellation of an equal portion of such indebtedness,
which Debentures will automatically convert upon the completion of this
Offering into 115,385 Units. The Company will repay the balance of such
indebtedness plus accrued interest at the rate of 12% per annum to Mr.
Gutowski on January 1, 1998. The investment by Mr. Gutkowski in the Private
Placement was on the same terms as the investments by the non-affiliated
investors, except that Mr. Gutkowski has agreed not to sell the Units
issuable upon conversion of the Debentures or the components thereof during
the two-year period from the closing of this Offering.
From May 15, 1996 through August 12, 1996, TSC incurred expenses and made
loans to the Company in the aggregate principal amount of $196,385, which
indebtedness accrued interest at the rate of 12% per annum and which interest
was waived by TSC, and which were used by the Company for working capital
purposes, including rent payable to TSC. In August 1996, TSC purchased
$230,768 in principal amount of Debentures through the payment of $34,383 and
the cancellation of such indebtedness, which Debentures will automatically
convert upon the completion of this Offering into 230,768 Units. The
investment by TSC in the Private Placement was on the same terms as the
investments by the non-affiliated investors, except that TSC has agreed not
to sell the Units issuable upon conversion of the Debentures or the
components thereof during the two-year period from the closing of this
Offering.
On May 30, 1996, Michael Trager, the Chairman of SMTI and a Director of
the Company, and Michael Letis, the President of SMTI, each of whom will
become an Executive Vice President and Director of the Company upon
completion of the SMTI Acquisition, made a loan to the Company in the
aggregate principal amount of $100,000, which loan accrued interest at the
rate of 12% per annum and which interest was waived by Messrs. Trager and
Letis, and which was used by the Company for working capital purposes. In
August 1996, Messrs. Trager and Letis each purchased $115,385 in principal
amount of Debentures through the payment of an aggregate of $130,770 and the
cancellation of such indebtedness, which Debentures will automatically
convert upon the completion of this Offering into an aggregate of 230,770
Units. The investments by Messrs. Trager and Letis in the Private Placement
were on the same terms as the investments by the non-affiliated investors,
except that Messrs. Trager and Letis have each agreed not to sell the Units
issuable upon conversion of the Debentures or the components thereof during
the two-year period from the closing of this Offering.
On August 6, 1996, Louis J. Oppenheim, the Vice President of A&A and who
will become an Executive Vice President and Director of the Company upon
completion of the A&A Acquisition, made a loan to the Company in the
aggregate principal amount of $33,334, which loan accrued interest at the
rate of 12% per annum and which interest was waived by Mr. Oppenheim, and
which was used by the Company for working capital purposes. In August 1996,
Mr. Oppenheim purchased $57,692 in principal
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amount of Debentures through the payment of $24,358 and the cancellation of
such indebtedness, which Debentures will automatically convert upon the
completion of this Offering into 57,692 Units. The investment by Mr.
Oppenheim in the Private Placement was on the same terms as the investments
by the non-affiliated investors, except that Mr. Oppenheim has agreed not to
sell the Units issuable upon conversion of the Debentures or the components
thereof during the two-year period from the closing of this Offering.
In August 1996, Arthur C. Kaminsky, the President and Chief Executive
Officer of A&A and a Director of the Company and who will become an Executive
Vice President of the Company upon completion of the A&A Acquisition,
purchased $115,385 principal amount of Debentures, which Debentures will
automatically convert upon the completion of this Offering into 115,385
Units. The investment by Mr. Kaminsky in the Private Placement was on the
same terms as the investments by the non-affiliated investors, except that
Mr. Kaminsky has agreed not to sell the Units issuable upon conversion of the
Debentures or the components thereof during the two-year period from the
closing of this Offering.
SMTI ACQUISITION AGREEMENT
The Company, SMTI, Michael Trager, Michael Letis, Robert M. Gutkowski and
TSC have entered into an acquisition agreement amended and restated as of
March 21, 1996 (the "SMTI Acquisition Agreement"), pursuant to which SMTI has
agreed to be merged into a wholly-owned subsidiary of the Company on the date
of closing of this Offering on the terms and conditions set forth in such
agreement. The aggregate purchase price to be paid by the Company to Messrs.
Trager and Letis, the sole stockholders of SMTI, is (i) $8,000,000 cash, of
which $6,500,000 is payable at the closing and an aggregate of $1,500,000
which is payable in five equal annual installments commencing April 1, 1997
and (ii) the issuance to each of Messrs. Trager and Letis of 646,154 shares
of Common Stock. The Company has also agreed to enter into five-year
employment agreements with each of Messrs. Trager and Letis. See "Use of
Proceeds" and "Management--Employment Agreements."
The SMTI Acquisition Agreement provides that the representations and
warranties contained therein shall survive for a period of six months
following the closing, after which time the indemnification obligations for
breaches of representations and warranties will be limited to claims asserted
during such six-month period. Each of Messrs. Trager and Letis has agreed to
indemnify the Company against losses, claims and damages which the Company
may suffer or incur and which arise out of the breach by SMTI or Messrs.
Trager or Letis of any representation, warranty, covenant or agreement in the
SMTI Acquisition Agreement, provided, however, that the amount of each of
Messrs. Trager's and Letis' indemnity shall be limited to $1,000,000. Each of
Mr. Gutkowski and TSC has agreed to indemnify each of Messrs. Trager and
Letis and SMTI from any losses, claims or damages which either such party
shall suffer or incur and which arise out of the breach by Mr. Gutkowski, TSC
or the Company of any representation, warranty, covenant or agreement in the
SMTI Acquisition Agreement, provided that each of Mr. Gutkowski's and TSC's
indemnity shall be limited to $250,000.
From its inception until immediately prior to the completion of the SMTI
Acquisition, SMTI has been treated as a closely-held corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"),
and, therefore, did not pay federal income taxes on amounts earned during
such period. Accordingly, SMTI distributed through dividends to its
shareholders substantially all of its earnings during such period. The SMTI
Acquisition Agreement provides that immediately prior to the closing of the
SMTI Acquisition, SMTI will distribute to Messrs. Trager and Letis by means
of a dividend, an amount equal to 40% of the increase in SMTI's accumulated
adjustments account, as defined in the Code, which amount approximates the
amount the shareholders of SMTI would be expected to pay personally for
income taxes based on such earnings. As of June 30, 1996, the amount of such
distribution would be approximately $335,000.
SMTI has agreed, until the closing of the SMTI Acquisition, not to pay to
either of Messrs. Trager and Letis an annual salary in excess of $300,000 and
not to amend any employment agreement requiring SMTI to pay a salary or bonus
in excess of $50,000 per year. In addition, at the Company's direction, SMTI
has agreed to terminate any employee benefit plans it maintains.
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The closing of the SMTI Acquisition is subject to certain closing
conditions, including (i) the Company completing an initial public offering
or similar private financing providing gross proceeds of at least
$13,800,000, (ii) the employment agreements between each of Messrs. Trager
and Letis and the Company, on the terms set forth under "Business--Employment
Agreements," shall have been entered into and (iii) a legal opinion shall
have been delivered to the effect that the SMTI Acquisition will be
considered a tax-free reorganization to the extent of the receipt of Common
Stock under Section 368(a) of the Code.
A&A ACQUISITION AGREEMENT
The Company, A&A, Arthur C. Kaminsky, Louis J. Oppenheim, Robert M.
Gutkowski and TSC have entered into an acquisition agreement amended and
restated as of March 21, 1996 (the "A&A Acquisition Agreement"), pursuant to
which A&A has agreed to be merged into a wholly-owned subsidiary of the
Company on the date of closing of this Offering on the terms and conditions
set forth in such agreement. The aggregate purchase price to be paid by the
Company to Messrs. Kaminsky and Oppenheim, the sole stockholders of A&A, is
(i) $3,500,000 cash, of which $2,500,000 is payable at the closing and an
aggregate of $1,000,000 which is payable in five equal annual installments
commencing April 1, 1997 and (ii) the issuance to Messrs. Kaminsky and
Oppenheim of an aggregate of 969,231 shares of Common Stock, 646,154 of which
will be issued to Mr. Kaminsky and 323,077 of which will be issued to Mr.
Oppenheim. The Company has also agreed to enter into five-year employment
agreements with each of Messrs. Kaminsky and Oppenheim. See "Use of Proceeds"
and "Management--Employment Agreements."
The A&A Acquisition Agreement provides that the representations and
warranties contained therein shall survive for a period of six months
following the closing, after which time the indemnification obligations for
breaches of representations and warranties will be limited to claims asserted
during such six-month period. Each of Messrs. Kaminsky and Oppenheim has
agreed to indemnify the Company against losses, claims and damages which the
Company may suffer or incur and which arise out of the breach by A&A or
Messrs. Kaminsky or Oppenheim of any representation, warranty, covenant or
agreement in the A&A Acquisition Agreement, provided, however, that the
amount of Messrs. Kaminsky's and Oppenheim's indemnity shall be limited to
$500,000 and $250,000, respectively. Each of Mr. Gutkowski and TSC has agreed
to indemnify each of Messrs. Kaminsky and Oppenheim and A&A from any losses,
claims or damages which either such party shall suffer or incur and which
arise out of the breach by Mr. Gutkowski, TSC or the Company of any
representation, warranty, covenant or agreement in the A&A Acquisition
Agreement, provided that each of Mr. Gutkowski's and TSC's indemnity shall be
limited to $250,000.
A&A has agreed, until the closing of the A&A Acquisition, not to pay to
either of Messrs. Kaminsky and Oppenheim an annual salary in excess of
$300,000 and $175,000, respectively, and not to amend any employment
agreement requiring A&A to pay a salary or bonus in excess of $50,000 per
year, except in certain circumstances. In addition, at the Company's
direction, A&A has agreed to terminate any employee benefit plans it
maintains.
Prior to the closing of the A&A Acquisition, Messrs. Kaminsky and
Oppenheim may withdraw from A&A an aggregate amount of $100,000 if such
amount shall have been recovered from pending lawsuits of A&A. In the event
that such sum shall not have been withdrawn prior to the closing, then
Messrs. Kaminsky and Oppenheim shall be entitled to withdraw such sum as
salary from A&A following the closing from amounts recovered from such
lawsuits.
The closing of the A&A Acquisition is subject to certain closing
conditions, including (i) the Company completing an initial public offering
or similar private financing providing gross proceeds of at least
$13,800,000, (ii) the employment agreements between each of Messrs. Kaminsky
and Oppenheim and the Company, on the terms set forth under
"Business--Employment Agreements," shall have been entered into and (iii) a
legal opinion shall have been delivered to the effect that the A&A
Acquisition will be considered a tax-free reorganization to the extent of the
receipt of Common Stock under Section 368(a) of the Code.
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CONSULTING AGREEMENT WITH SILLERMAN COMMUNICATIONS MANAGEMENT CORPORATION
The Company has entered into a Financial Consulting Agreement with SCMC,
dated as of August 1, 1996 (the "SCMC Agreement"), pursuant to which SCMC has
agreed to serve for a period of six years as the Company's financial
consultant to provide customary financial and advisory services, which
agreement may be renewed by mutual agreement of the Company and SCMC for an
additional period of four years. Robert F.X. Sillerman, the Chairman and a
principal stockholder of the Company, is the Chairman, Chief Executive
Officer and controlling stockholder of SCMC, and Howard J. Tytel, a Director
of the Company, is the Executive Vice President and General Counsel of SCMC.
SCMC has entered into similar agreements with other companies, including
companies in which Mr. Sillerman or his affiliates have substantial
interests. The Company has agreed to pay to SCMC as compensation for its
services under the SCMC Agreement the sum of $30,000 per month from the date
commencing nine months from the closing of this Offering, which amount shall
be increased annually by an amount equal to the percentage increase in the
Consumer Price Index for New York, New York. Under the SCMC Agreement, SCMC
has agreed to perform, or assist the Company in, among other things (i)
production of financial reports and other data for the Company's lenders and
investors and as required under the Securities Act and the Exchange Act, (ii)
assistance with the preparation of the Company's books and records, (iii) the
maintenance of relationships with financial institutions participating in
Company financings, (iv) the design and implementation of the Company's
accounting systems, (v) the purchase, installation and implementation of
computer hardware and software for the Company's accounting systems, (vi) the
implementation of a cash management system, (vii) the establishment of
regularized procedures for the accumulation of cash balances available for
interest and other required debt service payments, (viii) the engagement of
bookkeeping, accounting and other personnel necessary for the implementation
of the Company's accounting systems and (ix) placement of financing. The SCMC
Agreement also provides for the payment to SCMC of certain fees in the event
of any financings or mergers and acquisitions, whether or not such
transactions are originated by SCMC, although such fees are subject to the
approval of the Company's independent directors. The Company will not,
however, make any such payment to SCMC in connection with this Offering or
the Acquisitions and did not make any such payment to SCMC in connection with
the Private Placement. The Company has also agreed to reimburse SCMC for all
reasonable out-of-pocket disbursements incurred by SCMC in connection with
the performance of services under the SCMC Agreement and to indemnify SCMC
and its affiliates for losses, claims, damages or liabilities arising out of
SCMC's performance of its obligations under the SCMC Agreement.
Howard J. Tytel, a Director of the Company, is Of Counsel to the law firm
of Baker & McKenzie, which is counsel in certain matters, including this
Offering, to the Company, SCMC, TSC and certain other affiliates of Mr.
Sillerman, the Chairman of the Company. Baker & McKenzie compensates Mr.
Tytel based upon the fees it receives for providing legal services to the
Company and other clients introduced by Mr. Tytel. Mr. Tytel's primary
employment is as an officer of SCMC.
In January 1996, the Company entered into a month-to-month lease with TSC
providing for a monthly rent of approximately $4,000, which lease was
terminated in September 1996.
STOCKHOLDERS' AGREEMENT
In March 1996, the Company entered into a stockholders' agreement with
each of TSC, Robert M. Gutkowski, Arthur C. Kaminsky, Louis J. Oppenheim,
Michael Trager and Michael Letis (the "Stockholders' Agreement"). The
Stockholders' Agreement generally covers certain corporate governance
matters. Pursuant to the Stockholders' Agreement, TSC is entitled to nominate
two directors to the Company's Board of Directors, Messrs. Kaminsky and
Oppenheim are entitled to nominate one director until the completion of this
Offering and two directors thereafter, Messrs. Trager and Letis are entitled
to nominate one director until the completion of this Offering and two
directors thereafter, and Mr. Gutkowski is entitled to nominate one director.
Each of the stockholder parties to the Stockholders' Agreement (a
"Stockholder") has agreed to vote all of the shares of Common Stock owned by
such person for the election of the directors so nominated and not to take
any action to remove any director so elected (except for the director(s)
nominated by such Stockholder).
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The Stockholders' Agreement will terminate upon the mutual consent of the
parties to such agreement, when there is only one Stockholder bound thereby
or March 21, 2004. In addition, the Stockholders' Agreement will terminate
with respect to a Stockholder if he dies or a guardian is appointed to
oversee his affairs or he holds less than 65% of the shares of Common Stock
beneficially owned by him on the date of the closing of this Offering,
provided that such Stockholder shall remain obligated to vote his shares of
Common Stock in accordance with the terms of the Stockholders' Agreement.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Robert M.
Gutkowski, and has agreed to enter into employment agreements with each of
Messrs. Kaminsky, Letis, Oppenheim and Trager concurrently with the
completion of this Offering. See "Management--Employment Agreements."
GENERAL
The Company believes that transactions between the Company and its
officers, directors and principal stockholders or affiliates thereof have
been on terms no less favorable to the Company than could be obtained from
independent third parties. The Company expects that all future transactions
between the Company and its officers, directors and principal stockholders or
affiliates thereof will be subject to the approval of the Company's
independent directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock, including the Escrow Shares, by (i) each person known by the
Company to own beneficially more than five percent of the outstanding Common
Stock, (ii) each director and each nominee for director of the Company and
(iii) all executive officers and directors of the Company as a group, prior
to this Offering and as adjusted to give effect to the sale of the 3,000,000
Units offered hereby, the completion of the Acquisitions and the conversion
of the Debentures into Units upon the closing of this Offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------ ----------------------
NAME AND ADDRESS BEFORE BEFORE AFTER
OF BENEFICIAL OWNER (1) OFFERING AFTER OFFERING OFFERING OFFERING
----------------------- --------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman (2) .................. 1,292,308(2) 1,523,076(2) 65.0% 16.5%
Robert M. Gutkowski ........................ 646,154(3) 761,539(3) 32.5 8.2
Arthur C. Kaminsky ......................... --(4) 761,539(4) -- 8.2
Louis J. Oppenheim ......................... --(5) 380,768(5) -- 4.1
Michael Letis .............................. --(6) 761,539(6) -- 8.2
Michael Trager ............................. --(7) 761,539(7) -- 8.2
Howard J. Tytel ............................ -- -- -- --
Arthur R. Barron ........................... -- -- -- --
Myles W. Schumer ........................... -- -- -- --
All executive officers and directors of the
Company as a group (four persons before
Offering and ten persons after Offering) . 1,988,462(8) 5,000,000(8) 100.0% 54.1%
</TABLE>
- ------------
(1) The address of each beneficial owner is c/o The Marquee Group, Inc.,
888 Seventh Avenue, 40th Floor, New York, New York. Unless otherwise
noted, the Company believes that all persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Robert F.X. Sillerman, the Chairman of the Company, is the Chairman,
Chief Executive Officer and controlling stockholder of TSC, which
beneficially owns 1,292,308 shares of Common Stock and $230,768
principal amount of Debentures, which will automatically convert into
230,768 Units upon completion of this Offering. Does not include
230,768 shares of Common Stock issuable upon exercise of an equal
number of Warrants, which are not exercisable until one year from the
closing of this Offering. See "Capitalization--Private Placement." Does
not include 40,000 shares of Common Stock issuable upon the exercise of
options which are not exercisable within 60 days.
(3) Mr. Gutkowski is the beneficial owner of $115,385 principal amount of
Debentures, which will automatically convert into 115,385 Units upon
completion of this Offering. Does not include 115,385 shares of Common
Stock which are issuable upon exercise of an equal number of Warrants,
which are not exercisable until one year from the closing of this
Offering. See "Capitalization--Private Placement." Does not include
20,000 shares of Common Stock issuable upon the exercise of options
which are not exercisable within 60 days.
(4) The Company will issue 646,154 shares of Common Stock to Mr. Kaminsky
in connection with the A&A Acquisition. Mr. Kaminsky is the beneficial
owner of $115,385 principal amount of Debentures, which will
automatically convert into 115,385 Units upon completion of this
Offering. Does not include 115,385 shares of Common Stock which are
issuable upon exercise of an equal number of Warrants, which are not
exercisable until one year from the closing of this Offering. See
"Capitalization--Private Placement" and "Certain Transactions--A&A
Acquisition Agreement." Does not include 20,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within
60 days.
(5) The Company will issue 323,076 shares of Common Stock to Mr. Oppenheim
in connection with the A&A Acquisition. Mr. Oppenheim is the beneficial
owner of $57,692 principal amount of Debentures, which will
automatically convert into 57,692 Units upon completion of this
Offering. Does not include 57,692 shares of Common Stock issuable upon
exercise of an equal number of Warrants, which are not exercisable
until one year from the closing of this Offering. See "Capitalization--
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<PAGE>
Private Placement" and "Certain Transactions--A&A Acquisition
Agreement." Does not include 10,000 shares of Common Stock issuable
upon the exercise of options which are not exercisable within 60 days.
(6) The Company will issue 646,154 shares of Common Stock to Mr. Letis in
connection with the SMTI Acquisition. Letis is the beneficial owner of
$115,385 principal amount of Debentures, which will automatically
convert into 115,385 Units upon completion of this Offering. Does not
include 115,385 shares of Common Stock which are issuable upon exercise
of an equal number of Warrants, which are not exercisable until one
year from the closing of this Offering. See "Capitalization--Private
Placement" and "Certain Transactions--SMTI Acquisition Agreement." Does
not include 20,000 shares of Common Stock issuable upon the exercise of
options which are not exercisable within 60 days.
(7) The Company will issue 646,154 shares of Common Stock to Mr. Trager in
connection with the SMTI Acquisition. Mr. Trager is the beneficial
owner of $115,385 principal amount of Debentures, which will
automatically convert into 115,385 Units upon completion of this
Offering. Does not include 115,385 shares of Common Stock which are
issuable upon exercise of an equal number of Warrants, which are not
exercisable until one year from the closing of this Offering. See
"Capitalization--Private Placement" and "Certain Transactions--SMTI
Acquisition Agreement." Does not include 20,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within
60 days.
(8) Does not include 750,000 shares of Common Stock which are issuable upon
exercise of an equal number of Warrants, which are not exercisable
until one year from the closing of this Offering or 137,500 shares of
Common Stock issuable upon the exercise of options which are not
exercisable within 60 days. See "Capitalization--Private Placement" and
"Management--1996 Stock Option Plan."
ESCROW SHARES
The 1,275,000 Escrow Shares are not assignable or transferable. Of the
Escrow Shares,
(i) 425,000 shall be released from escrow if, for the fiscal year ending
December 31, 1997, the Company's income before provision for taxes (the
"Minimum Pretax Income") equals or exceeds $1,400,000;
(ii) 425,000 Escrow Shares (or, if the condition set forth in (i) above
was not met, 850,000 Escrow shares) shall be released, if, for the fiscal
year ending December 31, 1998, the Minimum Pretax Income equals or exceeds
$2,400,000; and
(iii) 425,000 Escrow Shares (or, if the conditions set forth in either
(i) or (ii) were not met, the remaining Escrow Shares) shall be released
if, for the fiscal year ending December 31, 1999, the Minimum Pretax
Income equals or exceeds $3,400,000.
All of the Escrow Shares will be released from escrow if, and only if, one
or more of the following conditions is/are met:
(a) the Closing Price (as defined) of the Company's Common Stock averages
in excess of $15.00 per share for 20 consecutive trading days during the
period from , 1998 until December 31, 1999; or
(b) the Company is acquired by or merged into another entity in a
transaction in which the value of the per share consideration received by
the stockholders of the Company on the date of such transaction equals of
exceeds $15.00 per share.
The Minimum Pretax Income amounts set forth above shall be (i) calculated
exclusive of any extraordinary earnings or charges including, but not limited
to, any charge to income resulting from release of the Escrow Shares, (ii)
derived solely from the businesses owned and operated by the Company
following completion of the Acquisitions and shall not give effect to any
operations relating to businesses or assets acquired after such date, if any,
and (iii) audited by the Company's independent public accountants. The
Closing Price amount set forth above is subject to adjustment in the event of
any stock splits, reverse stock splits or other similar events.
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Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution or total or partial
liquidation of the Company, shall be held in escrow until release of the
Escrow Shares. If the applicable Minimum Pretax Income levels set forth above
have not been met by March 31, 2000 or the applicable Closing Price level set
forth above has not been met by December 31, 1999, the Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
canceled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to operations, which would equal the then fair
market value of such shares. Such charge could substantially increase the
loss or reduce or eliminate the Company's net income for financial reporting
purposes for the period during which such shares are, or become probable of
being, released from escrow. Although the amount of compensation expense
recognized by the Company will not affect the Company's total stockholders'
equity, it may have a negative effect on the market price of the Company's
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 4 of the Notes to the Company's Financial
Statements.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Underwriters and should
not be construed to imply or predict any future earnings by the Company or
any increase in the market price of its securities.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share.
UNITS
Each Unit consists of one share of Common Stock and one Warrant. Each
Warrant entitles the holder thereof to purchase one share of Common Stock.
The Common Stock and Warrants comprising the Units are not transferable
separately until , 1997 or such earlier date (the "Separation Date") as
the Representative shall determine.
COMMON STOCK
Holders of Common Stock have the right to cast one vote for each share
held of record on all matters submitted to a vote of the stockholders,
including the election of directors. Holders of Common Stock are entitled to
receive such dividends, pro rata, based on the number of shares held, when,
as and if declared by the Board of Directors, from funds legally available
therefor, subject to the rights of holders of any outstanding Preferred
Stock. In the event of the liquidation, dissolution or winding up of the
affairs of the Company, all assets and funds of the Company remaining after
the payment of all debts and other liabilities, subject to the rights of the
holders of any outstanding Preferred Stock, shall be distributed, pro rata,
among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive, subscription, cumulative voting or conversion rights,
and there are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock included in the Units offered hereby will be, when issued, fully
paid and non-assessable.
WARRANTS
Each Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $7.50 at any time from the Separation
Date until 5:00 P.M., New York City time, on , 2001. Commencing one year
from the date of this Prospectus, the Warrants are redeemable by the Company
on 30 days' written notice at a redemption price of $.05 per Warrant if the
"closing price" of the Common Stock for any 20 consecutive trading days
ending within five days of the notice of redemption averages in excess of
$11.50 per share. "Closing price" shall mean the closing bid price if listed
in the over-the-counter market on Nasdaq or otherwise or the closing sale
price if listed on the Nasdaq National Market or a national securities
exchange. All Warrants must be redeemed if any are redeemed.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriters and Continental Stock
Transfer & Trust Company, as warrant agent, and will be evidenced by warrant
certificates in registered form. The Warrants provide for adjustment of the
exercise price and for a change in the number of shares issuable upon
exercise to protect holders against dilution in the event of a stock
dividend, stock split, combination or reclassification of the Common Stock or
upon issuance of shares of Common Stock at prices lower than the market price
of the Common Stock, with certain exceptions.
The exercise price of the Warrants was determined by negotiation between
the Company and the Underwriters and should not be construed to be predictive
of or to imply that any price increases in the Company's securities will
occur.
A Warrant may be exercised upon surrender of the Warrant certificate on or
prior to its expiration date (or earlier redemption date) at the offices of
Continental Stock Transfer & Trust Company, the warrant agent, with the form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and non-assessable.
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<PAGE>
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders,
the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants.
UNIT PURCHASE OPTIONS
Upon the closing of this Offering, the Company has agreed to issue to the
Underwriters or their designees the Unit Purchase Options to purchase up to
300,000 Units. These Units will be identical to the Units offered hereby
except that the Warrants included in the Unit Purchase Options will not be
subject to redemption by the Company unless, at the time the Warrants are
called for redemption, the Unit Purchase Options have been exercised and the
underlying Warrants are outstanding. The Unit Purchase Options cannot be
transferred, sold, assigned or hypothecated for two years, except to any
officer of either Underwriter or members of the selling group or their
officers. The Unit Purchase Options are exercisable during the three-year
period commencing two years from the date of this Prospectus at an exercise
price of $ per Unit (150% of the initial public offering price) subject
to adjustment in certain events to protect against dilution. The holders of
the Unit Purchase Options have certain demand and piggyback registration
rights. See "Underwriting."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue this Preferred Stock
in one or more series and to fix the number of shares and the relative
rights, conversion rights, voting rights and terms of redemption (including
sinking fund provisions) and liquidation preferences, without further vote or
action by the stockholders. If shares of Preferred Stock with voting rights
are issued, such issuance could affect the voting rights of the holders of
the Company's Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights.
If the Board of Directors authorizes the issuance of shares of Preferred
Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased by up to the authorized amount.
Issuances of Preferred Stock could, under certain circumstances, have the
effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock. Also, Preferred Stock
could have preferences over the Common Stock (and other series of preferred
stock) with respect to dividend and liquidation rights. The Company currently
has no plans to issue any Preferred Stock.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to the "business combination" statute of the
Delaware Law, an anti-takeover law enacted in 1988. In general, Section 203
of the Delaware Law prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (a) prior to such date the board
of directors of the corporation approved either the "business combination" or
the transaction which resulted in the stockholder becoming an "interested
stockholder," (b) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (c) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an
annual
49
<PAGE>
or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, stock or asset sales
and other transactions resulting in a financial benefit to the "interested
stockholders." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of the corporation's voting stock. Although Section 203 permits the Company
to elect not to be governed by its provisions, the Company to date has not
made this election. Upon closing of this Offering and the registration of its
shares of Common Stock under the Exchange Act, the restrictions imposed by
such statute will apply to the Company and, as a result of the application of
Section 203, potential acquirers of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
9,250,000 shares of Common Stock, of which 1,275,000 are Escrow Shares. Of
these shares, the 3,000,000 shares of Common Stock included in the Units
offered hereby will be freely transferable without restriction or further
registration under the Securities Act, unless purchased by affiliates of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The 4,250,000 shares of Common Stock currently
outstanding (including the shares to be issued in connection with the
Acquisitions) and the 2,000,000 shares of Common Stock included in the Units
issuable upon conversion of the Debentures are "restricted securities" and
may not be sold publicly unless they are registered under the Securities Act
or are sold pursuant to Rule 144 or another exemption from registration. None
of such shares will be eligible for sale in the public market pursuant to
Rule 144 until July 1997, subject to the escrow conditions. In addition,
holders of the outstanding shares of Common Stock have agreed not to sell or
otherwise dispose of any shares of Common Stock, including those issuable
upon conversion of the Debentures, for a period of two years after the
closing of this Offering, except, after consent from the Representative, to
affiliates of such stockholder who agree to be bound by the terms of the
lock-up agreement. See "Principal Stockholders--Escrow Shares" and
"Underwriting."
In general under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially
owned for at least two years that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person who is not an
affiliate and has beneficially owned such shares for at least three years is
entitled to sell such shares without regard to the volume or other resale
requirements.
The Company's existing stockholders (including those persons who will
become stockholders upon completion of the Acquisitions) and the persons who
are to become stockholders upon conversion of the Debentures have demand and
"piggyback" registration rights covering the securities included in the Units
issuable upon conversion of the Debentures. In addition, the Underwriters
also have demand and piggyback registration rights with respect to the
securities underlying the Unit Purchase Options. See "Underwriting."
Prior to this Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
51
<PAGE>
UNDERWRITING
Royce Investment Group, Inc. and Continental Broker-Dealer Corp. (the
"Underwriters"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of Units set forth opposite
their respective names in the table below at the price set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
------------ ---------------
<S> <C>
Royce Investment Group, Inc. ..
Continental Broker-Dealer Corp.
-------------
Total ...................... 3,000,000
=============
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD"), at such price less a
concession of not in excess of $ per Unit, of which a sum not in excess
of $ may in turn be reallowed to other dealers who are members of the
NASD. After the commencement of the Offering, the public offering price, the
concession and the reallowance may be changed by the Underwriters. The
Underwriters are committed to purchase all of the Units offered hereby if any
are purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of the Units offered
hereby, including any Units purchased pursuant to the Underwriters'
over-allotment option, $50,000 of which has been paid to date.
The Company has granted to the Underwriters an option exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price set forth on the cover page of this
Prospectus less underwriting discounts and commissions, up to 450,000
additional Units for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of additional Units proportionate to such
Underwriter's initial commitment.
The Representative has the right to appoint an observer to be present at
the Company's Board of Directors meetings for a period of five years from the
completion of this Offering, although it has not yet selected any such
observer. Such observer may be a director, officer, partner, employee or
affiliate of the Representative.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriters. Upon any exercise of the Warrants after the first
anniversary of the date of this Prospectus, the Company will pay the
Underwriters a fee of 5% of the aggregate Warrant exercise price, if (i) the
market price of the Company's Common Stock on the date the Warrants are
exercised is greater than the then exercise price of the Warrants, (ii) the
exercise of the Warrants was solicited by a member of the NASD and such
solicitation has been designated in writing by the warrantholder, (iii) the
Warrants are not held in a discretionary account, (iv) disclosure of
compensation arrangements was made both at the time of the offering and at
the time of exercise of the Warrants and (v) the solicitation of exercise of
the Warrant was not in violation of Rule 10b-6 promulgated under the Exchange
Act. Rule 10b-6 may prohibit the Underwriters from engaging in any
market-making activities with regard to the Company's securities for the
period from nine business days (or such other applicable period as Rule 10b-6
may provide) prior to any solicitation by the Underwriters of the exercise of
Warrants until the later of the termination of such solicitation activity or
the termination (by waiver or otherwise) of any right that the Underwriters
may have to receive a fee for the exercise of Warrants following such
solicitation. As a result, the Underwriters may be unable to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable.
The Company has agreed to sell to the Underwriters and their designees,
for nominal consideration, the Unit Purchase Options to purchase up to
300,000 Units, substantially identical to the Units offered
52
<PAGE>
hereby, except that the Warrants included therein are not subject to
redemption by the Company unless, on the redemption date, the Unit Purchase
Options have been exercised and the underlying warrants are outstanding. The
Unit Purchase Options will be exercisable during the three-year period
commencing two years from the date of this Prospectus at an exercise price of
$ per Unit, subject to adjustment in certain events, and are not
transferable for a period of two years from the date of this Prospectus
except to officers of the Underwriters or to members of the selling group.
The Company has agreed to register during the four-year period commencing one
year from the date of this Prospectus, on two separate occasions, the
securities issuable upon exercise thereof under the Securities Act, the
initial such registration to be at the Company's expense and the second at
the expense of the holders. The Company has also granted certain "piggyback"
registration rights to holders of the Unit Purchase Options. The Unit Purchase
Options include a provision permitting the holders to elect a cashless exercise.
For the life of the Unit Purchase Option, the holders are given, at
nominal cost, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Unit
Purchase Option at a time when the Company would in all likelihood be able to
obtain equity capital on terms more favorable than those provided in the Unit
Purchase Option.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary
authority.
The Representative acted as placement agent for the Private Placement in
August 1996 for which it received a placement agent fee of $155,000 and a
non-accountable expense allowance of $37,500 and was issued warrants to
purchase $200,000 aggregate principal amount of Debentures at an exercise
price of $200,000, which warrants will be canceled prior to the date of this
Prospectus. In connection with the Private Placement, the Representative also
received a right of first refusal for future financings by the Company, which
right will terminate at the closing of this Offering.
In connection with the Private Placement, the Company entered into an
agreement with the Representative which provides that during the period from
the completion of the Private Placement until the fifth anniversary of the
date of this Prospectus, in the event the Representative originates a merger,
acquisition, joint venture, strategic introduction or other similar
transaction to which the Company is a party, the Representative will be
entitled to receive a finder's fee in consideration for origination of such
transaction. The fee is based on a percentage of the consideration paid in
the transaction ranging from 7% of the first $1,000,000 to 2-1/2% of any
consideration in excess of $9,000,000.
Prior to this Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the offering price of the Units
offered hereby and the terms of the Warrants have been determined by
negotiation between the Company and the Underwriters and are not necessarily
related to the Company's asset value, net worth or other established criteria
of value. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, include the history of and the
prospects for the industry in which the Company competes, the present state
of the Company's development and its future prospects, an assessment of the
Company's management, the Company's capital structure, the general condition
of the securities markets and such other factors as were deemed relevant.
53
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Baker & McKenzie, New York, New York. Howard J. Tytel, a Director
of the Company and Executive Vice President and General Counsel of TSC, a
principal stockholder of the Company, is Of Counsel to Baker & McKenzie. See
"Management," "Principal Stockholders" and "Certain Transactions." Certain
legal matters related to this Offering will be passed upon for the
Underwriters by Bachner, Tally, Polevoy & Misher LLP, New York, New York.
EXPERTS
The financial statements of The Marquee Group, Inc. as of December 31,
1995 and for the period from July 11, 1995 (Inception) to December 31, 1995,
the financial statements of Sports Marketing & Television International, Inc.
as of December 31, 1995 and for the year then ended and the financial
statements of Athletes and Artists, Inc. as of December 31, 1995 and for the
year then ended, each appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon, appearing elsewhere herein and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of Sports Marketing & Television International,
Inc. for the year ended December 31, 1994 and the financial statements of
Athletes and Artists, Inc. for the year ended December 31, 1994, each
appearing in this Prospectus and Registration Statement, have been audited by
Scott Gildea CPA, independent auditor, as set forth in his reports thereon,
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of Mr. Gildea as an expert in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form SB-2 under the Securities Act with
the Commission in Washington, D.C. with respect to the Units offered hereby.
This Prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company and
the Units offered hereby, reference is hereby made to the Registration
Statement and such exhibits, which may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison (Suite
1400), Chicago, Illinois 60661. Copies of such material may also be obtained
at prescribed rates from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
54
<PAGE>
THE MARQUEE GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
THE MARQUEE GROUP, INC.
Report of Independent Auditors ............................................................ F-2
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited) ...................... F-3
Statements of Operations for the period from July 11, 1995 (inception)
to December 31, 1995 and the six months ended June 30, 1996 (unaudited) ................. F-4
Statements of Stockholders' Equity for period from July 11, 1995 (inception)
to December 31, 1995 and the six months ended June 30, 1996 (unaudited) ................. F-5
Statements of Cash Flows for the period from July 11, 1995 (inception)
to December 31, 1995 and the six months ended June 30, 1996 (unaudited) ................. F-6
Notes to Financial Statements ............................................................. F-7
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
Report of Independent Auditors ............................................................ F-12
Report of Independent Auditor ............................................................. F-13
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited) ...................... F-14
Statements of Operations and Retained Earnings (Accumulated Deficit) for the years ended
December 31, 1994 and 1995 and for the six months ended
June 30, 1995 and 1996 (unaudited) ....................................................... F-15
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and 1996 (unaudited) .......................................... F-16
Notes to Financial Statements ............................................................. F-17
ATHLETES AND ARTISTS, INC.
Report of Independent Auditors ............................................................ F-20
Report of Independent Auditor ............................................................. F-21
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited) ...................... F-22
Statements of Operations and Retained Earnings for the years ended December 31, 1994 and
1995 and for the six months ended June 30, 1995 and 1996 (unaudited) ..................... F-23
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and 1996 (unaudited) .......................................... F-24
Notes to Financial Statements ............................................................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
The Marquee Group, Inc.
We have audited the accompanying balance sheet of The Marquee Group, Inc.
(the "Company") as of December 31, 1995, and the related statements of
operations and cash flows for the period from July 11, 1995 (Inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Marquee Group, Inc.
at December 31, 1995 and the results of its operations and its cash flows for
the period from July 11, 1995 (Inception) to December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
July 23, 1996
F-2
<PAGE>
THE MARQUEE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ------------------------------------------------
PRO FORMA FOR
PRO FORMA FOR OFFERING AND
HISTORICAL PRIVATE PLACEMENT ACQUISITIONS
------------ ----------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(Note 3) (Notes 3 and 4)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ..................................... $19,980 $ 103,979 $1,388,594 $ 5,129,435
Accounts receivable ...................... -- -- -- 2,095,851
Other current assets ..................... -- -- -- 164,365
----------------- ------------ ----------------- ---------------
Total current assets .................... 19,980 103,979 1,388,594 7,389,651
Deferred financing costs .................. -- -- 250,000 --
Property and equipment, net ............... -- -- -- 141,678
Other assets .............................. -- -- -- 12,852
----------------- ------------ ----------------- ---------------
$19,980 $ 103,979 $1,638,594 $ 7,544,181
================= ============ ================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses payable to related party
and accounts payable .................... $ -- $ 70,000 $ 70,000 $ 1,771,447
Loans payable to related parties ........ -- 465,385 -- --
Acquisition indebtedness -- current
portion ................................. -- -- -- 394,000
Other current liabilities ................ -- -- -- 116,469
----------------- ------------ ----------------- ---------------
Total current liabilities ............... 535,385 70,000 2,281,916
Debentures -- net ......................... -- -- 2,000,000 --
Loan payable to related party ............. -- 121,615 121,615 121,615
Acquisition indebtedness -- selling
stockholders, net ........................ -- -- -- 1,576,000
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized, none issued -- -- -- --
Common stock, $.01 par value; 25,000,000
shares authorized, 1,938,462 (1995) and
1,988,462 (1996) shares issued and
outstanding (Note 4) .................... 19,385 19,885 19,885 92,500
Additional paid-in capital ............... 595 595 595 5,545,651
Accumulated deficit ...................... -- (573,501) (573,501) (2,073,501)
----------------- ------------ ----------------- ---------------
19,980 (553,021) (553,021) 3,564,650
----------------- ------------ ----------------- ---------------
$19,980 $ 103,979 $1,638,594 $ 7,544,181
================= ============ ================= ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
-------------------------------- ------------------------------
FOR THE PERIOD
FROM JULY 11,
1995
(INCEPTION) TO PRO FORMA FOR PRO FORMA FOR
DECEMBER 31, OFFERING AND OFFERING AND
1995 ACQUISITIONS HISTORICAL ACQUISITIONS
--------------- --------------- ------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(Note 3) (Note 3)
<S> <C> <C> <C> <C>
Revenues .............................
Commissions and fee income .......... $ -- $10,110,379 $ 800,895 $7,329,177
Income from joint ventures .......... -- 231,448 -- --
--------------- --------------- ------------- ---------------
-- 10,341,827 800,895 7,329,177
Operating expenses ................... -- 5,549,887 666,796 4,662,385
General and administrative expenses . -- 3,129,710 707,600 2,553,385
--------------- --------------- ------------- ---------------
Income (loss) from operations ....... -- 1,662,230 (573,501) 113,407
Interest income/(expense) ............ -- (88,457) -- (47,572)
--------------- --------------- ------------- ---------------
Income (loss) before income taxes ... -- 1,573,773 (573,501) 65,835
Income tax provision ................. -- 784,000 -- (34,313)
Net income (loss) .................... $ -- $ 789,773 $ (573,501) $ 31,522
--------------- --------------- ------------- ---------------
Net income (loss) per share .......... $ -- $ .10 $ (.17) $ --
=============== =============== ============= ===============
Weighted average common stock and
common stock equivalents outstanding 3,400,000 7,975,000 3,400,000 7,975,000
=============== =============== ============= ===============
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF COMMON ADDITIONAL ACCUMULATED
SHARES STOCK PAID-IN CAPITAL DEFICIT TOTAL
----------- ---------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock ............ 1,938,462 $ 19,385 $ 595 $ -- $ 19,980
----------- ---------- --------------- ------------- ------------
Balance --December 31, 1995 ......... 1,938,462 $ 19,385 $ 595 $ -- $ 19,980
Issuance of common stock ............ 50,000 500 -- -- 500
Net loss for the six months ended
June 30, 1996 ...................... -- -- -- (573,501) (573,501)
----------- ---------- --------------- ------------- ------------
Balance --June 30, 1996 (unaudited) 1,988,462 $ 19,885 $ 595 $(573,501) $ (553,021)
=========== ========== =============== ============= ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 11, 1995
(INCEPTION) TO DECEMBER SIX MONTHS ENDED
31, 1995 JUNE 30, 1996
----------------------- ----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................ $ -- $ (573,501)
Adjustment to reconcile net loss to net cash used in
operating activities:
Non-cash compensation .............................. -- 500
Changes in operating assets and liabilities:
Accrued expenses payable to related party ......... -- 70,000
----------------------- ----------------
Net cash (used in) operating activities .......... -- (503,001)
FINANCING ACTIVITIES:
Proceeds from loans payable to related parties ..... -- 587,000
Proceeds from issuance of common stock .............. 19,980 --
----------------------- ----------------
Net cash provided by financing activities ........ 19,980 587,000
Net increase in cash ................................ 19,980 83,999
Cash at beginning of period ......................... -- 19,980
----------------------- ----------------
Cash at end of period ............................... $ 19,980 $ 103,979
======================= ================
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 1996 IS UNAUDITED)
NOTE 1 --ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND ORGANIZATION
The Marquee Group, Inc. (the "Company"), which began operations in 1996,
was organized in the State of Delaware on July 11, 1995 for the purpose of
providing comprehensive management, marketing, consulting and production
services to the sports and entertainment industries.
INCOME TAXES
The Company accounts for income taxes using the liability method.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires compensation
expense to be recorded (i) using the new fair value method or (ii) using
existing accounting rules prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to continue to account for its stock based compensation plans
in accordance with the provisions of APB 25.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share is based on the average number of shares of common
stock and common stock equivalents outstanding during the year. Shares of
common stock to be placed in escrow upon completion of the proposed public
offering described in Note 4, which are common stock equivalents, have been
excluded from the calculation of earnings per share. Common stock issued
within a one year period prior to the initial filing of a registration
statement relating to an initial public offering at amounts substantially
below the public offering price, principally the shares of common stock to be
issued upon the automatic conversion of the Debentures (see Note 3), is
considered outstanding for all periods presented. In addition, all shares
have been adjusted to give effect to the stock split discussed in Note 2. The
supplemental pro forma average number of shares of common stock and common
stock equivalents outstanding include, in addition to the average number of
shares of common stock outstanding as described above, the shares issuable
upon the completion of the proposed public offering.
INTERIM FINANCIAL INFORMATION
Financial information as of and for the six months ended June 30, 1996 is
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of the results for such period have been included; all
adjustments are of a normal and recurring nature. Interim results are not
necessarily indicative of results for a full year.
F-7
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 --STOCKHOLDERS' EQUITY
COMMON STOCK
On July 17, 1996, the Board of Directors and stockholders of the Company
approved an increase in the authorized capitalization of the Company to
25,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.01 per share. Furthermore, in August
1996 the Board of Directors and stockholders of the Company approved a stock
split whereby 999 shares of the 1,000 shares of common stock outstanding at
that time were split on the basis of approximately 1,940-for-1 and the
remaining one share of common stock outstanding at that time was split on the
basis of 50,000-for-1. All share information in the financial statements has
been restated to reflect such stock split.
NOTE 3 --PRIVATE PLACEMENT (UNAUDITED)
In August 1996, the Company issued debentures (the "Debentures"), in the
aggregate principal amount of $2,000,000, each Debenture consisting of
$50,000 principal amount of 6% Convertible Debentures due June 30, 1999. The
Debentures shall, upon completion of the initial public offering of the
Company's securities (the "IPO"), be automatically converted into Units (see
Note 4) identical in all respects to those offered in the IPO at a rate of
one Unit for each $1.00 principal amount of Debentures plus, if applicable,
accrued interest.
Stockholders of the Company and stockholders of SMTI and A&A (the
"Stockholder Purchasers") (see Note 4) purchased an aggregate of $750,000
principal amount of Debentures, of which $445,103 was in exchange for
existing indebtedness of the Company to such stockholders ($340,385 was
outstanding at June 30, 1996). In addition, the Company repaid $125,000 to
one of the stockholders from the proceeds of the private placement.
In connection with the issuance of $750,000 principal amount of the
Debentures to the Stockholder Purchasers, the Company will record a non-cash
compensation charge estimated to be $1,500,000 during the quarter in which
the closing of this Offering occurs which represents the difference between
the fair value of the Units issuable to the Stockholder Purchasers upon the
automatic conversion of the Debentures as of the date of the purchase of the
Debentures (estimated by management to be $3.00 per Unit), and the principal
amount of such indebtedness. No charge will be recorded by the Company with
respect to the sale of the Debentures to the other purchasers thereof.
The pro forma balance sheet at June 30, 1996, as adjusted for the private
placement, gives effect to the following:
o The $2,000,000 private placement;
o Deferred financing costs of $250,000, comprised of fees and expenses in
connection with the private placement (to be amortized over the period
that the debentures are outstanding); and
o The exchange of stockholder loans of $340,385 (from the Stockholder
Purchasers) for Debentures and the repayment of $125,000 to a
stockholder of the Company from the proceeds of the private placement.
NOTE 4 --PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED)
In June 1996, the Company entered into a letter of intent for the initial
public offering of 3,000,000 units (the "IPO Units"), each unit consisting of
one share of common stock and one redeemable warrant, at an assumed initial
public offering price of $5.00 per IPO Unit, less applicable discounts and
commissions. Each warrant will entitle the holder to purchase one share of
common stock at an exercise price of $7.50, subject to adjustment, for a
period up to five years from the date the common stock and warrants are
separately transferable. The warrants are redeemable by the Company under
certain circumstances at a redemption price of $.05 per warrant.
F-8
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 --PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
The Company has granted the underwriters of the initial public offering
an option to purchase up to an additional 450,000 IPO Units at the offering
price, solely to cover over-allotment in the sale of the IPO Units.
The Company has also agreed to grant to the underwriters or their
designees options (the "Unit Purchase Options") to purchase up to 300,000
units. The units purchasable upon exercise of the Unit Purchase Options are
identical to the units described above, except that the underlying warrants
are redeemable only by the Company under limited circumstances. The Unit
Purchase Options are exercisable during a three-year period commencing two
years from the date of the public offering at an exercise price of 150% of
the initial public offering price, subject to adjustment in certain events.
The Company has also entered into an agreement with Royce Investment
Group, Inc. ("Royce") whereby Royce will be paid a fee in connection with
various types of financial transactions entered into by the Company for a
period of five years from the date of the public offering.
Certain of the Company's stockholders and the stockholders of SMTI and A&A
have placed or have agreed to place an aggregate of 1,275,000 of their shares
of common stock in escrow. These shares will not be assignable or
transferable (but may be voted) until such time as they are released from
escrow based upon the Company meeting certain annual earnings levels or the
common stock attaining certain price levels. All reserved shares remaining in
escrow on March 31, 2000 will be forfeited and contributed to the Company's
capital. In the event the Company attains any of the earnings thresholds or
stock prices providing for the release of the escrow shares to the
stockholders, the Company will recognize compensation expense at such time
based on the fair market value of the shares.
On March 21, 1996 the Company entered into agreements with Sports
Marketing & Television International, Inc. ("SMTI") and Athletes and Artists,
Inc. ("A&A"), pursuant to which the Company agreed to acquire by merger SMTI
and A&A concurrently with the completion of the IPO. The SMTI stockholders
will receive cash of $6,500,000 from the offering, an additional $1,500,000
payable over five years and 1,292,307 shares of the Company's common stock.
The A&A stockholders will receive cash of $2,500,000 from the offering, an
additional $1,000,000 payable over five years and 969,231 shares of the
Company's common stock.
The acquisition by merger of each of SMTI and A&A will be accounted for as
a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of these companies
following completion of the Acquisitions. Accordingly, the acquired assets
and liabilities of SMTI and A&A will be recorded at their historical amounts.
The capital stock of SMTI and A&A will be included in additional paid-in
capital. The cash to be paid to the SMTI and A&A stockholders will be
recorded as a reduction to additional paid-in capital.
The pro forma balance sheet at June 30, 1996 as adjusted for the proposed
initial public offering, conversion of the Debentures and acquisitions gives
effect to the following:
o The receipt of $12,800,000 (net of expenses of $2,200,000) from the
sale of 3,000,000 IPO Units at an assumed initial public offering price
of $5 per IPO Unit;
o The June 30, 1996 assets and liabilities and equity of SMTI and A&A at
their historical amounts as follows:
F-9
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 --PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
SMTI A&A
------------- -----------
<S> <C> <C>
Current assets ....... $ 2,067,000 $ 469,000
Non current assets .. 76,000 79,000
------------- -----------
$ 2,143,000 $ 548,000
============= ===========
Current liabilities . $ 1,382,000 $ 436,000
Stockholders' equity 761,000 112,000
------------- -----------
$ 2,143,000 $ 548,000
============= ===========
</TABLE>
o The payments of $6,500,000 and $2,500,000 to the stockholders of SMTI
and A&A, respectively, and the indebtedness of $1,500,000 and
$1,000,000 (including imputed interest of $530,000) to such
stockholders in connection with the acquisitions;
o The issuance of 2,000,000 Units, each consisting of one share of common
stock and one warrant, upon the conversion of the Debentures, the
write-off of $250,000 of deferred financing costs and the estimated
non-cash compensation charge to operations of $1,500,000; and
o The payment of an S Corporation distribution ($335,000 at June 30,
1996) to the SMTI stockholders representing 40% of the taxable earnings
of SMTI prior to the proposed initial public offering.
The pro forma statements of operations for the year ended December 31,
1995 and for the six months ended June 30, 1996 as adjusted for the proposed
public offering and acquisitions include adjustments for the following
transactions as if they had each occurred on January 1, 1995.
o The merger of Marquee's results with the revenues and expenses of SMTI
and A&A for the year ended December 31, 1995 and for the six months
ended June 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
------------------------------
SMTI A&A
-------------- --------------
<S> <C> <C>
Revenues ....................... $ 4,735,000 $ 1,793,000
Costs and expenses ............. (3,917,000) (1,919,000)
------------- -------------
Income (loss) before taxes .... 818,000 (126,000)
Income tax (provision) benefit (94,000) 58,000
------------- -------------
Net income (loss) .............. $ 724,000 $ (68,000)
============= =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
SMTI A&A
------------- -------------
<S> <C> <C>
Revenues ............... $ 6,495,000 $ 3,846,000
Costs and expenses .... (6,402,000) (3,770,000)
------------- -------------
Income before taxes ... 93,000 76,000
Income tax (provision) (9,000) (77,000)
------------- -------------
Net income (loss) ...... $ 84,000 $ (1,000)
============= =============
</TABLE>
o The terms of new employment contracts with key executives of SMTI and
A&A which provide for salaries which are $1,370,000 less than their
historical salaries for the year ended December 31, 1995 and the
reduction of benefit expenses of $140,000 for the termination of the
employee benefit plans. Pursuant to the acquisition agreements, the key
executives of SMTI and A&A have reduced their salaries and committed to
terminate the employee benefit plans for the six-month period ended
June 30, 1996 (therefore no pro forma adjustment is required); and
F-10
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 --PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
o Upon the proposed public offering, the status of SMTI as an S
Corporation will be terminated and accordingly, SMTI will be subject
to federal and local income taxes. The pro forma statement of
operations reflect income taxes based upon the income of SMTI as if
SMTI had not been an S Corporation.
NOTE 5 --STOCK OPTION PLAN
The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 Stock Option Plan (the "Plan"). The Plan provides
for the grant, at the discretion of the Board of Directors, of (i) options
that are intended to qualify as incentive stock options ("ISOs") within the
meaning of Section 422A of the Internal Revenue Code to certain employees and
consultants and (ii) options not intended to so qualify ("NQSOs") to
employees and consultants. The total number of shares of common stock for
which options may be granted under the Plan is 500,000 shares. No options
have been granted under the Plan.
The Plan is to be administered by the Board of Directors or a committee
appointed by the Board of Directors, which will determine the terms of the
options, including the exercise price, the number of shares subject to the
options and the terms and conditions of exercise.
In connection with the stock option plan, the Company has reserved 500,000
shares of common stock for future issuance.
NOTE 6 --RELATED PARTY TRANSACTIONS
At June 30, 1996, the Company has loans payable of $465,385 to
stockholders and stockholders of SMTI which are due on demand with interest
at 12% per annum (see Note 3) and $121,615 to a stockholder which is due on
January 1, 1998 with interest at 12% per annum, as well as accrued rent and
other expenses of $70,000 payable to The Sillerman Companies, Inc.
NOTE 7 --COMMITMENTS
During March 1996, the Company entered into a five-year employment
agreement with a key executive that provides for an annual base salary plus
bonus aggregating $475,000 per year.
During May 1996, the Company entered into a three-year employment
agreement with a key executive that provides for an annual base salary
ranging from $250,000 to $350,000 per year. Upon entering into the employment
agreement, the Company issued one share of common stock to this employee.
Furthermore, the Company agreed that prior to the proposed public offering
(see Note 4), the employee's one share would be converted into 50,000 shares
of common stock, contingent upon the employee remaining with the Company for
fifteen months subsequent to the public offering. The Company will recognize
non-cash compensation expense of approximately $118,750 over the vesting
period.
During August 1996, the Company entered into a six-year consulting
agreement with Sillerman Communications Management Corporation, which is
controlled by Robert F.X. Sillerman, the Chairman of the Company and the
controlling stockholder of The Sillerman Companies, Inc., a principal
stockholder of the Company, that provides for a monthly fee of $30,000
commencing nine months from the closing of the proposed public offering. The
monthly fee shall be increased annually by the percentage increase in the
consumer price index.
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Sports Marketing & Television International, Inc.
We have audited the accompanying balance sheet of Sports Marketing &
Television International, Inc. (the "Company") as of December 31, 1995 and
the related statement of operations and retained earnings (accumulated
deficit) and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sports Marketing &
Television International, Inc. at December 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
April 3, 1996
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To the Stockholders of
Sports Marketing & Television International, Inc.
I have audited the accompanying statements of operations and retained
earnings (accumulated deficit) and cash flows of Sports Marketing &
Television International, Inc. (the "Company") for the year ended December
31, 1994. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, changes in retained
earnings (accumulated deficit) and cash flows of Sports Marketing &
Television International, Inc. for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
SCOTT GILDEA CPA
New York, New York
January 24, 1996
F-13
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................ $ -- $ 253,920
Accounts receivable ............................. 391,352 1,740,091
Due from Celebrity Golf Championship, LLC ...... 186,500 --
Due from stockholders ........................... 56,909 56,909
Employee loan receivable ........................ 5,000 5,000
Prepaid expenses ................................ 17,987 11,522
-------------- ------------
Total current assets ......................... 657,748 2,067,442
Property and equipment, net ...................... 39,674 74,563
Deposits ......................................... 985 985
-------------- ------------
$698,407 $2,142,990
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft .................................. $438,651 $ --
Accounts payable and accrued liabilities ....... 141,044 1,209,499
Accrued pension payable ......................... 76,298 73,256
Income taxes payable ............................ 5,637 99,637
-------------- ------------
Total current liabilities .................... 661,630 1,382,392
Stockholders' equity:
Common stock, no par value, 5,000 shares
authorized, 4,000 shares issued and outstanding 1,000 1,000
Retained earnings ................................ 35,777 759,598
-------------- ------------
36,777 760,598
-------------- ------------
$698,407 $2,142,990
============== ============
</TABLE>
See accompanying notes.
F-14
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Fee income ..................................... $6,047,789 $6,263,892 $3,143,157 $4,734,836
Income from joint venture companies ............ 262,715 231,448 -- --
------------ ------------ ------------ ------------
6,310,504 6,495,340 3,143,157 4,734,836
Operating expenses .............................. 4,322,942 4,080,477 2,169,507 3,229,525
General and administrative expenses ............. 1,101,451 911,393 361,468 479,928
------------ ------------ ------------ ------------
Income from operations before officers' salaries 886,111 1,503,470 612,182 1,025,383
Officers' salaries .............................. 988,533 1,420,000 710,000 212,500
Interest income, net ............................ 8,035 9,972 5,543 4,938
------------ ------------ ------------ ------------
Income (loss) before income taxes ............... (94,387) 93,442 (92,275) 817,821
Income tax (provision) benefit .................. (250) (9,000) 8,000 (94,000)
------------ ------------ ------------ ------------
Net income (loss) ............................... (94,637) 84,442 (84,275) 723,821
Retained earnings (accumulated deficit) at
beginning of period ............................ 45,972 (48,665) (48,665) 35,777
------------ ------------ ------------ ------------
Retained earnings (accumulated deficit) at end
of period ...................................... $ (48,665) $ 35,777 $ (132,940) $ 759,598
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-15
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------------------
1994 1995 1995 1996
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................ $ (94,637) $ 84,442 $ (84,275) $ 723,821
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization .............. 13,300 31,667 7,918 9,411
Equity in earnings of joint venture
companies ................................. (262,715) (231,448) -- --
Changes in operating assets and liabilities:
Accounts receivable ......................... (5,490) (188,858) (1,405,062) (1,348,738)
Due from Celebrity Golf Championship, LLC . -- -- -- 186,500
Prepaid expenses ............................ 10,900 (9,832) -- 6,464
Accounts payable and accrued liabilities ... (185,303) 63,029 1,826,885 1,068,455
Due to Celebrity Golf Championship, LLC .... -- -- 150,000 --
Deferred income ............................. (31,250) -- -- --
Accrued pension payable ..................... 2,007 (4,088) -- (3,042)
Income taxes payable ........................ -- 5,637 (8,000) 94,000
----------- ----------- ------------- -------------
Net cash provided by (used in) operating
activities .................................. (553,188) (249,451) 487,466 736,871
INVESTING ACTIVITIES:
Distribution received from joint venture
companies ................................... 263,417 53,338 3,038 --
Purchase of property and equipment ........... (37,281) (25,448) (20,447) (44,300)
----------- ----------- ------------- -------------
Net cash (used in) provided by
investing activities ........................ 226,136 27,890 (17,409) (44,300)
FINANCING ACTIVITIES:
Bank overdraft ............................... 217,090 221,561 (217,090) (438,651)
----------- ----------- ------------- -------------
Net increase (decrease) in cash .............. (109,962) -- 252,967 253,920
Cash at beginning of period .................. 109,962 -- -- --
----------- ----------- ------------- -------------
Cash at end of period ........................ $ -- $ -- $ 252,967 $ 253,920
=========== =========== ============= =============
</TABLE>
See accompanying notes.
F-16
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1 --SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Sports Marketing & Television International, Inc. ("SMTI" or the
"Company") was organized in the State of Connecticut on January 1, 1984. The
Company provides marketing, production and consulting services in the sport
and entertainment industry.
REVENUE RECOGNITION
The Company recognizes income from marketing and consulting services,
principally related to production and other promotional services. Fee revenue
from production services (television, broadcast and video) is recognized when
the program is available for broadcast. Licensing, sponsorship and
merchandise revenues are recognized for guaranteed amounts when contractual
obligations thereunder are met (subsequent royalties are recorded when
received). Fee revenue from advertising services is recognized in the month
the advertisement is broadcast or printed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of furniture,
fixtures and office equipment is computed using an accelerated method over
estimated useful lives ranging from five to seven years. Leasehold
improvements are amortized using the straight-line method over the life of
the lease.
INCOME TAXES
The Company has elected to be taxed as an S Corporation. Accordingly, all
items of income, losses and credits are reported by the stockholders on their
respective personal income tax returns. Accordingly, no provision for federal
income taxes has been made in the accompanying financial statements. A
provision for state income taxes has been provided for the jurisdiction in
which S Corporation status is not recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The unaudited interim information as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 has been prepared on the same basis as
the annual financial statements and, in the opinion of the Company's
management, reflects normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. Interim results
are not necessarily indicative of results for a full year.
F-17
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 --PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment . $ 169,681 $ 213,981
Leasehold improvements .................... 15,000 15,000
----------------- ---------------
184,681 228,981
Accumulated depreciation and amortization (145,007) (154,418)
----------------- ---------------
$ 39,674 $ 74,563
================= ===============
</TABLE>
NOTE 3 --LOANS TO STOCKHOLDERS
At December 31, 1995 and June 30, 1996, SMTI has loans receivable from the
stockholders of SMTI in the aggregate amount of $56,909. The loans are due on
demand and are noninterest-bearing.
NOTE 4 --PENSION PLAN
The Company has a noncontributory target benefit plan. The plan is
administered as a defined contribution plan in that each participant is
limited to a defined contribution amount annually. The contributions are
calculated on a target basis for a retirement benefit in a manner similar to
a defined benefit plan. Pension expense was $84,474, $80,386 and $28,750 for
the years ended December 31, 1994 and 1995 and the six month period ended
June 30, 1995, respectively. There was no pension expense for the six months
ended June 30, 1996. In accordance with the acquisition agreement (see Note
7), it is the Company's intention to terminate such noncontributory target
benefit plan.
NOTE 5 --COMMITMENTS
SMTI rents office space on a month-to-month basis. Total office rent
expense was $65,300, $61,000, $27,450 and $ 28,750 for the years ended
December 31, 1994 and 1995 and the six-month periods ended June 30, 1995 and
1996, respectively. The Company also rents automobiles under various
noncancellable personal property leases. All leases are accounted for as
operating leases. The aggregate minimum rental commitment for these leases
subsequent to December 31, 1995 is $22,194.
NOTE 6 --INVESTMENT IN JOINT VENTURE COMPANIES
During 1990, SMTI invested $10,000 for a 16.667% interest in Celebrity
Golf Associates ("CGA"), a general partnership which produces celebrity golf
events. The Company recorded its investment in the partnership on the equity
method and, accordingly, the Company's investment was increased or decreased
by its proportionate share of the partnership's income or losses,
respectively.
On July 6, 1995, SMTI and NBC, another general partner, withdrew from CGA.
In connection with the withdrawal agreement, NBC became the exclusive and
sole owner of the Celebrity Golf Championship Tournament. NBC and SMTI were
released from all liability of the original partnership effective January 1,
1995. As such, SMTI's investment in the partnership was liquidated.
Subsequent to the withdrawal, effective as of January 1, 1995, NBC and
SMTI formed a limited liability corporation, Celebrity Golf Championship, LLC
("CGC"). The purpose of the CGC is to conduct the annual golfing tournament
currently known as The Celebrity Golf Championship. Earnings are allocated to
each party based on specified profit/loss allocation percentages in the LLC
agreement. All profits from each event will be distributed.
F-18
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 --INVESTMENT IN JOINT VENTURE COMPANIES (Continued)
Condensed financial information of the CGC and CGA is as follows:
<TABLE>
<CAPTION>
CGC
---------------------
DECEMBER 31, 1995
---------------------
<S> <C>
Due from NBC Sports Ventures $ 186,500
------------
Due to SMTI .................. $ (186,500)
============
</TABLE>
<TABLE>
<CAPTION>
CGA CGC
------------- -------------
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Revenues ........... $ 4,863,068 $ 2,975,600
Costs and expenses (3,153,120) (2,028,300)
------------- -------------
Net income ......... $ 1,709,948 $ 947,300
============= =============
</TABLE>
The celebrity golf events are held in July and, therefore, results of CGA
and CGC for the six-month periods ended June 30, 1995 and 1996 are not
significant.
NOTE 7 --OTHER MATTERS
One client accounted for 78% and 75% of the Company's revenue for the
years ended December 31, 1994 and 1995, respectively.
On March 21, 1996, the stockholders of the Company agreed to be acquired
by The Marquee Group, Inc., ("Marquee"), subject to, among other matters, the
completion of an initial public offering of Marquee's securities.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Athletes and Artists, Inc.
We have audited the accompanying balance sheet of Athletes and Artists,
Inc. (the "Company") as of December 31, 1995 and the related statement of
operations and retained earnings and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Athletes and Artists,
Inc. at December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
April 3, 1996
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To the Stockholders of
Athletes and Artists, Inc.
I have audited the accompanying statements of operations and retained
earnings and cash flows of Athletes and Artists, Inc. (the "Company") for the
year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, changes in retained
earnings and cash flows of Athletes and Artists, Inc. for the year ended
December 31, 1994 in conformity with generally accepted accounting
principles.
Scott Gildea CPA
New York, New York
March 7, 1996
F-21
<PAGE>
ATHLETES AND ARTISTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
-------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................. $ -- $ 21,921
Accounts receivable .............................. 866,452 355,760
Advances ......................................... 62,948 52,434
Prepaid expenses ................................. 56,691 38,500
Prepaid taxes .................................... 8,280 --
-------------- -----------
Total current assets .............................. 994,371 468,615
Property and equipment, net ......................... 47,950 67,115
Deposits ............................................ 11,867 11,867
-------------- -----------
$1,054,188 $547,597
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ................................... $ 272,429 $ --
Accounts payable and accrued liabilities ......... 208,821 125,118
Income taxes payable ............................. -- 140,128
Accrued profit sharing expense ................... 53,809 53,809
Due to stockholders .............................. 1,377 617
Deferred income taxes payable .................... 337,881 115,852
-------------- -----------
Total current liabilities ......................... 874,317 435,524
Stockholders' equity:
Common stock, $1 par value, 20,000 shares
authorized, 15 shares issued and outstanding ..... 15 15
Retained earnings ................................... 179,856 112,058
-------------- -----------
Total stockholders' equity .......................... 179,871 112,073
-------------- -----------
Total liabilities and stockholders' equity ......... $1,054,188 $547,597
============== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
ATHLETES AND ARTISTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ................................ $3,291,077 $3,846,487 $1,701,110 $1,793,446
Operating expenses ...................... 1,236,562 1,469,410 632,460 766,064
General and administrative expenses .... 2,060,918 2,308,317 1,020,129 1,153,357
------------ ------------ ------------ ------------
Operating (loss) income ................. (6,403) 68,760 48,521 (125,975)
Interest and dividend income ............ 590 7,571 -- 490
------------ ------------ ------------ ------------
(Loss) income before income taxes ...... (5,813) 76,331 48,521 (125,485)
Income tax benefit (provision) .......... (28,203) (77,172) (49,006) 57,687
------------ ------------ ------------ ------------
Net loss ................................ (34,016) (841) (485) (67,798)
Retained earnings --beginning of period 214,713 180,697 180,697 179,856
------------ ------------ ------------ ------------
Retained earnings --end of period ...... $ 180,697 $ 179,856 $ 180,212 $ 112,058
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE>
ATHLETES AND ARTISTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ --------------------------
1994 1995 1995 1996
----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ..................................... $(34,016) $ (841) $ (485) $ (67,798)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Officers' salaries advanced (expensed) ..... 150,587 12,287 (110,678) --
Depreciation and amortization ............... 11,094 12,719 6,400 6,400
Deferred income taxes payable ............... 15,286 77,172 49,003 (222,029)
Changes in operating assets and liabilities:
Accounts receivable ....................... (15,386) (288,730) 402,588 510,692
Advances .................................. (9,474) (42,160) 861 10,514
Prepaid taxes ............................. 1,591 159 160 8,280
Prepaid expenses .......................... -- (56,691) (12,843) 18,191
Security deposits ......................... (496) -- -- --
Accounts payable and accrued liabilities .. (18,290) 182,241 56,882 (83,703)
Income taxes payable ...................... 160 (160) (160) 140,128
Accrued profit sharing expense ............ (53,002) 811 (26,100) --
Due to stockholders ....................... -- 1,377 -- (760)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities .................................. 48,054 (101,816) 365,628 319,915
INVESTING ACTIVITIES:
Purchases of property and equipment ......... (11,056) (18,441) (14,025) (25,565)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Bank overdraft ............................... (36,998) 120,257 (152,172) (272,429)
----------- ----------- ----------- -----------
Net increase (decrease) in cash .............. -- -- 199,431 21,921
Cash at beginning of period .................. -- -- -- --
----------- ----------- ----------- -----------
Cash at end of period ........................ $ -- $ -- $ 199,431 $ 21,921
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes ................................ $ 17,416 $ 3,662 $ 2,000 $ 15,934
</TABLE>
See accompanying notes.
F-24
<PAGE>
ATHLETES AND ARTISTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1 --SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Athletes and Artists, Inc. (the "Company") was organized in the State of
New York on June 27, 1977, and derives substantially all of its income from
commissions as a sports and entertainment talent agency.
REVENUE RECOGNITION
Commissions are recorded as income when they become due to the Company
under terms of the Company's representation agreements with its clients.
Generally, commissions are payable by clients upon their receipt of payments
for performance of services or upon the delivery or use of material created
by them. Commissions on profit or gross receipt participations are recorded
upon determination of the amounts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the
remaining lease term.
INCOME TAXES
The Company accounts for income taxes using the liability method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The unaudited interim information as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 has been prepared on the same basis as
the annual financial statements and, in the opinion of the Company's
management, reflects normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. Interim results
are not necessarily indicative of results for a full year.
F-25
<PAGE>
ATHLETES AND ARTISTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 --PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures .................... $ 191,339 $ 191,339
Leasehold improvements .................... 8,776 8,776
Vehicles .................................. 36,230 61,795
----------------- ---------------
236,345 261,910
Accumulated depreciation and amortization (188,395) (194,795)
----------------- ---------------
$ 47,950 $ 67,115
================= ===============
</TABLE>
NOTE 3 --INCOME TAXES
The Company has deferred tax assets of $110,509 and $58,179 and deferred
tax liabilities of $436,605 and $174,031 at December 31, 1995 and June 30,
1996, respectively. For federal and state income tax purposes, the Company
had net operating loss carryforwards of approximately $34,598 at December 31,
1995 which expire in the years 2006 to 2008. The benefit of the net operating
loss carryforwards has been offset in full by a valuation allowance of
$11,785.
Deferred income tax assets and liabilities result from temporary
differences which are differences between the income tax basis of assets and
liabilities and their reported amounts in the financial statements. The
Company's temporary differences result solely from the use of the cash basis
of accounting for income tax purposes.
The effective tax rate on pre-tax income for the years ended December 31,
1994 and 1995 and the six months ended June 30, 1995 and 1996 differs from
the statutory rate primarily due to certain non-deductible expenses and the
effect of state and local income taxes.
NOTE 4 --RELATED PARTY TRANSACTIONS
At December 31, 1995 and June 30, 1996 the Company had loans payable to
its stockholders in the aggregate amount of $1,377 and $617, respectively.
The loans are due on demand and are non-interest bearing.
NOTE 5 --PENSION PLAN
The Company has a defined contribution pension plan that covers full-time
employees over 21 years old having at least one year of service.
Contributions to the plan are based on wages of eligible employees. Pension
expense was $52,998, $53,811 and $26,898 for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995, respectively. There
was no pension expense for the six months ended June 30, 1996. In accordance
with the acquisition agreement (see Note 7), it is the Company's intention to
terminate such defined contribution pension plan.
F-26
<PAGE>
ATHLETES AND ARTISTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 --COMMITMENTS AND CONTINGENCIES
The Company has lease commitments for office and equipment rentals which
expire through 2003. These operating leases provide for basic annual rents
plus escalation charges. Rent expense amounted to $135,000, $138,000, $55,000
and $60,000 for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and 1996, respectively. At June 30, 1996, the
future minimum lease commitments excluding escalation charges, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ........ $ 135,000
1998 ........ 135,000
1999 ........ 135,000
2000 ........ 135,000
2001 ........ 135,000
Thereafter . 375,000
-----------
$1,050,000
===========
</TABLE>
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In the opinion of management, settlement of these actions, when
ultimately concluded, will not have a material adverse effect on the results
of operations, cash flows or the financial condition of the Company.
NOTE 7 --OTHER MATTERS
On March 21, 1996, the stockholders of the Company agreed to be acquire by
The Marquee Group, Inc. ("Marquee"), subject to, among other matters, the
completion of an initial public offering of Marquee's securities.
F-27
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use of Proceeds ............................ 14
Dividend Policy ............................ 14
Capitalization ............................. 15
Dilution ................................... 17
Unaudited Pro Forma Condensed Combined
Financial Statements ...................... 18
Selected Financial Data .................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 23
Business ................................... 27
Management ................................. 34
Certain Transactions ....................... 40
Principal Stockholders ..................... 45
Description of Securities .................. 48
Shares Eligible for Future Sale ............ 51
Underwriting ............................... 52
Legal Matters .............................. 54
Experts .................................... 54
Additional Information ..................... 54
Index to Financial Statements .............. F-1
</TABLE>
----------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS AN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
THE MARQUEE
GROUP, INC.
LOGO
THE MARQUEE
GROUP, INC.
3,000,000 UNITS
CONSISTING OF 3,000,000 SHARES OF
COMMON STOCK AND 3,000,000 WARRANTS
----------------
PROSPECTUS
----------------
ROYCE INVESTMENT
GROUP, INC.
CONTINENTAL
BROKER-DEALER CORP.
, 1996
- -------------------------------------------------------------------------------
<PAGE>
PART II --INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-Laws of the Registrant provide
that the Registrant shall indemnify any person to the full extent permitted
by the General Corporation Law of the State of Delaware (the "GCL"). Section
145 of the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of
directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director with certain limited exceptions set
forth in Section 102(a)(7).
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriters of the Registrant and
its directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriters' non-accountable
expense allowance of $ ), are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC Registration Fee .............. $ 16,423
NASD Filing Fee ................... 5,263
Nasdaq Filing Fees ................ 10,000
Printing and Engraving Expenses .. 100,000
Accounting Fees and Expenses ..... 150,000
Legal Fees and Expenses ........... 300,000
Blue Sky Fees and Expenses ........ 50,000
Transfer Agent's Fees and Expenses 5,000
Miscellaneous Expenses ............ 63,314
---------
Total ......................... $ 700,000
=========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion gives retroactive effect to the Stock Split
effected by the Company in August 1996. Since its organization in July 1995,
the Registrant has sold and issued the following unregistered securities:
In July 1995 and August 1995, respectively, the Registrant sold 1,292,308
and 646,154 shares of Common Stock to The Sillerman Companies, Inc. and
Robert M. Gutkowski, respectively, both of whom were accredited investors. In
May 1996, the Registrant sold 50,000 shares of Common Stock to Martin C.
Ehrlich, the Company's Senior Vice-President--Programming. Such issuances
were private transactions not involving a public offering and were exempt
from the registration provisions of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.
In August 1996, the Registrant issued $2,000,000 principal amount of
debentures bearing interest at 6% per annum commencing one year from the date
of issuance, to nine accredited investors for an aggregate purchase price of
$2,000,000, of which $445,104 was purchased through the cancellation of
promissory notes. The units were issued pursuant to an exemption from
registration provided by Regulation D promulgated under Section 4(2) of the
Securities Act. Royce Investment Group, Inc. acted as the Registrant's
placement agent in connection with this private placement. In connection
therewith, the Registrant paid sales commissions in the amount of $155,000
and a non-accountable expense allowance in the aggregate amount of $37,500.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale of
securities was without the use of an underwriter, and the certificates
evidencing the shares bear a restrictive legend permitting the transfer
thereof only upon registration of the shares or an exemption under the
Securities Act of 1933, as amended.
II-1
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
1.1 -- Form of Revised Underwriting Agreement
2.1 -- Form of Certificate of Merger between A&A Acquisition Corp. and Athletes
and Artists, Inc.
2.2 -- Form of Certificate of Merger between SMTI Acquisition Corp. and Sports Marketing &
Television International, Inc.
3.1* -- Amended and Restated Certificate of Incorporation of the Registrant
3.2 -- Amended and Restated By-laws of the Registrant
4.1 -- Form of Revised Warrant Agreement
4.2 -- Form of Revised Underwriters' Unit Purchase Option
5.1** -- Opinion of Baker & McKenzie
10.1 -- 1996 Stock Option Plan
10.2* -- Employment Agreement between Registrant and Robert M. Gutkowski dated as of
March 21, 1996
10.3* -- Form of Employment Agreement between Registrant and Michael Trager
10.4* -- Form of Employment Agreement between Registrant and Michael Letis
10.5* -- Form of Employment Agreement between Registrant and Arthur Kaminsky
10.6* -- Form of Employment Agreement between Registrant and Louis J. Oppenheim
10.7* -- Stockholders' Agreement by and among The Sillerman Companies, Inc., Robert M.
Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager, Michael Letis and
Registrant dated as of March 21, 1996
10.8* -- Escrow Agreement by and between the Registrant, Continental Stock Transfer & Trust
Company, The Sillerman Companies, Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J.
Oppenheim, Michael Trager and Michael Letis dated August 15, 1996
10.8A -- Form of Amendment to Escrow Agreement
10.9* -- Financial Consulting Agreement between the Registrant and Sillerman Communications
Management Corporation
10.10* -- Amended and Restated Acquisition Agreement by and among the Registrant, Athletes and
Artists, Inc., Arthur C. Kaminsky, Louis J. Oppenheim, Robert M. Gutkowski and The
Sillerman Companies, Inc.
10.11* -- Amended and Restated Acquisition Agreement by and among the Registrant, Sports
Marketing & Television International, Inc., Michael Trager, Michael Letis, Robert M.
Gutkowski and The Sillerman Companies, Inc.
10.12+ -- Marketing Agreement by and between Sports Marketing & Television International, Inc.
and Breeders' Cup Limited
10.13* -- Form of Subscription Agreement
10.14 -- Form of Promissory Note from the Registrant to Robert M. Gutkowski
21.1* -- List of Subsidiaries of Registrant
23.1** -- Consent of Baker & McKenzie --Included in Exhibit 5.1
23.2 -- Consent of Ernst & Young, LLP
23.3 -- Consent of Scott Gildea CPA
23.4* -- Consent of Michael Letis
23.5* -- Consent of Louis J. Oppenheim
23.6 -- Consent of Arthur R. Barron
23.7 -- Consent of Myles W. Schumer
24.1* -- Power of Attorney
27.1* -- Financial Data Schedule
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment applied for.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4),
or 497(h) under the Securities Act as part of this registration statement
as of the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the
City of New York, State of New York on the 24th of October, 1996.
THE MARQUEE GROUP INC.
By:/s/ ROBERT M. GUTKOWSKI
-----------------------------------
Robert M. Gutkowski, President
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------- ------
<S> <C> <C>
* Chairman of the Board of Directors October 24, 1996
-----------------------------
Robert F.X. Sillerman
/s/ ROBERT M. GUTKOWSKI President, Chief Executive Officer and
----------------------------- Director (Principal Executive Officer) October 24, 1996
Robert M. Gutkowski
* Director October 24, 1996
-----------------------------
Arthur C. Kaminsky
* Director October 24, 1996
-----------------------------
Howard J. Tytel
* Director October 24, 1996
-----------------------------
Michael Trager
* Chief Financial Officer (Principal
----------------------------- Accounting and Financial Officer) October 24, 1996
James E. Sileo
*/s/ ROBERT M. GUTKOWSKI
-----------------------------
by Robert M. Gutkowski as
attorney in fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
----------- ----------- ------
<S> <C> <C>
1.1 -- Form of Revised Underwriting Agreement
2.1 -- Form of Certificate of Merger between A&A Acquisition Corp. and
Athletes and Artists, Inc.
2.2 -- Form of Certificate of Merger between SMTI Acquisition Corp. and
Sports Marketing & Television International, Inc.
3.1 * -- Amended and Restated Certificate of Incorporation of the
Registrant
3.2 -- Amended and Restated By-laws of the Registrant
4.1 -- Form of Revised Warrant Agreement
4.2 -- Form of Revised Underwriters' Unit Purchase Option
5.1 ** -- Opinion of Baker & McKenzie
10.1 -- 1996 Stock Option Plan
10.2 * -- Employment Agreement between Registrant and Robert M. Gutkowski
dated as of March 21, 1996
10.3 * -- Form of Employment Agreement between Registrant and Michael Trager
10.4 * -- Form of Employment Agreement between Registrant and Michael Letis
10.5 * -- Form of Employment Agreement between Registrant and
Arthur Kaminsky
10.6 * -- Form of Employment Agreement between Registrant and
Louis J. Oppenheim
10.7 * -- Stockholders' Agreement by and among The Sillerman Companies,
Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim,
Michael Trager, Michael Letis and Registrant dated as of
March 21, 1996
10.8 * -- Escrow Agreement by and between the Registrant, Continental Stock
Transfer & Trust Company, The Sillerman Companies, Inc.,
Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim,
Michael Trager and Michael Letis dated August 15, 1996
10.8A -- Form of Amendment to Escrow Agreement
10.9 * -- Financial Consulting Agreement between the Registrant and
Sillerman Communications Management Corporation
10.10* -- Amended and Restated Acquisition Agreement by and among the
Registrant, Athletes and Artists, Inc., Arthur C. Kaminsky,
Louis J. Oppenheim, Robert M. Gutkowski and The Sillerman
Companies, Inc.
10.11* -- Amended and Restated Acquisition Agreement by and among the
Registrant, Sports Marketing & Television International, Inc.,
Michael Trager, Michael Letis, Robert M. Gutkowski and
The Sillerman Companies, Inc.
10.12+ -- Marketing Agreement by and between Sports Marketing & Television
International, Inc. and Breeders' Cup Limited
10.13* -- Form of Subscription Agreement
10.14 -- Form of Promissory Note from the Registrant to Robert M. Gutkowski
21.1 * -- List of Subsidiaries of Registrant
23.1 ** -- Consent of Baker & McKenzie --Included in Exhibit 5.1
23.2 -- Consent of Ernst & Young, LLP
23.3 -- Consent of Scott Gildea CPA
23.4 * -- Consent of Michael Letis
23.5 * -- Consent of Louis J. Oppenheim
23.6 -- Consent of Arthur R. Barron
23.7 -- Consent of Myles W. Schumer
24.1 * -- Power of Attorney
27.1 * -- Financial Data Schedule
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment applied for.
3,000,000 Units
(each Unit consisting of one share of Common Stock, par
value $.01 per share, and one redeemable warrant to purchase
one share of Common Stock)
THE MARQUEE GROUP, INC.
UNDERWRITING AGREEMENT
Royce Investment Group, Inc. , 1996
As Representative of the Several Underwriters
199 Crossways Park Drive
Woodbury, New York 11797
The Marquee Group, Inc., a Delaware corporation ( "Marquee" or the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") of this Underwriting Agreement (this
"Agreement"), for whom you are acting as repesentative (the "Representative"),
an aggregate of 3,000,000 Units, each unit being hereinafter referred to as a
"Unit" and consisting of one share of Common Stock, par value $.01 per share
("Shares"), and one redeemable warrant ("Warrants") to purchase one share of
the Company's Common Stock at a price of $7.50 from the Separation Date (as
defined in the Warrant Agreement) to , 200 . The Warrants are subject to
redemption, in certain instances commencing one year from the date of this
Agreement. In addition, Marquee proposes to grant to the Underwriters (or, at
its option, the Representative, individually) the option referred to in Section
2(b) to purchase all or any part of an aggregate of 450,000 additional Units.
Unless the context otherwise indicates, the term "Units" shall include the
450,000 additional Units referred to above.
The aggregate of 3,000,000 Units to be sold by Marquee, together with
all or any part of the 450,000 Units which the Underwriters have the option to
purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Common Stock of Marquee to be outstanding after giving
effect to the sale of the Shares is herein called the "Common Stock." The
Shares and Warrants included in the Units (including the Units which the
Underwriters have the option to purchase) are herein collectively called the
"Securities."
You have advised Marquee that you and the other Underwriters desire to
purchase, severally, the Units, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. Marquee confirms the
agreements made by it with respect to the purchase of the Units by the several
Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
<PAGE>
(a) A registration statement (File No. 333-11287) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared by Marquee in conformity with the applicable requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act and one or more amendments to such registration
statement may have been so filed. After the execution of this Agreement,
Marquee will file with the Commission either (i) if such registration
statement, as it may have been amended, has been declared by the Commission to
be effective under the Act, either (A) if Marquee relies on Rule 434 under the
Act, a Term Sheet (as hereinafter defined) relating to the Units that shall
identify the Preliminary Prospectus (as hereinafter defined) that it
supplements containing such information as is required or permitted by Rules
434, 430A and 424(b) under the Act or (B) if Marquee does not rely on Rule 434
under the Act, a prospectus in the form most recently included in an amendment
to such registration statement (or, if no such amendment shall have been filed,
in such registration statement), with such changes or insertions as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the Act
and in the case of either clause (i)(A) or (i)(B) of this sentence, as have
been provided to and approved by the Representative prior to the execution of
this Agreement, or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been furnished to and approved by the
Representative prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if Marquee relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein that
such Term Sheet supplements; (B) if Marquee does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if Marquee does not rely on Rule 434 under the Act and if
no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the
prospectus as so supplemented, or both, as the case may be; and the term "Term
Sheet" means any term sheet that satisfies the requirements
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<PAGE>
of Rule 434 under the Act. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on
the Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that Marquee makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to Marquee by or on behalf of the Underwriters
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization
under "Risk Factors-Possible Restrictions on Market-Making Activities in
Company's Securities," under the heading "Underwriting" and the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in the Registration Statement and Prospectus, as the
case may be.
(c) Each of Marquee and the Merger Subsidiaries (as herein
defined) has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
full power and authority (corporate and other) to own its properties and
conduct its respective business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in
all other jurisdictions in which the nature of its respective business or the
character or location of its properties requires such qualification, except
where failure to so qualify would not materially affect Marquee's or any of the
Merger Subsidiaries' business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of
Marquee as of June 30, 1996 is as set forth in the Prospectus under
"Capitalization;" the shares of issued and outstanding capital stock of Marquee
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations to
issue, or agreements or other rights to convert any obligation into, any shares
of capital stock of Marquee have been granted or entered into by Marquee; and
the capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of Marquee. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or
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relating to the registration of any shares of Common Stock, except as described
in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of Marquee
enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of Marquee enforceable in accordance with
its terms. The Warrants and the Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants underlying the Unit Purchase Option have
been duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of Marquee enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option and the Warrant Agreement. The Shares included in the Unit
Purchase Option (and the shares of Common Stock issuable upon exercise of such
Warrants) when issued and sold in accordance with the terms of the Unit
Purchase Option, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights and no personal liability will
attach to the ownership thereof.
(f) This Agreement, the Unit Purchase Option and the Warrant
Agreement have been duly and validly authorized, executed and delivered by
Marquee. Marquee has full power and lawful authority to authorize, issue and
sell the Units to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the Units
or the Unit Purchase Option, except such as may be required for the
registration of the Units under the Act or by the National Association of
Securities Dealers, Inc. (the "NASD") or state securities laws.
(g) Marquee does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity
other than the subsidiaries (the "Merger Subsidiaries") into which each of
Athletes and Artists, Inc., a New York corporation ("A&A") and Sports
Management & Television International, Inc., a Connecticut corporation ("SMTI")
will merge simultaneously on the First Closing Date (as hereinafter defined).
Each of the Merger Subsidiaries is a corporation duly organized and validly
existing under the laws of the State of Delaware. Marquee owns all of
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the capital stock of each of the Merger Subsidiaries free and clear of all
liens, security interests and encumbrances. Marquee has entered into amended
and restated acquisition agreements (the "Acquisition Agreements") with each of
A&A and SMTI, among other parties, pursuant to which, upon completion of
financings aggregating at least $13,800,000 in gross proceeds to Marquee, A&A
and SMTI have each agreed to merge with one of the Merger Subsidiaries. Each of
the Acquisition Agreements is in full force and effect and neither the Company
nor the other parties thereto are in breach of or default under either of such
agreements.
(h) Except as described in the Prospectus, neither the Company
nor any of the Merger Subsidiaries is in violation, breach or default of or
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of the Merger Subsidiaries
may be bound or to which any of the property or assets of the Company or any of
the Merger Subsidiaries is subject, including the Acquisition Agreements, which
violation, breach or default would have a material adverse effect on either the
Company or the Merger Subsidiaries; and consummation of the transactions herein
contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property or
assets of the Company or any of the Merger Subsidiaries pursuant to the terms
of any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any Merger Subsidiary is a party or by which
the assets of the Company or any of the Merger Subsidiaries is subject, nor
will such action result in any violation of the provisions of the certificate
of incorporation or the by-laws of the Company or any of the Merger
Subsidiaries, as amended, or any statute or any order, rule or regulation
applicable to the Company or any of the Merger Subsidiaries of any court or of
any regulatory authority or other governmental body having jurisdiction over
the Company or any of the Merger Subsidiaries.
(i) Subject to the qualifications stated in the Prospectus, each
of Marquee and the Merger Subsidiaries has good and marketable title to all
properties and assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its business; all of the
material leases and subleases under which Marquee or any of the Merger
Subsidiaries is the lessor or sublessor of properties or assets or under which
Marquee or any of the Merger Subsidiaries hold properties or assets as lessee
or sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, neither Marquee nor any of the Merger
Subsidiaries is in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to rights of Marquee or any of the Merger
Subsidiaries as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of Marquee
or any of the Merger Subsidiaries to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and each of Marquee and the Merger
Subsidiaries owns or leases all such properties described in the
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Prospectus as are necessary to their respective operations as now conducted
and, except as otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus.
(j) Ernst & Young LLP, who has given its reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(k) The financial statements, together with related notes, set
forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) present fairly the financial position and
results of operations and changes in cash flow of Marquee and A&A and SMTI on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply (subject in the case of financial
statements for interim periods, to normal and recurring year end adjustments).
Said statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. No other financial statements or schedules are
required to be included in the Registration Statement. The information set
forth under the captions "Dilution," "Capitalization," and "Selected Financial
Data" in the Prospectus fairly present, on the basis stated in the Prospectus,
the information included therein. The pro forma financial information included
in the Prospectus (or the Preliminary Prospectus) has been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements, and, in the opinion of the Company, includes all
adjustments necessary to present fairly the pro forma financial condition and
results of operations at the respective dates and for the respective periods
indicated and, in the opinion of the Company, all assumptions used in preparing
such pro forma financial statements are reasonable.
(l) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), neither Marquee nor
any of the Merger Subsidiaries has incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or entered into
any transaction not in the ordinary course of business, in either case which
are material to the business of Marquee or any of the Merger Subsidiaries, and
there has not been any change in the capital stock of, or any incurrence of
short-term or long-term debt by, the Company or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
other), net worth, results of operations, business, key personnel or properties
of it which would be material to the business or financial condition of Marquee
or any of the Merger Subsidiaries and neither Marquee nor any of the Merger
Subsidiaries has become a party to, and neither the business nor the property
of Marquee or any of the Merger Subsidiaries has become the subject of, any
material litigation whether or not in the ordinary course of business.
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<PAGE>
(m) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which Marquee or any of the Merger Subsidiaries is a party before
or by any court or governmental agency or body, nor are there any actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race, in either case which
might result in any material adverse change in the condition (financial or
other), business prospects, net worth, or properties of Marquee or any the
Merger Subsidiaries, and no labor disputes involving the employees of Marquee
or any of the Merger Subsidiaries exist or are imminent which might be expected
to materially adversely affect the conduct of the business, property or
operations or the financial condition or results of operations of Marquee or
any of the Merger Subsidiaries.
(n) Except as disclosed in the Prospectus, Marquee and each of
the Merger Subsidiaries have filed, or have duly obtained extension for the
time for filing of, all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against Marquee or any of the Merger Subsidiaries.
(o) Marquee and each of the Merger Subsidiaries have sufficient
licenses, permits and other governmental authorizations currently required for
the conduct of their business or the ownership of their properties as described
in the Prospectus and are in all material respects complying therewith and own
or possess adequate rights to use all material trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights
and licenses necessary for the conduct of such business and have not received
any notice of conflict with the asserted rights of others in respect thereof.
To the best knowledge of the Company, none of the activities or business of
Marquee or any of the Merger Subsidiaries are in violation of, or cause Marquee
or any of the Merger Subsidiaries to violate, any law, rule, regulation or
order of the United States, any state, county or locality, or of any agency or
body of the United States or of any state, county or locality, the violation of
which would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations, or net worth
of Marquee and the Merger Subsidiaries, taken as a whole.
(p) Neither Marquee nor any of the Merger Subsidiaries has,
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(q) On the Closing Dates (hereinafter defined), all transfer or
other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the
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<PAGE>
Units to the several Underwriters hereunder will have been fully paid or
provided for by Marquee and all laws imposing such taxes will have been fully
complied with.
(r) All contracts and other documents of Marquee or any of the
Merger Subsidiaries which are, under the Rules and Regulations, required to be
filed as exhibits to the Registration Statement have been so filed.
(s) Neither Marquee nor any of the Merger Subsidiaries has taken
nor will take, directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Units hereby.
(t) Neither Marquee nor any of the Merger Subsidiaries has
entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from Marquee for services as a finder in
connection with the proposed public offering.
(u) Except as previously disclosed in writing by Marquee to the
Representative, no officer, director or 5% stockholder of Marquee or any of the
Merger Subsidiaries has any affiliation or association with any member of the
National Association of Securities Dealers Inc. ("NASD").
(v) Neither Marquee nor any of the Merger Subsidiaries is, nor
upon receipt of the proceeds from the sale of the Units will be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(w) Neither Marquee nor any of the Merger Subsidiaries has
distributed, nor will it distribute prior to the First Closing Date, any
offering material in connection with the offering and sale of the Units other
than the Preliminary Prospectus, the Prospectus, the Registration Statement or
the other materials permitted by the Act, if any.
(x) Marquee and each of the Merger Subsidiaries have complied
with all provisions of Section 517.075 Florida Statutes relating to doing
business with the government of Cuba or with any person or affiliate located in
Cuba.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, Marquee agrees to issue and sell to the Underwriters, and each such
Underwriter agrees, severally and not jointly, to buy from Marquee at $ per
Unit, at the place and time hereinafter specified, the respective number of
Units set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "First Units") plus any additional Units which such Underwriters
may become obligated to purchase
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<PAGE>
pursuant to the provisions of Section 9 hereof. The First Units shall consist
of 3,000,000 Units to be purchased from Marquee.
Delivery of the First Units against payment therefor shall take
place at the offices of Royce Investment Group, Inc., 199 Crossways Park Drive,
Woodbury, N.Y. 11797 (or at such other place as may be designated by agreement
between you and Marquee) at 10:00 a.m., New York time, on, ______________1996,
or at such later time and date as you may designate, such time and date of
payment and delivery for the First Units being herein called the "First Closing
Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, Marquee hereby grants an option to the several Underwriters
(or, at its option, to the Representative, individually) to purchase all or any
part of an aggregate of an additional 450,000 Units at the same price per Unit
as the Underwriters shall pay for the First Units being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Units being
referred to herein as the "Option Units"). This option may be exercised within
45 days after the effective date of the Registration Statement upon notice by
the Representative to Marquee advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option, nor in any event
prior to the First Closing Date, and such time and date is referred to herein
as the "Option Closing Date." Delivery of the Option Units against payment
therefor shall take place at the offices of Royce Investment Group, Inc., 199
Crossways Park Drive, Woodbury, N.Y. 11797 (or at such other place as may be
designated by agreement between you and Marquee). The number of Option Units to
be purchased by each Underwriter, if any, shall bear the same percentage to the
total number of Option Units being purchased by the several Underwriters
pursuant to this subsection (b) as the number of Units such Underwriter is
purchasing bears to the total number of the First Units being purchased
pursuant to subsection (a) of this Section 2, as adjusted, in each case by the
Representative in such manner as the Representative may deem appropriate. The
option granted hereunder may be exercised only to cover overallotments in the
sale by the Underwriters of First Units referred to in subsection (a) above. In
the event Marquee declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Units on the Option Closing Date.
(c) Marquee will make the certificates for the securities
comprising the Units to be purchased by the Underwriters hereunder available to
you for checking at least two full business days prior to the First Closing
Date or the Option Closing Date (which are collectively referred to herein as
the "Closing Dates"). The certificates shall be in such names and denominations
as you may request, at least two full business days prior to the Closing Dates.
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Time shall be of the essence and delivery at the time and place specified in
this Agreement is a further condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriters hereunder will be delivered by Marquee to you for
the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of Marquee.
In addition, in the event the Underwriters (or the
Representative, individually) exercise the option to purchase from Marquee all
or any portion of the Option Units pursuant to the provisions of subsection (b)
above, payment for such Units shall be made to or upon the order of Marquee by
certified or bank cashier's checks payable in New York Clearing House funds at
the offices of Royce Investment Group, Inc., 199 Crossways Park Drive,
Woodbury, N.Y. 11797 (or at such other place as may be designated by agreement
between you and Marquee) at the time and date of delivery of such Units as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Units by the Representative for the respective accounts
of the several Underwriters registered in such names and in such denominations
as the Representative may request.
It is understood that you, individually and not as Representative
of the several Underwriters, may (but shall not be obligated to) make any and
all payments required pursuant to this Section 2 on behalf of any Underwriters
whose check or checks shall not have been received by the Representative at the
time of delivery of the Units to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
underwriters of any of its or their obligations hereunder. It is also
understood that you individually, rather than all of the Underwriters, may (but
shall not be obligated to) purchase the Option Units referred to in subsection
(b) of this Section 2, but only to cover overallotments.
It is understood that the several Underwriters propose to offer
the Units to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
3. Covenants of the Company. The Company covenants and agrees with
the several Underwriters that:
(a) Marquee will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, Marquee
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the manner and
within the time period required by Rules 434 and 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, Marquee will so advise you and will not at any time, whether before
or after the effective date, file the Prospectus, Term Sheet or any amendment
to the Registration Statement or
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supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you or your counsel shall have
objected in writing or which is not in compliance with the Act and the Rules
and Regulations. At any time prior to the later of (A) the completion by all of
the Underwriters of the distribution of the Units contemplated hereby (but in
no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, Marquee will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
Prospectus which, in your opinion, may be necessary or advisable in connection
with the distribution of the Units.
As soon as Marquee is advised thereof, Marquee will advise you,
and confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission for amendment of
the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop order or other order or threat
thereof suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
Marquee has caused to be delivered to you copies of each
Preliminary Prospectus, and Marquee has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. Marquee authorizes
the Underwriters and dealers to use the Prospectus in connection with the sale
of the Units for such period as in the opinion of counsel to the several
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer of any event of
which Marquee has knowledge and which materially affects the Company or the
securities of Marquee, or which in the opinion of counsel for the Company or
counsel for the Underwriters should be set forth in an amendment to the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Units or in case it shall be necessary to amend or supplement the Prospectus to
comply with law or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or
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amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters, except that in case any Underwriter is
required, in connection with the sale of the Units to deliver a Prospectus nine
months or more after the effective date of the Registration Statement, Marquee
will upon request of and at the expense of the Underwriter, amend or supplement
the Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations thereunder in connection with the offering and
issuance of the Units.
(b) Marquee will use its best efforts to qualify to register the
Units for sale under the securities or "blue sky" laws of such jurisdictions as
the Representative may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided Marquee shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. Marquee will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Units provided for herein is not
consummated for any reason caused by the Company, Marquee shall pay all costs
and expenses incident to the performance of Marquee's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable out-of-pocket expenses of the Representative.
(d) Marquee will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify the
Representative in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Representative, to obtain
a listing on the Pacific Stock Exchange and to obtain and keep current a
listing in the Standard & Poors or Moody's Industrial OTC Manual.
(e) For so long as Marquee is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, Marquee, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail and at its
expense, will furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of Marquee and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of
Marquee and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of Marquee for such quarter in reasonable detail; (iii)
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as soon as they are available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with
the Commission or any securities exchange or automated quotation system on
which any class of securities of Marquee is listed; and (v) such other
information as you may from time to time reasonably request.
(f) In the event Marquee has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of Marquee and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) Marquee will deliver to you at or before the First Closing
Date two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and
will deliver to the several Underwriters such number of conformed copies of the
Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the several Underwriters may
reasonably request. Marquee will deliver to or upon the order of the several
Underwriters, from time to time until the effective date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the effective date of the Registration Statement as the
Underwriters may reasonably request. Marquee will deliver to the Underwriters
on the effective date of the Registration Statement and thereafter for so long
as a Prospectus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriters may from time to time reasonably request.
Marquee, not later than (i) 5:00 p.m., New York City time, on the date of
determination of the public offering price, if such determination occurred at
or prior to 12:00 noon, New York City time, on such date or (ii) 6:00 p.m., New
York City time, on the business day following the date of determination of the
public offering price, if such determination occurred after 12:00 noon, New
York City time, on such date, will deliver to the Underwriters, without charge,
as many copies of the Prospectus and any amendment or supplement thereto as the
Underwriters may reasonably request for purposes of confirming orders that are
expected to settle on the First Closing Date.
(h) Marquee will make generally available to its security holders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable to do so but in no event later than 90 days after the end of
twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) Marquee will apply the net proceeds from the sale of the
Units for the purposes set forth under "Use of Proceeds" in the Prospectus, and
will file such reports with the Commission with respect to the sale of the
Units and the application of the proceeds therefrom as may be required pursuant
to Rule 463 under the Act.
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<PAGE>
(j) Marquee will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP,
counsel to the several Underwriters, may be reasonably necessary or advisable
in connection with the distribution of the Units, and will use its best efforts
to cause the same to become effective as promptly as possible.
(k) Marquee will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Warrants and the Unit Purchase Option outstanding from time to time.
(l) For a period of 24 months from the First Closing Date, no
officer, director or stockholder of Marquee (other than "Outside Stockholders"
(as herein defined)) (such officers, directors and stockholders being herein
referred to as the "Principal Stockholders"), will directly or indirectly,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any securities of
Marquee, except to affiliates of such individuals after receipt of the written
consent of the Representative. In order to enforce this covenant, Marquee shall
impose stop-transfer instructions with respect to the securities owned by the
Principal Stockholders until the end of such period. For a period of 90 days
from the First Closing Date, (or such longer period of time as may have been
agreed by such stockholder) stockholders of Marquee who were not designees of
Marquee in the private placement in which the Representative acted as placement
agent (the "Outside Stockholders") will not directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any
option to dispose of, or otherwise dispose of any securities of Marquee. In
order to enforce this covenant, Marquee shall impose stop-transfer instructions
with respect to the securities owned by the Outside Stockholders until the end
of such period.
(m) Prior to completion of this offering, Marquee will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Common Stock, and Warrants on the Nasdaq Small Cap Market
(or a listing on such other market or exchange as the Underwriters consent to),
and will effect and maintain such listing for at least five years from the date
of this Agreement.
(n) Each of Marquee and the Principal Stockholders represents
that it or he has not taken and agrees that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Units, Shares or the Warrants or to facilitate the sale or
resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery of
the Units, Marquee shall execute and deliver to you, individually and not as
Representative of the Underwriters, the Unit Purchase Option. The Unit Purchase
Option will be substantially in the
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<PAGE>
form of the Representative's Unit Purchase Option filed as an Exhibit to the
Registration Statement.
(p) During the 18 month period commencing on the date of this
Agreement, Marquee will not, without the prior written consent of the
Representative, grant options to purchase shares of Common Stock at an exercise
price less than the greater of (i) the initial public offering price of the
Units (without allocating any value to the Warrants) or (ii) the fair market
value of the Common Stock on the date of grant. During the six month period
commencing on the date of this Agreement, Marquee will not, without the prior
written consent of the Representative, grant options to any current officer of
Marquee, or to any individual who will become an officer of Marquee upon the
First Closing Date. During the three year period from the First Closing Date,
Marquee will not, without the prior written consent of the Representative,
offer or sell any of its securities pursuant to Regulation S under the Act.
(q) Marquee will not, without the prior written consent of the
Representative, grant registration rights to any person which are exercisable
sooner than 13 months from the First Closing Date.
(r) Robert Gutkowski shall be President of Marquee on the Closing
Dates. Marquee has obtained key person life insurance in an amount of not less
than $2 million on the life of Robert M. Gutkowski, and will use its best
efforts to maintain such insurance during the three year period commencing with
the First Closing Date. In the event that Robert Gutkowski's employment with
Marquee is terminated prior to three years following the First Closing Date,
Marquee will use its best efforts to obtain a comparable policy on the life of
his successor for the balance of the three year period. For a period of
thirteen months from the First Closing Date, the compensation of the executive
officers of Marquee shall not be increased from the compensation levels
disclosed in the Prospectus.
(s) So long as any Warrants are outstanding, Marquee shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each
holder of record of a Warrant and to furnish to each Underwriter and dealer as
many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. Marquee shall not call for redemption any of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least
until the date fixed for redemption. In addition, for so long as any Warrant is
outstanding, Marquee will promptly notify the Representative of any material
change in the business, financial condition or prospects of Marquee or any of
the Merger Subsidiaries.
(t) Upon the exercise of any Warrant or Warrants after , 19 ,
Marquee will pay to Royce Investment Group, Inc., in its individual capacity
and not as Representative of the Underwriters, a fee (the "Solicitation Fee")
of 5% of the aggregate exercise price of the
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<PAGE>
Warrants, of which % may be reallowed to the dealer who solicited the
exercise (which may also be Royce Investment Group, Inc.) if (i) the market
price of Marquee's Common Stock is greater than the exercise price of the
Warrants on the date of exercise; (ii) the exercise of the Warrant was
solicited by a member ("Member") of the NASD, (iii) the Warrant is not held in
a discretionary account; (iv) the disclosure of compensation arrangements has
been made in documents provided to customers, both as part of the original
offering and at the time of exercise, and (v) the solicitation of the Warrant
was not in violation of Rule 10b-6 promulgated under the Exchange Act. Marquee
agrees not to solicit the exercise of any Warrants other than through Royce
Investment Group, Inc., without the prior written consent of Royce, and will
not authorize any other dealer to engage in such solicitation, without the
prior written consent of Royce Investment Group, Inc. The Solicitation Fee
shall only be payable to the extent that the Representative (or Member) who
solicited the exercise of any warrant is designated in writing by the holder of
the warrant as having solicited the exercise of such warrant.
(u) For a period of five (5) years from the Effective Date
Marquee (i) at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) Marquee's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of Marquee's 10-Q
quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Representative, which
consent shall not be unreasonably withheld.
(v) As promptly as practicable after the Closing Date, Marquee
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Representative or counsel to the Underwriters.
(w) For a period of five years from the First Closing Date (i)
the Representative shall have the right, but not the obligation, to designate
an advisor to the Board of Directors of Marquee and (ii) Marquee shall engage a
public relations firm acceptable to the Representative.
(x) Marquee shall, for a period of six years after the date of
this Agreement, submit such reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for Marquee to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in Marquee.
(y) On the Closing Date, Marquee shall cause and take no action
to prevent each of the merger of A&A and a Merger Subsidiary of Marquee and the
merger of SMTI and a Merger Subsidiary of Marquee, substantially on the terms
and conditions set forth in the Acquisition Agreements and the Prospectus,
subject to such changes therein as are not material and are agreed to by the
Representative.
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<PAGE>
4. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Units which they have
respectively agreed to purchase hereunder, are subject to the accuracy (as of
the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York
time, on the date on which the amendment to the registration statement
originally filed with respect to the Units or to the Registration Statement, as
the case may be, containing information regarding the initial public offering
price of the Units has been filed with the Commission, or at such later time
and date as shall have been agreed to by the Representative; if required, the
Prospectus or any Term Sheet that constitutes a part thereof and any amendment
or supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 434 and 424(b) under the Act; on or
prior to the Closing Dates no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that or a
similar purpose shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of Marquee, shall be contemplated by the
Commission; any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Bachner, Tally, Polevoy & Misher LLP, counsel to the several Underwriters;
(b) At the First Closing Date, you shall have received the
opinion, addressed to the Underwriters, dated as of the First Closing Date, of
Baker & McKenzie, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, to the effect that:
(i) Each of Marquee and the Merger Subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate power and
authority to own its respective properties and conduct its respective business
as described in the Registration Statement and Prospectus and is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its respective
properties or conduct of its respective requires such qualification except
where the failure to so qualify, or be so licensed would not have a material
adverse affect on the business, properties or financial condition of the
Company and each of the Merger Subsidiaries;
(ii) to the best knowledge of such counsel, (a) Marquee and
each of the Merger Subsidiaries have obtained, or are in the process of
obtaining, all licenses, permits and other governmental authorizations
necessary to the conduct of their respective businesses as described in the
Prospectus, (b) such licenses, permits and other governmental authorizations
obtained are in full force and effect, and (c) Marquee and each of the Merger
Subsidiaries are in all material respects complying therewith;
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<PAGE>
(iii) the authorized capitalization of Marquee as of June
30,1996 is as set forth under "Capitalization" in the Prospectus; all shares of
Marquee's outstanding stock requiring authorization for issuance by Marquee's
board of directors have been duly authorized and non-assessable and conform to
the description thereof contained in the Prospectus and, to the best of such
counsel's knowledge, after due inquiry, such shares were validly issued and are
fully paid; the outstanding shares of Common Stock of Marquee have not been
issued in violation of the preemptive rights of any shareholder and the
shareholders of Marquee do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions upon the voting or
transfer of any of the Common Stock (except as described in the Registration
Statement and Prospectus), the Warrants, the Unit Purchase Option and the
Warrant Agreement conform to the respective descriptions thereof contained in
the Prospectus; the Shares have been, and the shares of Common Stock to be
issued upon exercise of the Warrants and the Unit Purchase Option, upon
issuance in accordance with the terms of such Warrants, the Warrant Agreement
and Unit Purchase Option have been duly authorized and, when issued and
delivered, will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights and no personal liability will attach to the ownership
thereof; to the best of such counsel's knowledge, after due inquiry, all prior
sales by Marquee of Marquee's securities have been made in compliance with or
under an exemption from registration under the Act and applicable state
securities laws and no shareholders of Marquee have any rescission rights with
respect to the Company's securities; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Warrants and Unit
Purchase Option; and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights or other
rights, other than those which have been waived or satisfied for or relating to
the registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option and the
Warrant Agreement have been duly and validly authorized, executed and delivered
by Marquee and, assuming due execution by each other party hereto or thereto,
each constitutes a legal, valid and binding obligation of Marquee enforceable
against Marquee in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law);
(v) the certificates evidencing the shares of Common Stock
are in valid and proper legal form; the Warrants will be exercisable for shares
of Common Stock of Marquee in accordance with the terms of the Warrants and at
the prices therein provided for; as of the date hereof the shares of Common
Stock of Marquee issuable upon exercise of the Warrants have been duly
authorized and reserved for issuance upon such exercise and such shares, when
issued upon such exercise in accordance with the terms of the Warrants and at
the price provided for, will be duly and validly issued, fully paid and
non-assessable;
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<PAGE>
(vi) such counsel knows of no pending or threatened legal
or governmental proceedings to which either Marquee or any of the Merger
Subsidiaries is a party which could materially adversely affect the business,
property, financial condition or operations of Marquee and the Merger
Subsidiaries taken as a whole; or which question the validity of the
Securities, this Agreement, the Warrant Agreement, the Unit Purchase Option or
the Acquisition Agreements, or of any action taken or to be taken by either
Marquee or any of the Merger Subsidiaries pursuant to this Agreement, the
Warrant Agreement, the Unit Purchase Option or the Acquisition Agreements; and
no such proceedings are known to such counsel to be contemplated against either
Marquee or any of the Merger Subsidiaries; there are no governmental
proceedings or regulations required to be described or referred to in the
Registration Statement which are not so described or referred to;
(vii) neither the Company nor any of the Merger
Subsidiaries is in violation of or default under any indenture, mortgage, deed
of trust, loan agreement or other agreement (including the Acquisition
Agreements) or instrument to which the Company or any of the Merger
Subsidiaries is a party or by which the Company or any of the Merger
Subsidiaries may be bound or to which any of the property or assets of the
Company or any of the Merger Subsidiaries is subject, which violation, breach
or default would have a material adverse effect on either the Company or the
Merger Subsidiaries; nor will the execution and delivery of this Agreement, the
Unit Purchase Option, the Warrant Agreement, the Escrow Agreement or the
Acquisition Agreements, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or therein
contemplated, with or without the giving of notice or the lapse of time, or
both, result in a breach or violation of, or constitute a default under the
certificate of incorporation or by-laws, in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease joint venture or other agreement or
instrument to which the Company or any of the Merger Subsidiaries is a party or
by which it or any of their respective properties may be bound or in violation
of any material order, rule, regulation, writ, injunction, or decree or any
government, governmental instrumentality or court, domestic or foreign, in each
case which breach, violation or default would have a material adverse effect on
either the Company or the Merger Subsidiaries;
(viii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements, notes thereto and other financial,
numerical, statistical and accounting data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations;
(ix) such counsel has participate in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the
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<PAGE>
Company, the representatives of the Underwriters and counsel to the
Underwriters at which the contents of the Registration Statement and Prospectus
and related matters were discussed and, although counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus (except as otherwise expressly set forth in its opinion), on the
basis of the foregoing no facts have come to the attention of such counsel that
caused it to believe that the Registration Statement (other than the financial
statements and notes thereto and other financial, numerical, statistical and
accounting data included therein, or omitted therefrom, as to which it
expresses no opinion), as amended or supplemented, at the time such
Registration Statement became effective and as of the Closing Dates, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (other than the financial statements and
notes thereto and other financial, numerical, statistical and accounting data
included therein, or omitted therefrom as to which it expresses no opinion), as
amended or supplemented, as of its date and the Closing Dates, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown, and such counsel is familiar with all
contracts and other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized, described or filed;
(xi) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units by
Marquee, in connection with the execution, delivery and performance of this
Agreement by Marquee or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase Option or the
Securities underlying the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or
Blue Sky laws and registration under the Act; and
(xii) based upon a letter received by the Company from the
Nasdaq Stock Market, the Units, the Common Stock and the Warrants have been
duly authorized for quotation on the Nasdaq SmallCap Market.
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Representative or counsel for the
Underwriters shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or
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<PAGE>
public officials as to matters of fact; and may rely as to all matters of law
other than the law of the United States or of the State of New York upon
opinions of counsel satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled to so
rely.
(b) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be reasonably satisfactory to or approved by Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters, and you shall have
received from such counsel a signed opinion, dated as of the First Closing
Date, together with copies thereof for each of the other Underwriters, with
respect to the validity of the issuance of the Units, the form of the
Registration Statement and Prospectus (other than the financial statements and
other financial data contained therein), the execution of this Agreement and
other related matters as you may reasonably require. Marquee and each of the
Merger Subsidiaries shall have furnished to counsel for the several
Underwriters such documents as it may reasonably request for the purpose of
enabling it to render such opinion.
(c) You shall have received a letter prior to the effective date
of the Registration Statement and again on and as of the First Closing Date
from Ernst & Young LLP, independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending at the end
of the month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(d) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of the Closing Dates and Marquee shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change,
or any development involving a prospective material adverse change, in the
business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
Marquee and the Merger Subsidiaries taken as a whole from that set forth in the
Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the effective
date of the Registration Statement, and Marquee and each of the Merger
Subsidiaries shall not have incurred any material liabilities or entered into
any agreement not in the ordinary course of business other than as referred to
in the Registration Statement and Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against
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Marquee or any of the Merger Subsidiaries which would be required to be set
forth in the Registration Statement, and no proceedings shall be pending or
threatened against Marquee or any of the Merger Subsidiaries before or by any
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of Marquee and the Merger Subsidiaries
taken as a whole, and (v) you shall have received, at the First Closing Date, a
certificate signed by each of the Chairman of the Board or the President and
the principal financial or accounting officer of Marquee, dated as of the First
Closing Date, evidencing compliance with the provisions of this subsection (e).
(e) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Units referred
to therein will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions: (i) the Registration Statement
shall remain effective at the Option Closing Date, and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of Marquee, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the satisfaction of Bachner, Tally, Polevoy &
Misher LLP, counsel to the several Underwriters.
(i) At the Option Closing Date there shall have been
delivered to you as Representative the signed opinion of Baker & McKenzie,
counsel for the Company, dated as of the Option Closing Date, in form and
substance satisfactory to Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters, together with copies of such opinion for each of the
other several Underwriters, which opinion shall be substantially the same in
scope and substance as the opinion furnished to you at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinion, where appropriate,
shall cover the Option Units.
(ii) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Ernst
& Young LLP, dated the Option Closing Date and addressed to the Underwriters
confirming the information in their letter referred to in Section 4(d) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the Chairman of the Board or the President
and the principal financial or accounting officer of Marquee, dated the Option
Closing Date, in form and substance satisfactory to Bachner, Tally, Polevoy &
Misher LLP, counsel to the several Underwriters, substantially the same in
scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
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(iv) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Units shall
be satisfactory in form and substance to you, and you and Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of Marquee or its compliance with any of the covenants or conditions
contained herein.
(f) No action shall have been taken by the Commission or the
NASD, the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to
the knowledge of the Representative or Marquee, shall be contemplated by the
Commission or the NASD. Marquee represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD.
(g) Marquee shall have caused and taken no action to prevent
each of the merger of A&A and a Merger Subsidiary of Marquee and the merger of
SMTI and a Merger Subsidiary of Marquee, substantially on the terms and
conditions set forth in the Acquisition Agreements and the Prospectus, subject
to such changes therein as are not material and are agreed to by the
Representative.
(h) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be cancelled
at, or at any time prior to, each Closing Date by the Representative notifying
the Company of such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of
the Underwriters to the Company.
5. Conditions of the Obligations of Marquee. The obligation of
Marquee to sell and deliver the Units is subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Representative may
agree in writing; and
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of Marquee provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the
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Option Closing Date, then only the obligation of Marquee to sell and deliver
the Units on exercise of the option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) Marquee agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and will reimburse, as incurred,
such Underwriters and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Units under the securities laws thereof
(any such application, document or information being hereinafter called a "Blue
Sky Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that Marquee will not
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such Preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which Marquee may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify
and hold harmless Marquee, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls Marquee within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which
Marquee or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or
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supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to Marquee by you or by any Underwriter through you specifically for
use in the preparation thereof.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying party and in the judgment of the Representative, it is advisable
for the Representative or such Underwriters or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
all such Underwriters and controlling persons, which firm shall be designated
in writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnifying party.
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7. Contribution.
In order to provide for just and equitable contribution under the Act
in any case in which (i) any Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then Marquee and each person who controls Marquee, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that all
such Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and Marquee shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of
Marquee and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by
the Company or any of the Merger Subsidiaries, or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. Marquee and the
Underwriters agree that it would not be just and equitable if the respective
obligations of Marquee and the Underwriters to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriters in the aggregate were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the first sentence
of this Section 7 and (b) that the contribution of each contributing
Underwriter shall not be in excess of its proportionate share (based on the
ratio of the number of Units purchased by such Underwriter to the number of
Units purchased by all contributing Underwriters) of the portion of such
losses, claims, damages or liabilities for which the Underwriters are
responsible. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls Marquee within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then any Underwriter and each person who controls any Underwriter shall be
entitled to contribution from Marquee, its officers, directors and controlling
persons to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than Marquee and the
Underwriters. No contribution shall be requested with regard to the
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settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in
light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Units to the Underwriters is consummated, Marquee will pay all costs and
expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented, or the Term Sheet, the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Units
contemplated hereby; all expenses, including reasonable fees and disbursements
of counsel to the Underwriters, in connection with the qualification of the
Units under the state securities or blue sky laws which the Representative
shall designate; the cost of printing and furnishing to the several
Underwriters copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, the Agreement Among Underwriters, Selling
Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney and the
Blue Sky Memorandum, any fees relating to the listing of the Units, Common
Stock and Warrants on the Nasdaq SmallCap Market or any other securities
exchange, the cost of printing the certificates representing the securities
comprising the Units, the fees of the transfer agent and warrant agent the cost
of publication of at least three "tombstones" of the offering (at least one of
which shall be in national business newspaper and one of which shall be in a
major New York newspaper) and the cost of preparing at least four hard cover
"bound volumes" relating to the offering, in accordance with the Underwriters'
request; provided that the Company shall only be required to pay for the
tombstones and bound volumes in the event that the Offering is consummated.
Marquee shall pay any and all taxes (including any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales to the Underwriters
hereunder. Marquee will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses Marquee shall at the
First Closing Date pay to Royce Investment Group, Inc., in its individual
rather than representative capacity, a non-accountable expense allowance of
$450,000 of which $50,000 has been paid. In the event the overallotment option
is exercised, Marquee shall pay to Royce Investment Group, Inc. at the Option
Closing Date an additional amount equal to 3% of the gross proceeds received
upon exercise of the overallotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Representative (except if such prevention is based upon a breach by the Company
of any covenant, representation or warranty contained herein or because any
other condition to the Underwriters' obligations hereunder required to be
fulfilled by
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the Company or any of the Merger Subsidiaries is not fulfilled) Marquee shall
be liable for the accountable out-of-pocket expenses of the Representative,
including legal fees up to a maximum of $50,000. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by the Company of any covenant, representation or
warranty herein, Marquee shall be liable for the accountable expenses of the
Representative, including legal fees, up to a maximum of $150,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Representative or from any other person
for services as a finder in connection with the proposed offering, and Marquee
agrees to indemnify and hold harmless the Representative and the other
Underwriters, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Representative or such other Underwriter or person may become subject
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is entitled
to a finder's fee in connection with the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. Substitution of Underwriters.
If any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase the First Units hereunder, or
shall fail to take up and pay for the number of First Units set forth opposite
their respective names in Schedule A hereto upon tender of such First Units in
accordance with the terms hereof, then:
(a) If the aggregate number of First Units which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the total number of First Units, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the First Units which such defaulting Underwriter or Underwriters agreed but
failed to purchase. In the event the Offering is not consummated for any
reason, any portion of the non-accountable expense allowance previously paid to
the Underwriter which is not accounted for shall be returned to the Company.
(b) If any Underwriter or Underwriters so default and the agreed
number of First Units with respect to which such default or defaults occurs is
more than 10% of the total number of First Units, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be
agreed upon among them) the First Units which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the First Closing Date, take up and pay for the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the First Units shall be extended to the next business day to
allow such remaining Underwriters the privilege of substituting within
twenty-four hours (including nonbusiness hours) another underwriter or
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underwriters satisfactory to Marquee. If no such underwriter or underwriters
shall have been substituted as aforesaid, within such twenty-four hour period,
the time of delivery of the First Units may, at the option of Marquee, be again
extended to the next following business day, if necessary, to allow Marquee the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the First Units of the defaulting Underwriter or Underwriters as
provided in this Section, (i) Marquee or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and Marquee agrees promptly to file any amendments
to the Registration Statement or supplements to the Prospectus which may
thereby be made necessary, and (ii) the respective numbers of First Units to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the First Units agreed
to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, Marquee shall not find or shall not
elect to seek another underwriter or underwriters for such First Units as
aforesaid, then this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Units at the Option Closing Date,
or shall fail to take up and pay for the number of Option Units, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Units in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriter or Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all such Option Units, the Underwriters shall be
entitled to purchase the number of Option Units for which there is no default
or, at their election, the option shall terminate, and the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to
Marquee, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to Marquee arising out of
such default.
10. Effective Date.
The Agreement shall become effective upon its execution except that
you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day
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following the effective date of the Registration Statement, or at such earlier
time after the effective date of the Registration Statement as you in your
discretion shall first commence the initial public offering by the Underwriters
of any of the Units. The time of the initial public offering shall mean the
time of release by you of the first newspaper advertisement with respect to the
Units, or the time when the Units are first generally offered by you to dealers
by letter or telegram, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that Sections 3(c), 6, 7, 8, 13, 14, 15 and 16 shall remain in effect
notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14,
15 and 16 hereof, may be terminated at any time prior to the First Closing
Date, and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Units agreed to be purchased hereunder
by reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to Marquee's or any of the Merger
Subsidiaries' business, or a notification having been received by either
Marquee or any of the Merger Subsidiaries of the threat of any such proceeding
or action, which could materially adversely affect Marquee and the Merger
Subsidiaries taken as a whole; (vii) except as contemplated by the Prospectus,
Marquee is merged or consolidated into or acquired by another company or group
or there exists a binding legal commitment for the foregoing or any other
material change of ownership or control occurs; (viii) the passage by the
Congress of the United States or by any state legislative body or federal or
state agency or other authority of any act, rule or regulation, measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
impact on the business, financial condition or financial statements of the
Company or the market for the securities offered pursuant to the Prospectus;
(ix) any adverse change in the financial or securities markets beyond normal
market fluctuations having occurred since the date of this Agreement, or (x)
any material adverse change having occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of Marquee and the Merger
Subsidiaries taken as a whole, financial or otherwise, whether or not arising
in the ordinary course of business.
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(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11 or in
Section 10, Marquee shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. Unit Purchase Option.
At or before the First Closing Date, Marquee will sell to Royce
Investment Group, Inc. (for its own account and not as Representative of the
several Underwriters), or its designees, as permitted by the NASD, for a
consideration of $300, and upon the terms and conditions set forth in the form
of Unit Purchase Option annexed as an exhibit to the Registration Statement, a
Unit Purchase Option to purchase an aggregate of 300,000 Units. In the event of
conflict in the terms of this Agreement and the Unit Purchase Option, the
language of the Unit Purchase Option shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or its Principal Stockholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in writing,
if sent to the Underwriters, will be mailed, delivered and confirmed to them at
Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York
11797, with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017, attention: Jill M. Cohen, Esq., or if sent to
Marquee, will be mailed, delivered and confirmed to it at 888 Seventh Avenue,
40th Floor, New York, New York 10019, with a copy sent to Baker & McKenzie, 805
Third Avenue, New York, New York 10022, attention: John J. Hentrich, Esq.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or any of the several
Underwriters, and directors of Marquee, nominees for directors (if any) named
in the Prospectus, its officers who have signed the Registration Statement, and
their respective executors, administrators, successors, assigns and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include any purchaser, as such
purchaser, from any of the several Underwriters of the Units. All of the
obligations of the Underwriters hereunder are several and not joint.
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16. Applicable Law.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between Marquee and the several Underwriters in accordance
with its terms.
Very truly yours,
THE MARQUEE GROUP, INC.
By:
---------------------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
ROYCE INVESTMENT GROUP, INC.
By:
---------------------------------------
For itself and as Representative of the
several Underwriters
-32-
<PAGE>
We hereby agree to be bound by the provisions of Sections 3(l), (m),
and (o) and 13 hereof.
- ------------------------------ ------------------------------
The Sillerman Companies, Inc. Louis J. Oppenheim
- ------------------------------ ------------------------------
Robert M. Gutkowski James E. Sileo
- ------------------------------ ------------------------------
Arthur C. Kaminsky Martin Ehrlich
- ------------------------------ ------------------------------
Michael Trager Howard J. Tytel
- ------------------------------ ------------------------------
Michael Letis Kraig G. Fox
-33-
<PAGE>
SCHEDULE A
Underwriter Number of Units to be Purchased
------------------------ --------------------
Royce Investment Group, Inc.
Continental Broker-Dealer Corporation
Total Units:
-------------------
-34-
CERTIFICATE OF MERGER
OF
ATHLETES AND ARTISTS, INC.
AND
A&A ACQUISITION CORP.
INTO
A&A ACQUISITION CORP.
(Under Section 907 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: The Board of Directors of each of the constituent corporations has
duly adopted a plan of merger setting forth the terms and conditions of the
merger of said corporations.
SECOND: The name of the foreign constituent corporation, which is to be
the surviving corporation, and which is hereinafter sometimes referred to as
the "surviving constituent corporation", is A&A Acquisition Corp.. The
jurisdiction of its incorporation is Delaware; and the date of its
incorporation therein is July 15, 1996.
Application for Authority in the State of New York of the surviving
constituent corporation to transact business as a foreign corporation therein
was filed with the Department of State of the State of New York on September 9,
1996.
THIRD: The name of the domestic constituent corporation, which is being
merged into the surviving constituent corporation, and which is hereinafter
sometimes referred to as the "merged constituent corporation", is Athletes and
Artists, Inc. and the name under which it was formed is W.A.C.K. Sports, Inc.
The date upon which its certificate of incorporation was filed by the
Department of State is June 27, 1977.
FOURTH: As to each constituent corporation, the plan of merger sets forth
the designation and number of outstanding shares of each class and series, the
specification of the classes and series entitled to vote on the plan of merger,
and the specification of each class and series entitled to vote as a class on
the plan of merger, as follows:
<PAGE>
<TABLE>
<CAPTION>
A&A Acquisition Corp.
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote as a
series of shares each class vote class
- --------------------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Common Stock, par 100 Common Stock, par N/A
value $.01 per share value $.01 per share
</TABLE>
<TABLE>
<CAPTION>
Athletes and Artists, Inc.
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote as a
series of shares each class vote class
- --------------------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Common Stock, par 15 Common Stock, par N/A
value $.01 per share value $.01 per share
</TABLE>
FIFTH: The merger herein certified was authorized in respect of the merged
constituent corporation by the written consent of the holders of all
outstanding shares of the corporation entitled to vote on the plan of merger.
SIXTH: The merger herein certified is permitted by the laws of the
jurisdiction of incorporation of the surviving corporation and is in compliance
with said laws.
SEVENTH: The surviving constituent corporation agrees that it may be
served with process in the State of New York in any action or special
proceeding for the enforcement of any liability or obligation of the merged
constituent corporation, for the enforcement of any liability or obligation of
the surviving constituent corporation for which the surviving constituent
corporation is previously amenable to suit in the State of New York, and for
the enforcement, as provided in the Business Corporation Law of the State of
New York, of the right of shareholders of the merged constituent corporation to
receive payment for their shares against the surviving constituent corporation.
EIGHTH: The surviving constituent corporation agrees that, subject to the
provisions of section 623 of the Business Corporation Law of the State of New
York, it will promptly pay to the shareholders of the merged constituent
corporation the amount, if any, to which they shall be entitled under the
provisions of the Business Corporation Law of the State of New York relating to
the rights of shareholders to receive payment for their shares.
- 2 -
<PAGE>
NINTH: The surviving constituent corporation hereby designates the
Secretary of State of the State of New York as its agent upon whom process
against it may be served in the manner set forth in paragraph (b) of section
306 of the Business Corporation Law of the State of New York in any action or
special proceeding. The post office address within the State of New York to
which the said Secretary of State shall mail a copy of any process against the
surviving corporation served upon him is:
888 Seventh Avenue, 40th Floor
New York, New York 10019
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: , 1996
--------------------------------
Arthur C. Kaminsky, President of
Athletes and Artists, Inc.
and
--------------------------------
Louis J. Oppenheim, Secretary of
Athletes and Artists, Inc.
and
--------------------------
Robert M. Gutkowski,
President of A & A
Acquisition Corp.
and
---------------------------
Kraig G. Fox, Secretary of
A & A Acquisition Corp.
- 3 -
<PAGE>
INDIVIDUAL
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
Arthur C. Kaminsky, being duly sworn, deposes and says that he is one
of the persons who signed the foregoing certificate of merger on behalf of
Athletes and Artists, Inc.; that he signed said certificate in the capacity set
opposite or beneath his signature thereon; that he has read the foregoing
certificate and knows the contents thereof; and that the statements contained
therein are true to his own knowledge.
----------------------------
Arthur C. Kaminsky, President
Subscribed and sworn to before me
on , 1996.
- ----------------------------
and
INDIVIDUAL
STATE OF )
) SS.:
COUNTY OF )
Robert M. Gutkowski, being duly sworn, deposes and says that he is one of
the persons who signed the foregoing certificate of merger on behalf of A & A
Acquisition Corp.; that he signed said certificate in the capacity set opposite
or beneath his signature thereon; that he has read the foregoing certificate
and knows the contents thereof; and that the statements contained therein are
true to his own knowledge.
-----------------------------
Robert M. Gutkowski, President
Subscribed and sworn to before me
on , 1996.
- ----------------------------
- 4 -
CERTIFICATE OF MERGER
OF
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
AND
SMTI ACQUISITION CORP.
To the Secretary of State
State of Connecticut
Pursuant to the provisions of the Stock Corporation Act of the State
of Connecticut governing the merger of one or more domestic corporations with
and into a foreign corporation, it is hereby certified that:
1. The names of the merging corporations are Sports Marketing &
Television International, Inc., which is a business corporation organized under
the laws of the State of Connecticut, and which is to be the terminating
corporation, and SMTI Acquisition Corp., which is a business corporation
organized under the laws of the State of Delaware, and which is to be the
surviving corporation.
2. Annexed hereto and made a part hereof is the Plan of Merger for
merging Sports Marketing & Television International, Inc. with and into SMTI
Acquisition Corp. as approved by resolution of the Board of Directors of each
of said merging corporations.
3. The shareholder vote required to approve and adopt the Plan of
Merger upon behalf of Sports Marketing & Television International, Inc. is
2,667 votes.
4. The vote for the approval and the adoption of the Plan of Merger
upon behalf of Sports Marketing & Television International, Inc. is 4,000
votes.
5. The laws of the jurisdiction of organization of SMTI Acquisition
Corp. permit the merger of a business corporation of that jurisdiction with and
into a business corporation of another jurisdiction; and the merger of Sports
Marketing & Television International, Inc. with and into SMTI Acquisition Corp.
is in compliance with the laws of the jurisdiction of organization of SMTI
Acquisition Corp.
6. The Plan of Merger provides that SMTI Acquisition Corp. will
continue its existence as the surviving corporation under the name Sports
Marketing & Television International, Inc. pursuant to the provisions of the
laws of the State of Delaware.
<PAGE>
7. SMTI Acquisition Corp. hereby irrevocably appoints the Secretary
of State of the State of Connecticut as its attorney to accept service of
process in any action, suit, or proceeding for the enforcement of any
obligations of Sports Marketing & Television International, Inc. for which SMTI
Acquisition Corp. is liable pursuant to subsection (d) of Section 33-371 of the
Stock Corporation Act of the State of Connecticut, pursuant to the Plan of
Merger, or pursuant to the laws governing SMTI Acquisition Corp.
Dated at __________, on __________, 1996.
Sports Marketing & Television International, Inc.
The undersigned officers of Sports Marketing & Television
International, Inc. do hereby state under the penalties of false statement that
the statements pertaining to Sports Marketing & Television International, Inc.
contained in the foregoing Certificate of Merger are true.
---------------------------------------
Michael Letis, President
---------------------------------------
Michael Trager, Chairman
Dated at ___________, on __________, 1996.
SMTI Acquisition Corp.
The undersigned officers of SMTI Acquisition Corp. do hereby state
under the penalties of false statement that the statements pertaining to SMTI
Acquisition Corp. contained in the foregoing Certificate of Merger are true.
---------------------------------------
Robert M. Gutkowski, President
---------------------------------------
Kraig G. Fox, Secretary
- 2 -
AMENDED AND RESTATED BY-LAWS
OF
THE MARQUEE GROUP, INC.
(ORGANIZED UNDER THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock
in the Corporation shall be signed by, or in the name of, the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation. Any or all of the
signatures on any such certificate may be a facsimile. In the event any
officer, transfer agent, or registrar of the corporation who has signed or
whose facsimile signature has been placed upon such a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series of the Corporation shall
be noted conspicuously on the certificate representing such shares.
The Corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors may provide by resolution or
resolutions that some or all of any or all classes or series of the stock of
the Corporation shall be uncertificated shares. Within a reasonable time after
the issuance or transfer of any uncertificated shares, the Corporation shall
send to the registered owner thereof any written notice prescribed by the
General Corporation Law.
<PAGE>
3. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall
(but, unless otherwise provided therein, scrip or warrants shall not) entitle
the holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the Corporation in the event of
liquidation. The Board of Directors may cause scrip or warrants to be issued
subject to the conditions that such scrip or warrants shall become void if not
exchanged for certificates representing the full shares or uncertificated full
shares before a specified date, or subject to the conditions that the shares of
the Corporation's stock for which scrip or warrants are exchangeable may be
sold by the Corporation and the proceeds thereof distributed to the holders of
scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof,
or by such holder's attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, upon surrender of the certificate or certificates for such shares
of stock, which certificate or certificates shall have been properly endorsed,
and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders of
the Corporation or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which record date shall not be more than sixty (60)
days nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders of the Corporation shall
apply to any adjournment of such meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting. In order that
the Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation 's registered office shall be by
hand
<PAGE>
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order
that the Corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock of the Corporation and to a holder or holders of record of such
outstanding shares of stock when the Corporation is authorized to issue only
one class of shares of stock. Said reference also is intended to include any
outstanding share or shares of stock and any holder or holders of record of
outstanding shares of stock of any class upon which or upon whom the
Certificate of Incorporation of the Corporation confers such rights where there
are two or more classes or series of shares of stock or upon which or upon whom
the General Corporation Law confers such rights notwithstanding that the
Certificate of Incorporation may provide for more than one class or series of
shares of stock, one or more of which are limited or denied such rights
thereunder; provided, however, that no such right shall vest in the event of an
increase or a decrease in the authorized number of shares of stock of any class
or series which is otherwise denied voting rights under the provisions of the
Corporation's Certificate of Incorporation, except as any provision of law may
otherwise require.
7. MEETINGS OF STOCKHOLDERS.
(a) Time. The annual meeting of the stockholders of the
Corporation shall be held on the date and at the time fixed, from time to time,
by the Board of Directors, provided that the first annual meeting of the
stockholders of the Corporation shall be held on a date within thirteen (13)
months after the organization of the Corporation, and each successive annual
meeting shall be held on a date within thirteen (13) months after the date of
the preceding annual meeting. A special meeting of the stockholders of the
Corporation shall be held on the date and at the time fixed by the Board of
Directors.
(b) Place. Annual meetings and special meetings of the
stockholders of the Corporation shall be held at such place, within or without
the State of Delaware, as the Board of Directors may, from time to time, fix.
Whenever the Board of Directors shall fail to fix such place, the meeting shall
be held at the registered office of the Corporation in the State of Delaware.
<PAGE>
(c) Call. Annual meetings and special meetings of the
stockholders of the corporation may be called by the Board of Directors or by
any officer of the Corporation instructed by the Board of Directors to call
such meeting. In addition, special meetings of the stockholders of the
Corporation may be called by any holder of at least 10% of the outstanding
shares entitled to vote at such meeting.
(d) Notice or Waiver of Notice. Written notice of all meetings
of the stockholders of the Corporation shall be given and shall set forth the
place, the date, and the hour of the meeting and stating the place within the
city or other municipality or community at which the list of stockholders of
the Corporation may be examined. The notice of an annual meeting of the
stockholders of the Corporation shall state that the meeting is called for the
election of Directors and for the transaction of any other business which may
properly come before the meeting, and shall (if any other action which could be
taken at a special meeting is to be taken at such annual meeting) state the
purpose or purposes. The notice of a special meeting shall in all instances
state the purpose or purposes for which the meeting is called. The notice of
any meeting of the stockholders of the Corporation also shall include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law of the State of Delaware. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten (10) days nor more
than sixty (60) days before the date of the meeting, unless the lapse of the
prescribed period of time shall have been waived, and directed to each
stockholder at such stockholder's record address or at such other address which
the stockholder may have furnished by request in writing to the Secretary of
the Corporation. Notice by mail shall be deemed to be given when deposited,
with postage thereon prepaid, in the United States Mail. If a meeting is
adjourned to another time, not more than thirty (30) days hence, and/or to
another place, and if an announcement of the adjourned time and/or place is
made at the meeting, it shall not be necessary to give notice of the adjourned
meeting unless the Board of Directors, after adjournment, fix a new record date
for the adjourned meeting. Notice need not be given to any stockholder who
submits a written waiver of notice signed by him before or after the time
stated therein. Attendance of a stockholder at a meeting of stockholders of the
Corporation shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders of the Corporation need be specified in any written waiver of
notice.
(e) Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders of the Corporation, a complete list of the
stockholders, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either (i) at a place
within the city or other municipality or community where the meeting is to be
held, which place shall be specified in the notice of the meeting, or (ii) if
not so specified, at the place where the meeting is to be held. The list of
stockholders also shall be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
of the Corporation who is present at the meeting. The stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this subsection (e) or the books of the
Corporation, or to vote at any meeting of stockholders of the Corporation.
<PAGE>
(f) Conduct of Meeting. Meetings of the stockholders of the
Corporation shall be presided over by one of the following officers in the
order of seniority and if present and acting: (i) the Chairman of the Board of
Directors (if any); (ii) the Vice-Chairman of the Board (if any); (iii) the
President of the Corporation; (iv) a Vice President; or (v) if none of the
foregoing officers is in office and present and acting, by a chairman of the
meeting to be chosen by the stockholders. The Secretary of the Corporation, or,
in his absence, an Assistant Secretary, shall act as secretary of every
meeting; however, if neither the Secretary nor an Assistant Secretary is
present the person presiding at the meeting shall appoint a secretary of the
meeting.
(g) Proxy Representation. Every stockholder of the Corporation may
authorize another person or persons to act for him by proxy in all matters in
which a stockholder is entitled to participate, whether by waiving notice of
any meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or by
his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
(h) Inspectors. The Board of Directors, in advance of any
meeting of the stockholders of the Corporation, may, but need not, appoint one
or more inspectors of election to act at the meeting of stockholders or any
adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In the event any person who may be appointed as an inspector fails
to appear or act at the meeting, the vacancy may be filled by appointment made
by the Board of Directors in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath to faithfully execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspector or inspectors, if any, shall determine
(i) the number of shares of stock outstanding as of the record date and the
voting power of each, (ii) the shares of stock represented at the meeting,
(iii) the existence of a quorum, and (iv) the validity and effect of proxies,
and shall (x) receive votes, ballots, or consents, (y) hear and determine all
challenges and questions arising in connection with the right to vote, (z)
count and tabulate all votes, ballots, or consents, (xx) determine the result,
and (yy) do such acts as are proper to conduct the election or vote with
fairness to all stockholders. At the request of the person presiding at the
meeting, the inspector or inspectors, if any, shall make a report in writing of
any challenge, question, or matter determined by him or them, and shall execute
a certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the Corporation.
(i) Quorum. The holders of a majority of the outstanding shares
of stock of the Corporation shall constitute a quorum at a meeting of
stockholders for the transaction of any business. The stockholders present at
such meeting may adjourn the meeting despite the absence of a quorum.
(j) Voting. Each share of stock shall entitle the holder thereof
to one vote. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy and entitled to vote on the
election of Directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the Certificate of
Incorporation of the Corporation and these By-Laws. In the election of
Directors and for any
<PAGE>
other action voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Action taken pursuant to this
paragraph 8 shall be subject to the provisions of Section 228 of the General
Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
Corporation shall be managed by or shall be under the direction of the Board of
Directors. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of Directors which the Corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A Director need not be a stockholder of
the Corporation, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of three (3) persons.
Thereafter, the number of Directors constituting the whole Board of Directors
shall be at least one. Subject to the foregoing limitation and except for the
initial Board of Directors, such number of Directors may be fixed from time to
time by action of the stockholders or of the Board of Directors, or, if the
number is not fixed, the number shall be three (3). The number of Directors may
be increased or decreased by action of the stockholders or of the Board of
Directors.
3. ELECTION AND TERM. The initial Board of Directors (unless the
members thereof shall have been named in the Certificate of Incorporation of
the Corporation) shall be elected by the incorporator or incorporators, and the
members thereof shall hold office until the first annual meeting of the
stockholders of the Corporation and until their successors are elected and
qualified or until their earlier resignation or removal from the initial Board
of Directors. Thereafter, Directors who are elected at an annual meeting of
stockholders of the Corporation, and Directors who are elected in the interim
to fill vacancies and newly created directorships, shall hold office until the
next annual meeting of stockholders of the Corporation and until their
successors are elected and qualified or until their earlier resignation or
removal. Except as the General Corporation Law may otherwise require, in the
interim between annual meetings of the stockholders or of special meetings of
the stockholders called for the election of Directors and/or for the removal of
one or more Directors and for the filling of any vacancy on the Board of
Directors in that connection, newly created directorships and any vacancies in
the Board of Directors, including unfilled vacancies resulting from the removal
of Directors for cause or without cause, may be filled by the vote of a
majority of the remaining Directors then in office, although less than a
quorum, or by the sole remaining Director. Any Director may resign at any time,
upon written notice to the Corporation
<PAGE>
4. MEETINGS OF THE BOARD OF DIRECTORS
(a) Time. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board
shall be held as soon after its election as the members thereof may
conveniently assemble.
(b) Place. Meetings of the Board of Directors shall be held at
such place within or without the State of Delaware as shall be fixed by
the Board of Directors.
(c) Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of either the Chairman of the Board (if any), the
Vice-Chairman of the Board (if any), or the President of the Corporation, or by
or at the direction of a majority of the Directors then in office.
(d) Notice or Actual or Constructive Waiver. No notice of a
meeting of the Board of Directors shall be required for regular meetings for
which the time and place have been fixed. Written, oral, or any other mode of
notice of the time and place shall be given for special meetings in sufficient
time for the convenient assembly of the Directors thereat. Notice need not be
given to any Director or to any member of any committee of the Board of
Directors who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of any Director or committee member at a
meeting shall constitute a waiver of notice of such meeting, except when such
Director or committee member attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Directors needs be specified in any written waiver of notice.
(e) Quorum and Action. A majority of the whole Board of
Directors shall constitute a quorum except when a vacancy or vacancies prevents
such majority, whereupon a majority of the Directors then in office shall
constitute a quorum, provided, that such majority shall constitute at least
one-third of the entire Board of Directors. A majority of the Directors present
at a meeting, whether or not a quorum is present, may adjourn such meeting to
another time and place. Except as herein otherwise provided, and except as
otherwise provided by the General Corporation Law, the vote of a majority of
the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of Directors held to
fill vacancies in and newly created directorships on the Board of Directors or
an action of disinterested Directors.
(f) Chairman of the Meeting. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings of the Board of
Directors. Otherwise, the Vice-Chairman of the Board, if any and if present and
acting, or the President, if present and acting, or any other Director chosen
by the whole Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any Director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of Directors.
<PAGE>
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board of
Directors may designate one or more Directors as alternate members of any
committee, which alternate committee member may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any such committee or committees, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors designating such committee, shall have
and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, with the exception
of any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
7. INFORMAL ACTION. Any member or members of the Board of
Directors or of any committee designated by such Board may participate in a
meeting of the Board of Directors or any such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
8. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
1. DESIGNATION. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or
desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman
of the Board, an Executive Vice President, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such otherI
officers with such titles as the resolution of the Board of Directors choosing
them shall designate.
2. QUALIFICATION. Except as may otherwise be provided in the
resolution of the Board of Directors choosing him, no officer other than the
Chairman or Vice-Chairman of the Board, if any, need be a Director. Any number
of offices may be held by the same person, as the Board of Directors may
determine.
3. TERM OF OFFICE. Unless otherwise provided in the resolution or
instrument appointing him, each officer of the Corporation shall be chosen for
a term which shall continue until the meeting of the Board of Directors
following the next annual meeting of stockholders and until his successor shall
have been appointed and qualified.
<PAGE>
Any officer of the Corporation may be removed, with or without cause
by the Board of Directors, and any subordinate or junior officer not appointed
by the Board of Directors, but appointed under duly constituted authority
conferred by the Board of Directors, may be removed, with or without cause, by
the officer or officers who appointed him.
Any vacancy in any office may be filled by the Board of Directors. A
vacancy in any junior or subordinate office not filled by the Board of
Directors may be filled by the officer or officers duly vested with the
authority to appoint the person to fill such office.
4. APPOINTMENT OF OFFICERS. The Board of Directors shall appoint the
President, the Secretary, the Treasurer, the Chairman of the Board (if any),
the Vice Chairman of the Board (if any) and the Executive Vice President (if
any), and one or more additional Vice Presidents (if any), and such other
officers as may be designated by it, and may confer upon any executive officer
or executive officers the authority to appoint junior or subordinate officers.
5. DUTIES AND AUTHORITY. In addition to those duties that may from
time to time be delegated to them by the Board of Directors, the officers of
the Corporation shall have the following duties:
(a) Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders of the Corporation and of the Board
of Directors at which he is present; shall be ex officio a member of all
committees formed by the Board of Directors; shall be an active participant in
the management of the business of the Corporation; shall have authority to do
anything the President may do; and shall have such other duties and powers as
the Board of Directors may prescribe.
(b) President. The President shall be the chief executive
officer of the Corporation, shall; together with the Chairman of the Board,
have general and active management of the business of the Corporation; shall
see that all orders and resolutions of the Board of Directors are carried into
effect; and, in the absence or non-election of the Chairman of the Board, shall
preside at all meetings of the stockholders of the Corporation and the Board of
Directors at which he is present if he is also a Director. The President also
shall execute bonds, mortgages and other contracts requiring a seal under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be delegated expressly by the Board of Directors to some other
officer or agent of the Corporation, and shall have such other powers and
duties and the Board of Directors may prescribe.
(c) Vice President. The Vice President or Vice President (if
any) shall have such duties and powers as the Board of Directors or the
President may prescribe. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (if any) or, if there be more
than one, the Vice Presidents, in the order designated by the Board of
Directors, or, in the absence of such designation, then in the order of their
appointment, shall perform the duties and exercise the powers of the President.
(d) Secretary and Assistant Secretary. The Secretary shall
record the proceedings of all meetings and actions in writing of the
stockholders of the Corporation and the Board of Directors in books to be kept
for that purpose; shall perform like duties for the standing committees of the
Board of Directors when required; and shall give, or cause to be given, calls
and/or notices of all meetings of the stockholders of the Corporation and
meetings of the Board of Directors in accordance with these By-
Laws. The Secretary also shall have custody of the corporate seal and shall
attest thereto when authorized by the Board of Directors or the President; and
shall have such other duties and powers as the Board of Directors may prescribe.
The Assistant Secretary (if any) or, if there be more than one,
the Assistant Secretaries, in the order designated by the Board of Directors,
or, in the absence of such designation, then in the order of their appointment,
shall, in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the powers of the
Secretary; and shall have such other duties and powers as the Board of
Directors may prescribe. Any officer of the Corporation may be removed, with or
without cause, by the Board of Directors. Any vacancy in any office may be
filled by the Board of Directors.
In the absence of the Secretary or an Assistant Secretary , or
in the event of the inability or refusal of such officer to give or cause to be
given any call and or notice required by law or these By-Laws, any such all
and/or notice may be given by any person so directed by the Board of Directors,
the President or stockholders of the Corporation upon whose requisition the
meeting is called in accordance with these By-Laws.
(e) Treasurer and Assistant Treasurer. The Treasurer shall have
custody of the corporate funds and securities of the Corporation; shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation; and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer also shall disburse such
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements; shall render the Board of Directors,
when the Board of Directors so requires, an account of all such officer's
transactions and of the financial condition of the Corporation; and shall have
such other duties and powers as the Board of Directors may prescribe. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond, which instrument shall be renewed every six years, in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of such officer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to the
Corporation.
The Assistant Treasurer (if any) or if there be more than one,
the Assistant Treasurers, in the order designated by the Board of Directors,
or, in the absence of such designation, then in the order of their appointment,
shall, in the absence of the Treasurer or in the event of the Treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer; and shall have such other duties and powers as the Board of
Directors may prescribe.
(f) Other Officers. Any other officer of the Corporation shall
have such powers and duties as the Board of Directors may prescribe.
6. RESOLUTIONS AND INSTRUMENTS; EFFECT. The Secretary of the
Corporation shall keep, or cause to be kept, with these By-Laws a copy of every
resolution or instrument designation and appointing officers and prescribing
their qualifications, tenure, authority, duties, compensation and other
appropriate incidents and attributes of office; and each such resolution or
instrument shall be deemed to be a component part of these By-Laws.
<PAGE>
ARTICLE IV
INDEMNIFICATION
The Corporation shall indemnify its officers, Directors,
employees and agents to the full extent permitted by the General Corporation
Law.
Expenses incurred by a Director in defending a civil or criminal
action, suit or proceeding by reason of the fact that he is was a Director (or
was serving at the Corporation's request as a director or officer of another
corporation) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such Director to repay such amount if it ultimately shall be
determined that such Director is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the General Corporation Law.
The indemnification and advancement of expenses provided by this
Bylaw shall not be deemed exclusive of any other rights provided by any
agreement, vote of stockholders or disinterested Directors or otherwise.
ARTICLE VI
GENERAL PROVISIONS
1. DIVIDENDS. Dividends upon the capital stock of the Corporation may
be declared by the Board of Directors in any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property or in shares of
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors, from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the Board of Directors shall think conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
2. CHECKS. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed,
and shall be subject to change, by the Board of Directors.
4. CORPORATE SEAL. The corporate seal shall be in such form as the
Board of Directors shall prescribe.
<PAGE>
ARTICLE VII
CONTROL OVER BY-LAWS
Subject to the provisions of the Certificate of Incorporation of the
Corporation and the provisions of the General Corporation Law, the power to
amend, alter, or repeal these By-Laws and to adopt new by-laws may be exercised
by the Board of Directors or by the stockholders.
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of this ____th day of ___________, 1996, by and
among The Marquee Group, Inc., a Delaware corporation ("Company"), Continental
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"), Royce
Investment Group, Inc., a New York corporation ("Royce") and Continental
Broker-Dealer Corporation, a ________________ corporation ("CBDC", and together
with Royce, the "Underwriters").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with (i) a public offering of up to 3,450,000
units ("Units"), each unit consisting of one (1) share of the Company's Common
Stock, $.01 par value ("Common Stock"), and one (1) redeemable Warrant
("Warrants") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated _______________, 1996 between the Company and the
Underwriters, (ii) the issuance to the Underwriters or their designees of Unit
Purchase Options to purchase an aggregate of 300,000 additional Units, to be
dated as of __________, 1996 (the "Unit Purchase Options"), and (iii) the
issuance of 2,000,000 Warrants (the "Private Placement Warrants") to certain
securityholders of the Company upon conversion of debentures acquired by them
in a private placement in August 1996, the Company may issue up to 5,750,000
Warrants; and
WHEREAS, each Warrant initially entitles the Registered Holder thereof
to purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 25,000,000 shares of Common
Stock, $.01 par value.
<PAGE>
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at Two Broadway, 19th
Floor, New York, NY 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean as to each Warrant the
Separation Date (as herein defined); provided that the Initial Warrant Exercise
Date shall be subject to such contractual modifications or adjustments pursuant
to instructions the Company and the Underwriters may deliver to the Transfer
Agent (as herein defined).
(e) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $7.50, subject to adjustment from time to time pursuant to the provisions of
Section 9 hereof, and subject to the Company's right to reduce the Purchase
Price upon notice to all Registered Holders of Warrants.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Warrants, which
price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Separation Date" shall mean __________ , 1997, or such earlier
time as Royce, as Representative, in its sole discretion shall determine.
(i) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_________, 2001 or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically excluding
Warrants issuable upon exercise of Unit Purchase Options if the Unit Purchase
Options have not been exercised, the Redemption Date, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized or required to close, then 5:00 P.M. (New York
time) on the next following day which in the State of New York is not a holiday
or a day on
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<PAGE>
which banks are authorized or required to close. Upon notice to all
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject
to modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of Units will not be
detachable or separately transferable from the shares of Common Stock
constituting part of such Units until the Separation Date. The exercisability
and transferability of the Warrants shall be subject to such contractual
modifications or adjustments pursuant to instructions the Company and the
Underwriters may deliver to the Transfer Agent.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
plus the number of Private Placement Warrants shall be executed by the Company
and delivered to the Warrant Agent. Upon written order of the Company signed by
its President or Chairman or a Vice President and by its Secretary or an
Assistant Secretary, the Warrant Certificates shall be countersigned, issued
and delivered by the Warrant Agent as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 5,750,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise
of fewer than all Warrants represented by any Warrant Certificate, to evidence
any unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued
in replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Unit Purchase Options;
and (vi) at the option of the Company, in such form as may be approved by the
its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon exercise of the
Warrants or the Target Price(s) therefor made pursuant to Section 9 hereof.
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<PAGE>
(f) Pursuant to the terms of the Unit Purchase Options, the
Underwriters, or their designees, may purchase up to 300,000 Units, which
include up to 300,000 Warrants. Notwithstanding anything to the contrary
contained herein, the Warrants underlying the Unit Purchase Option shall not be
subject to redemption by the Company except under the terms and conditions set
forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of the Nasdaq Stock Market or any stock exchange on
which the Warrants may be listed, or to conform to usage or to the requirements
of Section 2(d). The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrant Certificates shall be numbered serially with the
letter W on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates shall
be delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such
exercise shall
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<PAGE>
be treated for all purposes as the holder of those securities upon the exercise
of the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company
in writing of the exercise of the Warrants. Promptly following, and in any
event within five days after the date of such notice from the Warrant Agent,
the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon
such exercise, (plus a Warrant Certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of
such certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Notwithstanding the
foregoing, in the case of payment made in the form of a check drawn on an
account of Royce or CBDC or such other investment banks and brokerage houses as
the Company shall approve in writing to the Warrant Agent, certificates shall
immediately be issued without prior notice to the Company or any delay. Upon
the exercise of any Warrant and clearance of the funds received, the Warrant
Agent shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing, subject to
the provisions of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after , 1997, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule may be in effect as of such time of exercise) promulgated under
the Securities Exchange Act of 1934, then the Warrant Agent, simultaneously
with the distribution of the Warrant Proceeds to the Company shall, on behalf
of the Company, pay from the Warrant Proceeds, a fee of five percent (5%) (the
"Solicitation Fee") of the Purchase Price to Royce, as Representative of the
Underwriters; provided that either Royce or CBDC shall have solicited the
exercise of the applicable warrant as evidenced in writing in the Warrant
Certificate Subscription Form. Upon receipt of the solicitation fee from the
Warrant Agent, Royce shall in turn, if and as applicable, forward all (in the
event that CBDC solicited the exercise of the applicable warrant as evidenced
in writing in the Warrant Certificate Subscription Form) or, if unclear whether
CBDC solicited the exercise of the applicable warrant, a portion of the
Solicitation Fee to CBDC, to the extent that Royce, in its sole discretion
shall determine (of which a portion may be reallowed to the dealer who
solicited the exercise, which may also be an Underwriter). In the event the
Solicitation Fee is not received within five days of the date on which the
Company receives Warrant Proceeds, then the Solicitation Fee shall begin
accruing interest at an annual rate of prime plus four percent (4%), payable by
the Company to the Underwriters at the time the Underwriters receives the
Solicitation Fee. Within five days after exercise the Warrant Agent shall send
to the Underwriters a copy of the reverse side of each
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<PAGE>
Warrant exercised. The Underwriters shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this Section
4(b). In addition, the Underwriters and the Company may at any time during
business hours, examine the records of the Warrant Agent, including its ledger
of original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. The provisions of this paragraph may not be modified, amended or
deleted without the prior written consent of the Underwriters.
(c) In order to enforce the provisions of Section 4(b) above, in the
event there is any dispute or question as to the amount or payment of the
Solicitation Fee, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount
of the Solicitation Fee, which amount will be deducted from the net Warrant
Proceeds to be paid to the Company. The funds placed in the escrow account may
not be released to the Company without a written agreement from Royce that the
required Solicitation Fee has been received by Royce.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, (other than those which the Company shall
promptly pay or discharge), and that upon issuance such shares shall be listed
on each national securities exchange on which the other shares of outstanding
Common Stock of the Company are then listed or shall be eligible for inclusion
in the Nasdaq National Market or the Nasdaq SmallCap Market if the other shares
of outstanding Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the
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shares of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or
his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant
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Agent, or, with the prior written consent of the Underwriters, disposed of or
destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(f) hereof, on not less
than thirty (30) days notice given at any time after , 1997 (the "Redemption
Notice"), to Registered Holders of the Warrants being redeemed, the Warrants
may be redeemed, at the option of the Company, at a redemption price of $0.05
per Warrant, provided the Market Price of the Common Stock receivable upon
exercise of such Warrants shall exceed $11.50 with respect to the Warrants (the
"Target Price"), subject to adjustment as set forth in Section 8(f), below.
Market Price shall mean the average closing bid price of the Common Stock, for
twenty (20) consecutive business days ending on the Calculation Date as
reported by Nasdaq, if the Common Stock is traded on the Nasdaq SmallCap
Market, or as reported by the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange, or by
Nasdaq, if the Common Stock is traded on the Nasdaq National Market. All
Warrants of a class must be redeemed if any of that class are redeemed,
provided that the Warrants underlying the Unit Purchase Option may only be
redeemed in compliance with and subject to the terms and conditions of the Unit
Purchase Option. For purposes of this Section 8, the Calculation Date shall
mean a date within 5 days of the mailing of the Redemption Notice. The date
fixed for redemption of the Warrants is referred to herein as the "Redemption
Date".
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
the Underwriters to mail a Redemption Notice to each of the Registered Holders
of the Warrants to be redeemed, first class,
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<PAGE>
postage prepaid, not later than the thirtieth day before the date fixed for
redemption, at their last address as shall appear on the records maintained
pursuant to Section 6(b). Any notice mailed in the manner provided herein shall
be conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the Underwriters will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Underwriters or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the
place specified in the Redemption Notice, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants
shall expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price,
shall cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Prices shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common
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Stock for a consideration per share less than the Market Price of the Common
Stock (as defined in Section 8, except that for purposes of Section 9, the
Calculation Date shall mean the date of the sale or other transaction referred
to in this Section 9) on the date of the sale or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f)(F) below) for
the issuance of such additional shares would purchase at the Market Price and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares.
Such adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant, shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) equal to the fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such
adjustment.
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<PAGE>
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations of the Company under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(f) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a
statement of the facts accounting for such adjustment and showing in detail the
method of calculation and the facts upon which such adjustment or readjustment
is based,
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including a statement of (a) the consideration received or to be received by
the Company for any securities issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Purchase Price in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Section 9) on
account thereof. The Company will promptly file such certificate with the
Warrant Agent and furnish a copy thereof to be sent by ordinary first class
mail to the Underwriters and to each Registered Holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The Company will, upon the written request at any time of the
Underwriters, furnish to the Underwriters a report by Ernst & Young LLP, or
other independent public accountants of recognized national standing (which may
be the regular auditors of the Company) selected by the Company to verify such
computation and setting forth such adjustment or readjustment and showing in
detail the method of calculation and the facts upon which such adjustment or
readjustment is based. The Company will also keep copies of all such
certificates and reports at its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or
for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10
in the Purchase Price; provided that any adjustments which by reason
of this clause (B) are not required to be made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment(s) so
carried forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash (or as a
component of a unit being sold for cash) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common
Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than
cash, if any (such securities convertible, exercisable or exchangeable
into Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Company, without the receipt by the Company of
any consideration therefor, of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each
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case, if (and only if) the consideration payable to the Company upon
the exercise of such rights, warrants or options shall consist of
cash, whether or not such rights, warrants or options, or the right to
convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities (determined
by dividing (x) the minimum aggregate consideration payable to the
Company upon the exercise of such rights, warrants or options, plus
the consideration, if any, received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, other than such Convertible Securities, payable upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights,
warrants or options) is less than the Market Price of the Common Stock
on the date of the issuance or sale of such rights, warrants or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options)
shall be deemed to be outstanding shares of Common Stock for purposes
of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing (x)
the total amount of consideration received by the Company for the sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than
the Market Price of the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or
(D) above or any other securities of the Company convertible,
exchangeable or exercisable for
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shares of Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the
Market Price on the date prior to such modification, the Purchase
Price to be in effect after such modification shall be determined by
multiplying the Purchase Price in effect immediately prior to such
event by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date prior to the
modification plus the number of shares of Common Stock which the
aggregate consideration receivable by the Company for the securities
affected by the modification would purchase at the Market Price and of
which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to
be issued upon conversion, exchange or exercise of the modified
securities at the modified rate. Such adjustment shall become
effective as of the date upon which such modification shall take
effect. On the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such
Convertible Securities referred to in Paragraph (C) or (D) above, the
Purchase Price then in effect hereunder shall forthwith be readjusted
to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities and (b) had adjustments been
made on the basis of the Purchase Price as adjusted under clause (a)
for all transactions (which would have affected such adjusted Purchase
Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed
by the Company in connection therewith.
(G) In case any event shall occur as to which the provisions of
Section 9 are not strictly applicable but the failure to make any
adjustment would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and principles of
such Sections, then, in each such case, the Board of Directors of the
Company shall in good faith by resolution provide for the adjustment,
if any, on a basis consistent with the essential intent and principles
established in Section 9, necessary to preserve, without dilution, the
purchase
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rights represented by the Warrants. The Company will promptly make the
adjustments described therein.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's 1996 Stock Option Plan (the "Plan")
for officers, directors and certain other key personnel of the
Company; or
(ii) upon the issuance or exercise of any other securities which
may hereafter be granted or exercised under the Plan or under any
other employee benefit plan of the Company approved by stockholders of
the Company; or
(iii) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants
comprising the Unit Purchase Option or upon the sale or exercise of
the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock or Convertible
Securities in a firm commitment underwritten public offering,
including, without limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in connection with
such offering; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon
the issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of
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Incorporation as Common Stock on the date of the original issue of the Units or
(i), in the case of any reclassification, change, consolidation, merger, sale
or conveyance of the character referred to in Section 9(c) hereof, the stock,
securities or property provided for in such section or (ii), in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(i) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
of the Warrants outstanding, as of the record date for such transaction the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(i), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon the
exercise of any Warrant, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or is traded on the Nasdaq National Market, the current market value
shall be the last reported sale price of the Common Stock on such
exchange or market on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the
average of the closing bid and asked prices for such day on such
exchange or market; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on a national securities exchange or is not traded
on the Nasdaq National Market, the current market value shall be the
mean of the last reported bid and asked prices reported by the Nasdaq
SmallCap Market or, if not traded
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thereon, by the National Quotation Bureau, Inc. on the last business
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
-17-
<PAGE>
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and cancelled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further
-18-
<PAGE>
agrees to indemnify the Warrant Agent and save it harmless against any and all
losses, expenses and liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities arising as
a result of the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company that is
a registered transfer agent under the Securities Exchange Act of 1934, as
amended. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
-19-
<PAGE>
SECTION 16. Modification of Agreement. Subject to the provisions of
Section 4(b), the parties hereto and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Warrants which are to be governed by this Agreement
resulting from a subsequent public offering of Company securities which
includes Warrants having the same terms and conditions as the Warrants
originally covered by or subsequently added to this Agreement under this
Section 16; or (iii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of
the Registered Holders of Warrant Certificates representing not less than 50%
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed
or are made in compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, at 888 Seventh Avenue, 40th Floor, New York,
New York 10019, attention: Robert M. Gutkowski, President, or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; if to the Warrant Agent, at its Corporate Office; if to Royce, at
Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, NY 11797; if
to CBDC, at Continental Broker-Dealer Corporation, _____________.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close
of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants (including the warrants issuable upon exercise of the Unit
Purchase Options) have been exercised,
-20-
<PAGE>
except that the Warrant Agent shall account to the Company for cash held by it
and the provisions of Section 15 hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
THE MARQUEE GROUP, INC.
By:
------------------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:
------------------------------
Authorized Officer
ROYCE INVESTMENT GROUP, INC.
By:
------------------------------
Authorized Officer
CONTINENTAL BROKER-DEALER
CORPORATION
By:
------------------------------
Authorized Officer
-21-
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _____Warrants
VOID AFTER , 2001
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
The Marquee Group, Inc.
This certifies that FOR VALUE RECEIVED __________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value ("Common Stock"), of The Marquee Group, Inc., a Delaware
corporation (the "Company"), at any time between the Separation Date (as
defined in the Warrant Agreement), and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $7.50 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to The Marquee Group, Inc.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
______________, 1996 by and among the Company, the Warrant Agent, Royce
Investment Group, Inc. ("Royce") and Continental Broker-Dealer Corporation
("CBDC").
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate
A-1
<PAGE>
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant Agent
shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
_________________, 2001 or such earlier date as the Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which
banks are authorized to close, then the Expiration Date shall mean 5:00 P.M.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same
to become effective and to keep such registration statement current while any
of the Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with [a $ transfer
fee per certificate] in addition to any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant at any time after , 1997
provided the Market Price (as defined in the Warrant Agreement) for the Common
Stock shall exceed $11.50 per share. Notice of redemption shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants
represented hereby except to receive the $.05 per Warrant upon surrender of
this Warrant Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
THE MARQUEE GROUP, INC.
Dated: By:
------------- -----------------------------
By:
-----------------------------
[seal]
Countersigned:
- ---------------------------------
as Warrant Agent
By
------------------------------
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
[TRANSFER FEE: $_______ PER CERTIFICATE ISSUED]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
and be delivered to
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Royce
Investment Group, Inc.
------------------------------------
(Name of NASD Member)
Dated: X
------------- ----------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Taxpayer Identification Number
------------------------------------
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
_________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints ________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: X
------------- ----------------------------------
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
Option to Purchase
300,000 Units
The Marquee Group, Inc.
Unit Purchase Option
Dated: ___________, 1996.
THIS CERTIFIES THAT Royce Investment Group, Inc. (herein sometimes
called the "Holder") is entitled to purchase from The Marquee Group, Inc., a
Delaware corporation (hereinafter called the "Company"), at the prices and
during the periods as hereinafter specified, up to _________ thousand
(________) Units ("Units"), each Unit consisting of one share of the Company's
Common Stock, $.01 par value, as now constituted ("Common Stock"), and one
warrant ("Warrants"). Each Warrant is exercisable to purchase one share of
Common Stock at an exercise price of $7.50, subject to adjustment, from the
Separation Date (as defined in the Warrant Agreement) to _______ , 2001.
The Units have been registered under a Registration Statement on Form
SB-2, (File No. 333-11287) declared effective by the Securities and Exchange
Commission on _______ (the "Registration Statement"). This Option, together
with options of like tenor, constituting in the aggregate options (the
"Options") to purchase 300,000 Units, subject to adjustment in accordance with
Section 8 of this Option (the "Option Units"), was originally issued pursuant
to an underwriting agreement between the Company and Royce Investment Group,
Inc. and Continental Broker-Dealer Corporation, as underwriters (the
"Underwriters") in connection with a public offering (the "Offering") of
3,000,000 Units (the "Public Units") through the Underwriters, in consideration
of $300 received for the Options.
Except as specifically otherwise provided herein, the Common Stock and
the Warrants issued pursuant to the option herein granted (the "Option") shall
bear the same terms and conditions as described under the caption "Description
of Securities" in the Registration Statement, and the Warrants shall be
governed by the terms of the Warrant Agreement dated as of _______, 1996
executed in connection with such public offering (the "Warrant Agreement"),
except that (i) the holder shall have registration rights under the Securities
Act of 1933, as amended (the "Act"), for the Option, the Common Stock and the
Warrants included in the Option Units, and the shares of Common Stock
underlying the Warrants, as more fully described in Section 6 of this Option
and (ii) the Warrants issuable upon exercise of the Option will be subject to
redemption by the Company pursuant to the Warrant Agreement at any time after
the Option has been exercised and the Warrants underlying the Option Units are
outstanding. Any such redemption shall be on the same terms and conditions as
the Warrants included in the Public Units (the "Public Warrants"). The Company
will use its best efforts to list the Common Stock underlying this Option and,
at the Holder's request the Warrants, on the Nasdaq National Market, the Nasdaq
SmallCap Market or such other exchange or market as the Common Stock or Public
<PAGE>
Warrants may then be listed or quoted. In the event of any extension of the
expiration date or reduction of the exercise price of the Public Warrants, the
same changes to the Warrants included in the Option Units shall be
simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) During the period from _______, 1996 to _______, 1998
inclusive, the Holder shall have no right to purchase any Option
Units hereunder, except that in the event of any merger,
consolidation or sale of all or substantially all the capital
stock or assets of the Company or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of another
corporation into the Company) subsequent to ___________, 1996,
the Holder shall have the right to exercise this Option and the
Warrants included herein at such time and receive the kind and
amount of shares of stock and other securities and property
(including cash) which a holder of the number of shares of Common
Stock underlying this Option and the Warrants included in this
Option would have owned or been entitled to receive had this
Option been exercised immediately prior thereto.
(b) Between _______, 1998 and _______,2001, inclusive, the
Holder shall have the option to purchase Option Units hereunder
at a price of $____ per Unit. For purposes of the adjustments
under Section 8 hereof, the Per Share Exercise Price shall be
deemed to be $____, subject to further adjustment as provided in
such Section 8.
(c) After _________, 2001 the Holder shall have no right to
purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company);
(ii) payment to the Company of the exercise price then in effect for the number
of Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 herein. This
Option shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the date this
Option is surrendered and payment is made in accordance
-2-
<PAGE>
with the foregoing provisions of this Section 2, and the person or persons in
whose name or names the certificates for shares of Common Stock and Warrants
shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock and Warrants at that time and date. The
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder as soon as practicable but not later than ten (10) days after the
rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during which
this Option may be exercised, the Holder may, at its option, exchange this
Option, in whole or in part (an "Option Exchange"), into the number of Option
Units determined in accordance with this Section (b), by surrendering this
Option at the principal office of the Company or at the office of its stock
transfer agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Option Units into which this Option is to be
exchanged and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock and Warrants issuable upon such Option Exchange and, if
applicable, a new Option of like tenor evidencing the balance of the Option
Units remaining subject to this Option, shall be issued as of the Exchange Date
and delivered to the Holder within ten (10) days following the Exchange Date.
In connection with any Option Exchange, this Option shall represent the right
to subscribe for and acquire the number of Option Units (rounded to the next
highest integer) equal to (x) the number of Option Units specified by the
Holder in its Notice of Exchange up to the maximum number of Option Units
subject to this option (the "Total Number") less (y) the number of Option Units
equal to the quotient obtained by dividing (A) the product of the Total Number
and the existing Exercise Price by (B) the Fair Market Value. "Fair Market
Value" shall mean first, if there is a trading market as indicated in
Subsection (i) below for the Units, such Fair Market Value of the Units and if
there is no such trading market in the Units, then Fair Market Value shall have
the meaning indicated in Subsections (ii) through (v) below for the aggregate
value of all shares of Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq National Market or the Nasdaq
SmallCap Market, the Fair Market Value shall be the average of the
last reported sale prices or the average of the means of the last
reported bid and asked prices, respectively, of the Units on such
exchange or market for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value shall be the average of
the last reported sale prices or the average of the means of the last
reported bid and asked prices, respectively, of Common
-3-
<PAGE>
Stock or Warrants, respectively, on such exchange or market for the
twenty (20) business days ending on the last business day prior to the
Exchange Date; or
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall
be the average of the means of the last reported bid and asked prices
of the Common Stock or Warrants, respectively, for the twenty (20)
business days ending on the last business day prior to the Exchange
Date; or
(iv) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount, not less than book
value thereof as at the end of the most recent fiscal year of the
Company ending prior to the Exchange Date, determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company; or
(v) If the Warrants are not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported for
Warrants, then Fair Market Value for the Warrants shall be an amount
equal to the difference between (i) the Fair Market Value of the
shares of Common Stock and Warrants which may be received upon the
exercise of the Warrants, as determined herein, and (ii) the Warrant
Exercise Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of two years
commencing on the effective date of the Registration Statement except that they
may be transferred to successors of the Holder, and may be assigned in whole or
in part to any person who is an officer of the Holder, any member participating
in the selling group relating to the Offering or any officer of such selling
group member. Any such assignment shall be effected by the Holder (i) executing
the form of assignment at the end hereof and (ii) surrendering this Option for
cancellation at the office or agency of the Company referred to in Section 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation), stating that each transferee is a permitted
transferee under this Section 3 hereof; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new Option
or Options of like tenor and representing in the aggregate rights to purchase
the same number of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Option Units purchased hereunder and the
Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of
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<PAGE>
shares of its Common Stock to provide for the exercise of this Option and that
it will have authorized and reserved a sufficient number of shares of Common
Stock for issuance upon exercise of the Warrants included in the Option Units.
5. This Option shall not entitle the Holder to any voting rights or
any other rights, or subject to the Holder to any liabilities, as a stockholder
of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds
Option Units or any of the securities underlying the Option Units, by written
notice at least four weeks prior to the filing of any post-effective amendment
to the Registration Statement or of any new registration statement or
post-effective amendment thereto under the Act covering any securities of the
Company, for its own account or for the account of others, and will for a
period of seven years from the effective date of the Registration Statement,
upon the request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of the Option, all or any of the Option Units, the Common Stock or
Warrants included in the Option Units or the Common Stock issuable upon the
exercise of the Warrants (the "Registrable Securities").
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time to the effect that such holder desires to register
under the Act this Option, the Option Units or any of the underlying securities
contained in the Option Units under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved then the Company will promptly, but no later than two weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement on such form as may be
permitted under the Act and as may be selected by the Company, to the end that
the Option, the Option Units and/or any of the securities underlying the Option
Units may be publicly sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
and remain effective (including the taking of such steps as are necessary to
obtain the removal of any stop order); provided, that such 50% holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request in writing. The 50% holder may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act on one occasion during
the four year period beginning one year from the effective date of the
Registration Statement. The 50% holder may, at its option request the
registration of the Option and/or any of the securities underlying the Option
in a registration statement made by the Company as contemplated by Section 6(a)
or in connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Option Units issuable upon exercise of the Option and even
though the 50% holder has not given notice of exercise of the Option. The 50%
holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Common Stock and/or
Warrants included in the Option Units and/or the Common Stock issuable upon the
exercise of the Warrants, and such
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<PAGE>
registration rights may be exercised by the 50% holder prior to or subsequent
to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this
Section 6(b), the Company shall give notice to the other holders of the
Options, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein the
securities underlying the Options of the other holders, provided that they
shall furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. In the event the registration statement is not
filed within the period specified herein and in the event the registration
statement is not declared effective under the Act prior to ________, 2001,
then, the Company shall extend the Expiration Date of the Option and the
underlying Warrants to a date not less than 120 days after the effective date
of such post-effective amendment or registration statement. All costs and
expenses of the first such post-effective amendment or new registration
statement under this paragraph 6(b) shall be borne by the Company, except that
the holders shall bear the fees of their own counsel and any underwriting
discounts or commissions and expense allowances applicable to any of the
securities sold by them.
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) The term "50% holder" as used in this Section 6 shall mean
the holder of at least 50% of the Common Stock and the Warrants underlying the
Options (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common Stock held by such owner or
owners as well as the number of shares then issuable upon exercise of the
Warrants.
(d) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, (ii) use its
best efforts to register and qualify any of the Registrable Securities for sale
in such states as such Holder designates; provided however, that the Company
shall not for any purpose be required to execute a general consent to service
of process or be obligated to qualify as a dealer in any jurisdiction in which
it is not so qualified, (iii) furnish indemnification in the manner provided in
Section 7 hereof, (iv) notify each Holder of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an
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<PAGE>
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state
material fact required to be stated therein or necessary to make the statements
therein not misleading and (v) do any and all other acts and things which may
be necessary or desirable to enable such Holders to consummate the public sale
or other disposition of the Registrable Securities, The Holder shall furnish
appropriate information in connection therewith and indemnification as set
forth in Section 7.
(e) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 6(b) hereof without the prior written
consent of the 50% holder.
(f) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) if such
registration includes an underwritten public offering, a "cold comfort" letter
dated the effective date of such registration statement and dated the date of
the closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially
the same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of securities.
(g) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing
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<PAGE>
Holder"), and each person, if any, who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act)
of such securities and each person, if any, who controls (within the meaning of
the Act) any such underwriter, against any losses, claims, damages or
liabilities, joint or several, to which the Distributing Holder, any such
controlling person or any such underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished by such
Distributing Holder specifically for use in the preparation thereof.
(b) Each Distributing Holder will, severally but not jointly, to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder specifically for
use in the preparation thereof; except that the maximum amount which may be
recovered from the Distributing Holder pursuant to this Section 7 or otherwise
shall be limited to the amount of net proceeds received by the Distributing
Holder from the sale of the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
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<PAGE>
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) Whenever the Exercise Price payable upon exercise of each
Option is adjusted pursuant to Subsection (a) above, (i) the number of
shares of Common Stock included in an Option Unit shall simultaneously
be adjusted by multiplying the number of shares of Common Stock
included in Option Unit immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price, as adjusted
and (ii) the number of shares of Common Stock or other securities
issuable upon exercise of the Warrants included in the Option Units
and the exercise price of such Warrants shall be adjusted in
accordance with the applicable terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments
which by reason of this Subsection (c)(i) are not required to be made
shall be carried forward and taken
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<PAGE>
into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section 8 to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the holders of Common Stock or
securities convertible into Common Stock (including Warrants issuable
upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly but no later than 10 days after any request
for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Option Units issuable
upon exercise of each Option and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the
Holders, at the address set forth herein, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Company
may retain a firm of independent certified public accountants selected
by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8,
and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder of this Option
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Option shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (d), inclusive above.
(f) In case any event shall occur as to which the other
provisions of this Section 8 or Section 1(a) hereof are not strictly
applicable but as to which the failure to make any adjustment would
not fairly protect the purchase rights represented by this Option in
accordance with the essential intent and principles hereof then, in
each such case, the Holders of Options representing the right to
purchase a majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the Company,
which shall give their opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles established
herein, necessary to preserve the purchase rights represented by the
Options. Upon receipt of such opinion, the Company will promptly mail
a copy thereof to the Holder of this Option and shall make the
adjustments described
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<PAGE>
therein. The fees and expenses of such independent public accountants
shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, The Marquee Group, Inc. has caused this Option to
be signed by its duly authorized officers under its corporate seal, and this
Option to be dated ____________, 1996.
THE MARQUEE GROUP, INC.
By:
------------------------------
Robert M. Gutkowski, President
(Corporate Seal)
Attest:
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Kraig Fox, Secretary
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of The Marquee Group, Inc., each Unit
consisting of one share of $.01 Par Value Common Stock and one Warrant to
purchase one share of Common Stock and herewith makes payment of $_________
thereof
Dated: _________, 19__. Instructions for Registration of Stock and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option,
hereby elects to exchange its Option for _________ Units of The Marquee Group,
Inc., each Unit consisting of one share of $.01 Par Value Common Stock and one
Warrant to purchase one share of Common Stock, pursuant to the Option Exchange
provisions of the Option.
Dated: _____________, 19__.
---------------------------------------
Print Name
---------------------------------------
Address
---------------------------------------
Signature
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of ______ Units , and appoints _____________ attorney to transfer
such rights on the books of The Marquee Group, Inc., with full power of
substitution in the premises.
Dated: _______________, 19__
ROYCE INVESTMENT GROUP, INC.
By:
------------------------------------
---------------------------------------
Address
In the presence of:
THE MARQUEE GROUP, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purposes of the Marquee Group, Inc.'s (the "Company")
1996 Stock Option Plan (the "Plan") are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to key employees, officers, and consultants of the Company
and its subsidiaries and to promote the success of the Company's business.
2. The Plan. Two types of stock options may be granted under the
Plan: incentive stock options as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder ("ISOs"), and options that do not qualify as incentive stock options
("NQSOs"). All options shall be exercisable to purchase shares of Common Stock,
$.01 par value (the "Common Stock") of the Company. Collectively, ISOs and
NQSOs are referred to herein as "Options".
Subject to Section 6(a), ISOs may be awarded only to employees of the
Company and its subsidiaries, within the meaning of Code Section 424(f),
including employees who may serve as officers and directors.
NQSOs may be awarded only to employees who may serve as officers and
directors, and anyone other than non-employee Directors whom the Committee
administering the Plan pursuant to Section 3 determines provides substantial
service to the Company.
To the extent that any Option is not designated as an ISO, or even if
so designated it does not qualify as an ISO, it shall be treated as a NQSO.
3. Administration. The Plan shall be administered by a committee (the
"Committee") selected by the Board of Directors (the "Board"). The Committee
shall act by a majority of its members at the time in office and eligible to
vote on any particular matter, and such action may be taken either by a vote at
a meeting or in writing without a meeting. Subject to the provisions of the
Plan, the Committee shall from time to time and at its discretion (i) grant
Options, (ii) determine which employees and other individuals performing
substantial services ("Grantees") may be granted Options under the Plan; (iii)
determine whether any Option shall be an ISO or NQSO; (iv) determine the number
of shares subject to each Option: (v) determine the term of each Option granted
under the Plan; (vi) determine the date or dates on which the Option shall be
exercisable; (vii) determine the exercise price of any Option; (viii) determine
the fair market value of the Common Stock subject to the Options; (ix)
determine the terms of any agreement pursuant to which Options are granted; (x)
amend any such agreement with the consent of the Grantee; (xi) establish such
procedures as it deems appropriate for a recipient of an award hereunder to
designate a beneficiary to whom any benefits payable in the event of his or
here death are to be made; and (xii) determine any other matters specifically
delegated to it under the Plan or necessary for the proper administration of
the Plan.
The Committee shall also have the final authority to interpret and
construe the terms of the Plan and of any Option and such interpretation and
construction by the Committee shall be final, binding and conclusive upon all
persons including, without limitation, the Company, shareholders of the
Company, the Plan, and all persons claiming an interest in the Plan.
No member of the Committee or Director shall be liable for any
action, interpretation or construction made in good faith with respect to the
Plan or any Option granted hereunder.
4. Effectiveness and Termination of Plan. This Plan shall terminate
on the earliest of:
(a) The tenth anniversary of the effective date as determined
under this Section 4;
<PAGE>
(b) The date when all shares of the Common Stock reserved for
issuance under the Plan, shall have been acquired through exercise of Options
granted under the Plan; or
(c) Such earlier date as the Board of Directors may determine.
This Plan shall become effective as of the date of adoption thereof by the
Board of Directors of the Company, or the date this Plan is approved by the
stockholders, whichever is earlier. Any Option outstanding under the Plan at
the time of its termination shall remain in effect in accordance with its terms
and conditions and those of the Plan.
5. The Stock. The aggregate number of shares of Common Stock which
may be issued under the Plan shall be 500,000 shares. Such number of shares may
be set aside out of the authorized but unissued shares of Common Stock not
reserved for any other purpose or out of shares of Common Stock held in or
acquired for the treasury of the Company. All or any shares of Common Stock
subject under this Plan to an Option which, for any reason, terminates
unexercised as to such shares, may again be subjected to an Option under the
Plan. No Grantee may receive grants in respect of more than 125,000 shares of
Common Stock.
6. Grant Terms and Conditions of Options. Options may be granted by
the Committee at any time and from time to time prior to the termination of the
Plan. Each Option granted under the Plan shall be evidenced by an agreement in
a form approved by the Committee. The terms and conditions of such Option
agreement need not be identical with respect to each Grantee, but each Option
agreement will evidence on its face whether it is an ISO or a NQSO. For
purposes of this Section, an Option shall be deemed granted on the date the
Committee selects an individual to be a Grantee, determines the number of
shares to be issued pursuant to such Option and specifies the terms and
conditions of the Option. Except as hereinafter provided, Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Grantee. Subject to Section 2 hereof, the Grantees of any
Options hereunder shall be such key employees of the Company and its
subsidiaries, within the meaning of-Code Section 424(f), as determined by the
Committee, who have substantial responsibility in the direction of the Company
and its subsidiaries, and any other person or entity whom the Committee
determines provides substantial and important services to the Company except
that in no event shall a non-employee Director of the Company be a Grantee
under this Plan.
(b) Price and Exercise. The purchase price of the shares of
Common Stock upon exercise of an ISO shall be no less than the fair market
value of the shares at the time of grant of an ISO; provided, however, if an
ISO is granted to a person owning stock of the Company possessing more than 10%
of the total combined voting power of all classes of stock of the Company as
defined in Code Section 422 ("10% Shareholder"), the purchase price shall be
equal to 110% of the fair market value of the shares. The fair market value of
the Common Stock shall be the closing price of publicly traded Common Stock on
the national securities exchange on which the Common Stock is listed (if the
Common Stock is so listed) or on the NASDAQ Small Cap Market System (if the
Common Stock is regularly quoted on the NASDAQ Small Cap Market System), or, if
not so listed or regularly quoted, the mean between the closing bid and asked
prices of publicly traded Common Stock in the over-the-counter market, or, if
such bid and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Committee in a manner consistent with the provisions of the Code.
The purchase price of the shares of Common Stock upon exercise of a
NQSO may be any price set by the Committee; provided that the exercise price of
any grant to an employee required to be named on the Summary Compensation Table
of the Company's annual proxy statement under the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended, shall not be
lower than the fair market value of the underlying Common Stock on the date of
grant. This shall constitute a performance goal under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
The notice of the exercise of any Option shall be accompanied by
payment in full of the Option price. The purchase price shall be paid in United
States dollars in cash or by certified or cashier's check payable to the order
of the Company at the time to purchase. At the discretion of the Committee, the
purchase price may be paid with: (i) stock of the Company (Common Stock already
owned by, and in the possession of, the Grantee); or (ii) any combination of
United States dollars or stock of the Company. Anything contained herein to the
contrary
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<PAGE>
notwithstanding, any required withholding tax shall be paid by the Grantee in
full in United States dollars in cash or by certified or cashier's check at the
time of exercise of the Option. Shares of stock of the Company used to satisfy
the exercise price of an Option shall be valued at their fair market value as
determined by the Committee, as of the close of business on the day immediately
preceding the date of exercise.
In lieu of the notice of exercise procedures set forth above, the
Committee may prescribe certain exercises or other exercise methods pursuant to
which a broker or financial intermediary assists in the exercise by an amount
of shares sufficient to provide the exercise price plus any required
withholdings.
If required by the Company, such notice of exercise of an Option
shall be accompanied by the Grantee's written representation that the shares
being acquired are purchased for investment and not for distribution;
acknowledging that such shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); and agreeing that such shares may not
be sold or transferred unless there is an effective Registration Statement for
them under the 1933 Act, or, in the opinion of counsel, such sale or transfer
is not in violation of the 1933 Act.
The purchase price shall be subject to adjustment but only as
provided in Section 7 hereof.
(c) Vesting. Options shall vest in accordance with the schedule
established for each Grantee; provided, however, an Option may be immediately
exercisable in accordance with Section 6(g) below.
(d) Forfeiture. Notwithstanding anything contained herein to the
contrary, the right (whether or not vested) of a Grantee to exercise his or her
outstanding Options, if any, shall be forfeited if (i) the Grantee shall enter
into a business or employment which the Committee determines to be
detrimentally competitive with the Company or substantially injurious to the
Company's financial interests; or (ii) the Grantee is discharged from
employment with the Company for cause; (iii) the Grantee performs acts of
willful malfeasance or gross negligence in a matter of material importance to
the Company.
(e) Additional Restrictions on Exercise of an ISO. The aggregate
fair market value of Common Stock (determined at the time an ISO is granted)
for which an ISO is exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company and its subsidiaries or parent)
shall not exceed $100,000.
(f) Duration of Options. Options may be granted for terms of up
to but not exceeding ten (10) years from the effective date the particular
Option is granted; provided, however, that ISOs granted to a 10% Shareholder
may be for a term of up to but not exceeding five (5) years from the effective
date the particular ISO is granted.
If the stockholders of the Company have not approved the adoption of
the Plan prior to the end of one (l) year from the date the Plan is approved by
the Board of Directors of the Company, any ISOs granted under the Plan prior to
such date shall be null and void and the Company shall rescind the issuance of
any shares of Common Stock issued upon the exercise of such ISOs by a Grantee
prior to such date. In the event of such rescission, the Company shall refund
the price paid per share of Common Stock by the Grantee upon exercise of the
ISO upon receipt of the certificate representing such shares.
(g) Termination of Employment. Upon the termination of a
Grantee's employment with the Company, his or her rights to exercise an Option
then held by such Grantee shall be only as follows:
(i) Retirement. If the Grantee's employment is terminated
because he or she has attained the age which the Company may
from time to time establish as the retirement age for any class
of its employees, or in accordance with the age specified in an
employment agreement with a Grantee he or she may, with the
consent of the Company within three months following such
termination, exercise the Option with respect to all or any part
of the shares subject
- 3 -
<PAGE>
thereto, regardless of whether the Grantee had the right to
purchase such shares at the time of termination of employment.
However, in the event of his or her death prior to the end of
the three-month period after the aforesaid termination of his or
here employment, his or her estate shall have the right to
exercise the Option within one (1) year following such
termination with respect to all or any part of the shares
subject thereto, regardless of whether the Grantee had the right
to purchase such shares at the time of termination of
employment.
(ii) Death. In the case of a Grantee who dies while
employed by the Company, his or her estate shall have the right
for a period of one (1) year following the date of such death to
exercise the Option to the extent the Grantee had the right to
purchase such shares on the day immediately prior to his or her
death.
(iii) Disability. In the case of a Grantee whose employment
with the Company is terminated by disability, as defined in Code
Section 22(e)(3), he or she shall have the right for a period of
one (1) year of the disability to exercise the Option to the
extent the right had occurred prior to the date of his or her
disability.
(iv) Other Reasons. In the case of a Grantee whose
employment is terminated for any reason other than those
provided above under "Retirement", "Death", or "Disability", the
Grantee or his or her estate (in the event of his or her death
after such termination) may, within the 30-day period following
such termination, exercise the Option to the extent the right to
exercise had occurred prior to such termination. Notwithstanding
the foregoing, the Committee shall have the authority, on a case
by case basis, with respect to any Grantee whose employment is
terminated for any reason whatsoever, to accelerate the vesting
of any options outstanding on the date employment is terminated
and to permit the Grantee to exercise any such Options during
the remaining term of such options.
For purposes of this Section 6(g), "termination of employment" shall
mean the termination of a Grantee's employment with the Company or a subsidiary
or a parent. A Grantee employed by a subsidiary shall also be deemed to have a
termination of employment if the subsidiary ceases to be a subsidiary of the
Company and the Grantee does not immediately thereafter become an employee of
the Company or of a subsidiary or the parent. Any other Grantee who is not
otherwise an employee of the Company shall be considered to have terminated
employment when substantial services, as determined by the Committee, are no
longer provided to the Company by the Grantee.
Also for purposes of this Section 6(g), a Grantee's "estate" shall
mean his or her legal representatives upon his or her death or any person who
acquires the right to exercise an Option by reason of the Grantee's death. The
Committee may in its discretion require the transferee of a Grantee to supply
it with written notice of the Grantee's death or disability and to supply it
with a copy of the will (in the case of the Grantee's death) or such other
evidence as the Committee deems necessary to establish the validity of the
transfer of an Option.
(h) Transferability of Option and Shares Acquired Upon Exercise
of Option. Options shall not be transferred other than to members of the
holder's family, trusts and charities. Any other transfers are permissible upon
prior written approval of the Committee. Except as limited by applicable
securities laws and the provisions of Sections 6(b), 6(j), 8 and 14 hereof,
shares of Common Stock acquired upon exercise of Options hereunder shall be
freely transferable. Notwithstanding the foregoing, the option agreement
accompanying the issuance of any ISO shall limit the transferability of such
ISO to the extent required by the then applicable tax provisions governing the
qualifications of ISOs.
- 4 -
<PAGE>
(i) Modifications, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan the Committee
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender or outstanding Options (up to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised). The Committee shall not, however,
with respect to ISOs, modify any outstanding Options so as to specify a lower
Option price or accept the surrender of outstanding Options and authorize the
granting of new Options in substitution therefor specifying a lower price.
Notwithstanding the foregoing, no modification of an Option shall, without the
consent of the Grantee, alter or impair any rights or obligations under any
Option theretofore granted under the Plan.
(j) Shares Held for Investment. Each Option agreement may
contain an undertaking that, upon demand by the Committee for such a
representation, the Grantee, or any person acting under Section 6(g), shall
deliver to the Committee at the time of any exercise of an Option a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an option shall be a condition
precedent to the right of the Grantee or such other person to purchase any
shares of Common Stock.
(k) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate.
7. Adjustment for Changes in the Stock.
(a) In the event the shares of Common Stock, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, split, reverse split, combination of shares, or otherwise) or
if the number of such shares of Common Stock shall be increased through the
payment of a stock dividend, then there shall be substituted for or added to
each share of Common Stock theretofore appropriated or thereafter subject or
which may become subject to an Option under this Plan, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed, or for which each such share shall be exchanged, or
to which each such share shall be entitled, as the case may be. Outstanding
Options shall also be appropriately amended as to price and other terms as may
be necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of the Common
Stock, or of any stock or other securities into which such Common Stock shall
have been changed, or for which it shall have been exchanged, then, if the
Board of Directors shall, in its sole discretion, determine that such change
equitably requires as adjustment in any Option theretofore granted or which may
be granted under the Plan, such adjustments shall be made in accordance with
such determination.
(b) Fractional shares resulting from any adjustment in Options
pursuant to Section 7 may be settled in cash or otherwise as the Committee
shall determine. Notice of any adjustment shall be given by the Company to each
holder of an Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
8. Securities Law Requirements. No Option granted pursuant to this
Plan shall be exercisable in whole or in part, nor shall the Company be
obligated to sell any shares of Class A Common Stock subject to any such
Option, if such exercise and sale would, in the opinion of counsel for the
Company, violate the Securities Act of 1933 (or other Federal or State statutes
having similar requirements), as it may be in effect at that time. In this
regard, the Committee may demand the representations described in Section 6(b)
and Section 6(j).
Each Option shall be subject to the further requirement that, if at
any time the Committee shall determine in its discretion that the listing or
qualification of the shares of Class A Common Stock subject to such Option
under any securities exchange requirements or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary as a
condition of, or in connection with, the granting of such Option or the issue
of shares thereunder, such Option may not be exercised in whole or in part,
unless such listing, qualification, consent or approval shall have been
affected or obtained free of any conditions not acceptable to the Board of
Directors.
- 5 -
<PAGE>
No person who acquires shares of Common Stock under the Plan may,
during any period of time that such person is an affiliate of the Company
within the meaning of the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, sell such shares of Common Stock,
unless such offer and sale is made (i) pursuant to an effective registration
statement under the Securities Act of 1933, which is current and includes the
shares to be sold, or (ii) pursuant to an appropriate exemption from the
registration requirement of the Securities Act of 1933, such as that set forth
in Rule 144 promulgated under the Securities Act of 1933.
9. Amendment of the Plan.
The Board of Directors may amend the Plan at any time, except that
approval of the holders of a majority of the outstanding voting stock of the
Company is required for amendments which:
(i) decrease the minimum Option price for ISOs;
(ii) extend the term of the Plan beyond ten years;
(iii) extend the maximum terms of the Options granted hereunder
beyond ten years;
(iv) withdraw the administration of the Plan from the Committee
appointed pursuant to Section 3;
(v) expand the class of eligible employees, and other Grantees;
(vi) increase the aggregate number of shares of Common Stock
which may be issued pursuant to the provisions of the Plan;
or
(vii) change the material terms of the performance goal within
the meaning of Code Section 162(m).
Notwithstanding the foregoing, the Board of Directors may, without
the need for stockholders' approval, amend the Plan in any respect to qualify
ISOs as incentive stock options under Code Section 422.
10. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Grantee (or upon a transferee of a Grantee) to
exercise such Option.
11. No Limitation on Rights of the Company. The grant of any Option
shall not in any way affect the right or power of the Company to make
adjustments, reclassification, or changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
12. Plan Not a Contract of Employment. The Plan is not a contract of
employment, and the terms of employment of any recipient of any award hereunder
shall not be affected in any way by the Plan or related instruments except as
specifically provided therein. The establishment of the Plan shall not be
construed as conferring any legal rights upon any recipient of any award
thereunder for a continuation of employment, nor shall it interfere with the
right of the Company or any subsidiary to discharge any recipient of any award
hereunder and to treat him or her without regard to the effect which such
treatment might have upon him or her as the recipient of any award hereunder.
13. Expenses of the Plan. All of the expenses of the Plan shall be
paid by the Company.
14. Compliance with Applicable Law. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be issued or
delivered any certificates for shares of Common Stock pursuant to the exercise
of an Option, unless and until the Company is advised by its counsel that the
issuance and delivery of such certificates is in compliance with all applicable
laws, regulations of governmental authority and the requirements of any
exchange upon which shares of Common Stock are traded. The Company shall in no
event be obligated to
- 6 -
<PAGE>
register any securities pursuant to the Securities Act of 1933 (as now in
effect or as hereinafter amended) or to take any other action in order to cause
the issuance and delivery of such certificates to comply with any such law,
regulation or requirement. The Committee may require, as a condition of the
issuance and delivery of such certificates and in order to ensure compliance
with such law, regulations and requirements, that the recipient of any award
hereunder make such covenants, agreements and representations as the Committee,
in its sole discretion, deems necessary or desirable, including, without
limitation, a written representation from a stockholder that the shares are
being purchased for investment and not for distribution, acknowledging that
such shares have not been registered under the Securities Act of 1933, as
amended and agreeing that such shares may not be sold or transferred unless
there is an effective Registration Statement for them under the 1933 Act, or,
in the opinion of counsel to the Company, that such sale or transfer is not in
violation of the Securities Act of 1933.
15. Effect Upon Other Compensation. Nothing contained herein shall
prevent the Company or any subsidiary from adopting other or additional
compensation arrangements for its employees or directors.
16. Grantee to Have No Rights as a Stockholder. No Grantee of any
Option shall have any rights as a stockholder with respect to any shares
subject to his or her Option prior to the date on which he or she is recorded
as the holder of such shares on the records of the Company. No Grantee of any
Option shall have the rights of a stockholder until he or she has paid in full
the Option price.
17. Notice. Notice to the Committee shall be deemed given if in
writing and mailed to the Secretary of the Company at its principal executive
offices by first class, certified mail at the then principal office of the
Company.
18. Governing Law. Except to the extent preempted by Federal law,
this Plan and all Option agreements entered into pursuant thereto shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware, determined without regard to its conflict of interest rules.
- 7 -
AMENDMENT NO. 1 TO
ESCROW AGREEMENT
---------------
Reference is hereby made to that certain Agreement (the "Escrow
Agreement"), dated as of the 15th day of August, 1996, by and among Continental
Stock Transfer & Trust Company, a New York corporation (hereinafter referred to
as the "Escrow Agent"), The Marquee Group, Inc., a Delaware corporation (the
"Company"), and the individuals and entities listed on Exhibit A to the Escrow
Agreement (the "Stockholders"). The undersigned each being a party to the
Escrow Agreement and collectively being all of such parties thereto, do hereby
amend (the "Amendment") the Escrow Agreement as follows:
By striking Section 4 thereof in its entirety and by substituting in
lieu of said section the following new Section:
4. (a) The Escrow Shares are subject to the release to the
Stockholders to the extent and only in the event the conditions set forth
herein are met. The Escrow Agent, upon notice to such effect from the Company
as provided in paragraph 5 hereof, shall deliver the Escrow Shares, together
with stock powers executed in blank, and the Escrow Property deposited in
escrow with respect to such Escrow Shares, to the respective Stockholders, only
if, and to the extent that, one of the following conditions is met:
(i) 425,000 Escrow Shares shall be released if, for the fiscal year
ending December 31, 1997, the Company's income before provision
for taxes ("Minimum Pretax Income") equals or exceeds $1,400,000;
<PAGE>
(ii) 425,000 Escrow Shares (or, if the conditions set forth in (i)
above were not met, 850,000 Escrow Shares) shall be released if,
for the fiscal year ending December 31, 1998, the Minimum Pretax
Income equals or exceeds $2,400,000;
(iii) 425,000 Escrow Shares (or, if the conditions set forth in either
(i) or (ii) were not met, the remaining Escrow Shares) shall be
released if, for the fiscal year ending December 31, 1999, the
Minimum Pretax Income equals or exceeds $3,400,000;
(iv) All of the Escrow Shares shall be released if the Closing Price
(as defined herein) of the Common Stock shall average in excess
of $15.00 per share for any 20 consecutive trading days during
the period commencing 24 months after the Effective Date and
ending December 31, 1999; or
(v) All of the Escrow Shares shall be released if the Company is
acquired by or merged into another entity in a transaction in
which stockholders of the Company receive per share
consideration at least equal to the amount set forth in (iv)
above.
(b) As used in this Section 4, the term "Closing Price" shall be
subject to adjustment in the event of any stock dividends, stock distribution,
stock split or other similar event and shall mean:
(1) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the
closing sales price of the Common Stock as reported by such
exchange or market, or on a consolidated tape reflecting
transaction on such exchange or market; or
(2) if the principal market for the Common Stock is not a
national securities exchange or the Nasdaq National Market
and the Common Stock is quoted on the Nasdaq SmallCap
Market, the closing bid price of the Common Stock as quoted
on the Nasdaq SmallCap Market; or
(3) if the principal market for the Common Stock is not a
national securities exchange of the Nasdaq National Market
and the
-2-
<PAGE>
Common Stock is not quoted on the Nasdaq SmallCap Market,
the closing bid for the Common Stock as reported by the
National Quotation Bureau, Inc. ("NQB") or at least two
markets makers in the Common Stock if quotations are not
available from NQB but are available from markets makers.
(c) The determination of Minimum Pretax Income shall be (i)
calculated exclusive of any extraordinary earnings or charges (including any
charges incurred in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provision of
this paragraph 4); (ii) derived solely from the businesses owned and operated
by the Company as of the closing date of the Public Offering and upon
consummation of the Acquisitions and shall not give effect to any operations
relating to businesses or assets acquired after such date; and (iii) audited by
the company's independent public accountants.
(d) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provision of this Paragraph 4 on or prior to
March 31, 2000, the Escrow Agent shall deliver the certificates representing
all or the remaining Escrow Shares, together with stock powers executed in
blank, and related Escrow Property to the Company to be placed in the Company's
treasury for cancellation thereof as a contribution to capital. After such
date, the Stockholders shall have no further rights as a stockholder of the
Company with respect to any of the canceled Escrow Shares.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Escrow Agreement to be executed by their duly authorized officers on this
day of October, 1996.
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-----------------------
Robert M. Gutkowski, President
and Chief Executive Officer
Continental Stock Transfer & Trust Company
By: /s/ Continental Stock Transfer & Trust Company
----------------------------------------------
STOCKHOLDERS:
The Sillerman Companies, Inc.
By: /s/ Robert F.X. Sillerman /s/ Louis J. Oppenheim
------------------------- ----------------------
Robert F.X. Sillerman Louis J. Oppenheim
By: /s/ Robert M. Gutkowski /s/ Michael Letis
----------------------- -----------------
Robert M. Gutkowski Michael Letis
By: /s/ Arthur C. Kaminsky /s/ Michael Trager
---------------------- ------------------
Arthur C. Kaminsky Michael Trager
-4-
MARKETING AGREEMENT
THIS AGREEMENT, made and entered into as of this 29th day of July, 1994, by and
between SPORTS MARKETING & TELEVISION INTERNATIONAL, INC., a Connecticut
corporation (hereinafter "SMTI"), and BREEDERS' CUP LIMITED, a New York
not-for-profit corporation (hereinafter "BCL");
W I T N E S S E T H:
THAT, WHEREAS, BCL conducts a program designed to promote the thoroughbred
horse racing industry and to familiarize. the international public with such
industry; and
WHEREAS, in connection with such program BCL sponsors an annual series of
thoroughbred horse races known as the "Breeders' Cup Championship" (hereinafter
"Cup"), provides purses and awards in connection with thoroughbred horse races,
sponsors a series of races known as the Breeders' Cup Budweiser Special Stakes
Program (hereinafter "Special Stakes Races"), co-sponsors a schedule of races
with the New York Racing Association (hereinafter "NYRA") known as Breeders'
Cup Preview Day (hereinafter "Preview Day") and BCL owns and controls all
rights in and to the names, logos, symbols, mascots and designs of BCL and the
Cup (which names, logos, symbols, mascots and designs of BCL and the Cup and
other BCL sponsored races are hereinafter referred to as the "Properties"); and
WHEREAS, BCL is desirous of retaining the services of SMTI to provide
general marketing consultation, broadcast and sponsorship rights sales,
advertising production and media placement, publicity and public relations,
television and video production, production of promotional materials,
merchandising and licensing of BCL in connection with the Cup, the
<PAGE>
Special Stakes Races, the Preview Day races and other BCL sponsored races,
awards and programs and the Properties; and
WHEREAS, SMTI is desirous of providing services to BCL in connection with
the aforementioned marketing consultation, broadcast and sponsorship rights,
advertising, public relations, television production, promotion materials and
licensing of BCL, the Cup, the Special Stakes Races, the Preview Day races and
other BCL sponsored races, awards and programs and the Properties.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
I. ENGAGEMENT.
BCL hereby engages and retains SMTI to provide the following services and
SMTI agrees to provide such services to BCL:
1.1. CONSULTING SERVICES. SMTI shall render to BCL conceptual, strategic
and tactical expertise in terms of marketing and broadcasting BCL programs and
events. SMTI agrees to provide BCL access to SMTI's business contacts and
relationships. The general consulting services to be performed by SMTI shall
include, but not necessarily be limited to, the following matters and
activities of BCL: overall policy and planning; BCL program structure and
implementation of events; promotional regulations; commercial exploitation;
track selection, contract negotiation and fulfillment; consumer trends and
perceptions; industry relations; and financial analysis and planning.
2
<PAGE>
1.2. MARKETING SERVICES. SMTI shall provide services and represent BCL in
the general area of marketing other than as contained in this Article I below,
including, but not limited to, the following: creative development; analysis
and planning; presentations; simulcasting and remote wagering; host track
negotiations; publicity and public relations; national promotions; track
promotions; and event management. A more specific description of the foregoing
marketing services is attached hereto and designated Exhibit A.
1.3. ADVERTISING SERVICES. SMTI shall produce, and execute media placement
of, all advertising (except for certain trade and nominations advertising or
such other advertising agreed upon by the parties, which shall not exceed a
total dollar amount of $300, 000 annually) for or in connection with BCL, the
Cup or the Properties, including, but not limited to, consumer print ads; trade
print ads; and radio and television commercials. A more specific description of
the foregoing advertising services is attached hereto and designated Exhibit B.
1.4. BROADCASTING SERVICES. SMTI shall provide services and represent
BCL's interests in all broadcasting areas, including, but not limited to, media
negotiations and media service. As used in this Agreement, "media negotiations"
shall not include negotiation for the simulcasting of any BCL races. As used in
this Agreement, "media service" shall not include services performed in
connection with contracts for the simulcasting of any BCL races. A more
specific description of the foregoing broadcasting services is attached hereto
and designated Exhibit C.
1.5. PRODUCTION SERVICES. SMTI shall provide production services, as may
be requested by BCL from time to time, necessary to supply quality material for
BCL programs and events, including, but not limited to, the following: securing
competitive production bids;
3
<PAGE>
selection of qualified third-party vendors and suppliers; establishment and
control of budgets; supervision of the production process; generation of timely
and accurate billing; and insuring completion and shipment of the finished
product. The foregoing production services may be performed in the areas set
forth on Exhibit D, attached hereto.
1.5. SALES SERVICES. SMTI shall represent BCL in the sale of commercial
rights related to the Properties and shall perform the following duties:
(a) BROADCAST RIGHTS. SMTI shall negotiate, consummate and service
all sales of rights, except simulcast rights, to all broadcasting entities
including home video and videocassette sales, both domestic and foreign;
(b) SPONSORSHIP SALES. SMTI shall negotiate, consummate and service
all sales of rights to all commercial entities, both domestic and foreign;
(c) LICENSING SALES. SMTI shall negotiate, consummate and service
grants of licensing rights and privileges to all third-party licensees,
racetracks and their respective sources of supply on a year to year basis at
the prior consent of BCL; and
(d) VIDEO FOOTAGE SALES. SMTI shall negotiate, consummate and service
sales of video footage owned by BCL to all interested third parties on a year
to year basis at the prior consent of BCL.
1.7. VIDEO PRODUCTION. SMTI shall provide production services as may be
requested by BCL from time to time necessary to supply quality video tape and
film materials to, or in association with, BCL programs, presentations and
events, including, but not limited to, the following: utilizing SMTI personnel
to produce, direct, edit and script; securing competitive bids from third-party
production companies and/or third party production studios; selection of
4
<PAGE>
qualified third-party personnel, companies and studios; establishment and
control of budgets; generation of timely and accurate billing; and insuring
completion and shipment of finished product. The foregoing video production
services may be performed in the areas set forth in Exhibit E attached hereto.
1.8. TELEVISION PRODUCTION. SMTI shall provide production services as may
be requested by BCL from time to time for Breeders' Cup television events which
are not produced directly by the broadcasting entities described in paragraph
1.6(a), except that SMTI shall have the exclusive right to produce the Preview
Day telecasts through the year 1999 in conjunction with BCL/NBC and BCL/NYRA
agreements dated July 30, 1993 and March 31, 1994, respectively. The foregoing
television production services may be performed in the areas set forth in
Exhibit F attached hereto.
1.9. SMTI shall cause Michael Letis (hereinafter "Letis") to be
responsible for the management of, and to devote substantial attention to, the
engagement and the performance of the services set forth hereinabove in this
Article I.
1.10. BCL agrees to cooperate with SMTI in the sale of sponsorships and
licenses to third parties and accordingly shall not unreasonably withhold the
approval of such sales proposals presented by SMTI during the term hereof;
provided, however, that BCL may withhold approval of any proposed sale of
sponsorship or sponsorship agreement which gives name entitlement to the
sponsor.
II. TERM.
2.1. Unless sooner terminated as hereinafter provided, the term of this
Agreement shall commence on January 1, 1995 and end on December 31, 1997.
Unless sooner
5
<PAGE>
terminated as hereinafter provided, between January 1, 1997 and September 30,
1997, BCL and SMTI shall each advise the other in writing whether or not such
party intends to negotiate an agreement between BCL and SMTI, or their
designees, similar to this Agreement with a term commencing January 1, 1998.
2.2. BCL or SMTI may terminate this Agreement at any time during the term
hereof upon the occurrence of an event of default as provided in Article XI.
Termination of this Agreement pursuant to the provisions hereof shall not
release either party from any obligations existing prior to the effective date
of termination.
III. FEES.
3.1. (a) BASE FEE. In consideration for the performance of all services to
be performed pursuant to paragraphs 1.1 and 1.2 hereunder, BCL shall pay SMTI a
monthly base fee of $[ ]* payable on or before the 1st day of each month during
the term hereof.
3.2. PRODUCTION PAYMENTS AND COMMISSIONS. In addition to the base fee, for
the performance of the production services as set forth in paragraph 1.5
hereunder, BCL shall pay
1. SMTI an amount equal to the actual costs incurred by SMTI in the
performance of such services and in the production of said materials,
excluding general overhead costs, plus [ ]*% of such costs in the form of
a commission to SMTI.
In addition to the base fee, for the performance of the video production
services set forth in paragraph 1.7 hereunder, BCL shall pay SMTI for the
utilization of its own personnel at prevailing market prices for any specific
production service (other than services performed in the production of BCL
television commercials) actually performed by said
* CONFIDENTIAL TREATMENT REQUESTED
6
<PAGE>
personnel in the form of a production fee in accordance with estimates
pre-approved by BCL and billed by SMTI invoice to BCL. In addition to such
production fees, BCL shall pay SMTI an amount equal to the actual costs
incurred by SMTI in the performance of such production services, other than
those actually performed by SMTI personnel, excluding general overhead costs,
plus [ ]*%, of such costs in the form of a commission to SMTI.
In addition to the base fee, for the performance of the television
production services set forth in paragraph 1.8 hereunder, BCL shall pay SMTI
fee amounts in accordance with estimates pre-approved by BCL and billed by SMTI
invoice to BCL.
3.3. BROADCAST RIGHTS COMMISSIONS. In addition to the base
fee, for the performance of the broadcast media negotiations and media services
set forth in paragraph 1.4 hereunder, BCL shall pay SMTI a commission equal to
[ ]* percent of all fees actually received by BCL from NBC pursuant to the
Agreement dated July 30, 1993 for the broadcast rights covering the Cup (the
"NBC Agreement") regardless of whether such fees are received by BCL during the
term of this Agreement or thereafter. In addition, BCL shall pay SMTI a
commission equal to [ ]* percent of all fees actually received by BCL for
broadcast media rights (other than those granted to NBC in the NBC Agreement)
in respect of contracts or arrangements consummated as a result of the efforts
of SMTI pursuant to paragraph 1.6(a) hereunder, provided such contracts or
arrangements are fully consummated during the term hereof.
3.4. SPONSORSHIP AND LICENSE FEES. In addition to the base fee, BCL shall
pay SMTI a commission during the term hereof equal to [ ]* percent of the gross
amount up to $[ ]* and [ ] *percent of the gross amount over $[ ]* annually of
all advances, royalties,
* CONFIDENTIAL TREATMENT REQUESTED
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guarantees, sponsorship fees, license fees or any and all other such fees or
sums actually received by BCL from sponsoring companies, official licensees and
approved racetrack suppliers in respect of sponsorship and license contracts or
arrangements consummated pursuant to paragraphs 1.6(b), 1.6(c) and 1.6(d)
hereunder, provided such contracts or arrangements are in full force and effect
and not in default on the date of execution of this Agreement or fully
consummated during the term hereof.
3.5. ADVERTISING COMMISSIONS. In addition to the base fee, SMTI shall
retain a commission equal to [ ]*%, of all annual gross advertising placement
billings up to a total amount of $[ ]* and [ ]*percent of all billings amounts
in excess of $[ ]* during the term hereof, provided BCL has approved the
production and placement of such media advertising (television, radio and
print) in advance. This paragraph 3.5 shall not apply to the trade and
nominations advertising produced by or at the direction of BCL pursuant to
paragraph 1.3 hereunder.
3.6. OUT-OF-POCKET EXPENSES. BCL shall reimburse SMTI for pre-approved
travel, lodging, sustenance and reasonable entertainment expenses in connection
with general publicity and media relations, and on-location host track contract
negotiations and simulcasting or remote wagering development within fifteen
(15) days after receipt by BCL of a statement setting forth in reasonable
detail such expenses.
IV. STATUS OF SMTI.
It is expressly understood that SMTI shall act at all times herein as an
independent
* CONFIDENTIAL TREATMENT REQUESTED
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contractor, and nothing contained herein shall be construed to create the
relation between the parties of partners or joint venturers, licensor and
licensee, or employer and employee.
V. ASSIGNMENTS.
5.1. The parties hereto understand and agree that BCL is entering this
Agreement in reliance upon the personal expertise of, and availability of the
personal services of key employees of, SMTI, including, but not limited to,
Letis. This Agreement shall not be assigned by SMTI to any other person or
entity without the prior written consent of BCL.
5.2. In the event of the sale of SMTI to any other person or entity, or in
the event of the merger or consolidation of SMTI with any other corporation,
then this Agreement may be assigned by SMTI to such successor person or entity
provided that, prior to such assignment, such successor person or entity has
effectively agreed for the benefit of BCL to assume all of the obligations of
SMTI under the terms of this Agreement, including the provisions of paragraph
11.2(c) hereof.
5.3. This Agreement shall not be assigned by BCL without the prior consent
of SMTI, except that if BCL is merged or consolidated into a successor
corporation, then BCL may assign this Agreement to such successor corporation
provided that prior thereto said successor corporation has effectively agreed
for the benefit of SMTI to assume all of BCL's obligations hereunder.
VI. SUBCONTRACTING.
SMTI may subcontract to third parties the performance of services to be
performed by SMTI pursuant to this Agreement; provided, however, only those
services which, in the opinion of SMTI and BCL, SMTI lacks the technical
expertise, personnel or facilities to perform are subject to this right to
subcontract. SMTI shall remain responsible for the
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performance of such subcontracted services; and provided further, that any such
party who is subcontracted by SMTI hereunder shall undertake to be bound by,
and comply with, Article VII hereof.
VII. CONFIDENTIALITY.
All knowledge and information which SMTI may acquire from BCL, or from any
of its employees or agents, or on the premises of BCL, respecting the plans,
methods, trade secrets and other private matters of BCL, shall for all time and
all purposes be regarded as strictly confidential and held in trust solely for
the benefit of BCL and shall not be directly or indirectly disclosed by SMTI to
any person other than those persons specifically designated by BCL. It is
understood that the employees, agents and authorized personnel of SMTI may use
such information in the ordinary course of business pertaining to this
Agreement and that SMTI shall use its best efforts to preserve the
confidentiality of such information at all times.
VIII. REPRESENTATIONS AND WARRANTIES.
8.1. BCL hereby represents and warrants that it is the sole and absolute
owner of the Properties, including all trademarks and copyrights associated
therewith. Furthermore, BCL represents and warrants that as of the date of this
Agreement the Properties do not infringe any contract, agreement, copyright,
trademark, literary, artistic or property right, or any right of privacy or
right of publicity of any third party, nor do such Properties constitute
slander or libel of any person, firm, corporation or association whatsoever.
BCL further represents and warrants that there is no litigation, proceeding or
claim of any nature pending or threatened against BCL which may adversely
affect the rights granted to SMTI hereunder.
8.2. SMTI represents and warrants that it shall in good faith and with
diligence conduct all activities described in Article I hereof. SMTI further
represents and warrants that
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there is no litigation, proceeding, or claim pending or threatened against
SMTI, its agents or employees, which may adversely affect the duties imposed
upon it hereunder.
IX. INDEMNIFICATION.
9.1. BCL shall indemnify and hold harmless SMTI from all suits, claims,
expenses, costs and liability (including reasonable legal fees and expenses)
arising directly or indirectly out of any misrepresentation or breach of
warranty made or given by BCL in this Agreement.
9.2. SMTI shall indemnify and hold harmless BCL from all suits, claims,
expenses, costs and liability (including reasonable legal fees and expenses)
arising directly or indirectly out of any misrepresentation or breach of
warranty made or given by SMTI in this Agreement or out of SMTI's failure to
pay, when due, sums attributable to vendors, subcontractors or third persons
utilized to enable SMTI to perform its duties hereunder.
X. BOOKKEEPING AND ACCOUNTING.
10.1. All sums due BCL from third parties with regard to license
agreements, sponsorship agreements and media rights agreements unless otherwise
agreed to by BCL shall be remitted directly from such third parties to BCL and
BCL shall, within fifteen (15) days after its receipt thereof, remit SMTI's
commission thereon to SMTI.
10.2. BCL agrees to submit payment of all costs of media placement and
production of printed materials, films, video tapes, television programs and
such other items as may be produced by SMTI hereunder within fifteen (15) days
after the receipt by BCL of a statement setting forth in reasonable detail such
costs.
10.3. SMTI and BCL agree to keep accurate books and records covering all
transactions relative to this Agreement. SMTI and BCL or their respective duly
authorized
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representatives shall have the right at all reasonable hours of any business
day upon reasonable notice to examine at the other's place of business said
books and records and other documents and materials in the possession or under
the control of each with respect to the subject matter and provisions of this
Agreement and shall have free and full access thereto to examine and make
extracts therefrom. SMTI and BCL shall keep all said books and records
available for at least two (2) years subsequent to the expiration of this
Agreement. A true copy of all audits with respect to the subject matter of this
Agreement made by SMTI or BCL or their representatives shall be delivered to
the other immediately upon completion. Such right to examine is limited to
SMTI's and BCL's business only as it relates to this Agreement and neither
shall have the right under any circumstances to examine records relating to the
other's business generally or with respect to any other matters for purposes of
comparison or otherwise.
XI. EVENTS OF DEFAULT.
11.1. The occurrence of any of the following events shall constitute an
event of default upon which BCL may, at its option, forthwith terminate this
Agreement effective the date notice of termination is mailed by BCL to SMTI:
(a) The filing by or against SMTI in any forum or jurisdiction of any
petition, voluntary or involuntary (which petition if involuntary is not
dismissed or vacated within sixty (60) days), for relief and accord in
bankruptcy or for reorganization or rearrangement under the bankruptcy laws, or
an action for receivership of any nature or for an assignment for the benefit
of SMTI's creditors; and
(b) The dissolution of SMTI for any reason where SMTI shall not
continue, without interruption, its business affairs.
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11.2. The occurrence of any of the following events shall constitute an
event of default upon which BCL may, at its option, terminate this Agreement
effective thirty (30) days after SMTI receives notice of said default, provided
said default remains uncured at the conclusion of the thirty (30) day period:
(a) The failure of SMTI to perform in any material respect the
engagement described in Article I hereof to the reasonable satisfaction of BCL;
(b) The breach of any representation or warranty made by SMTI
hereunder; or
(c) The termination of employment of Letis with SMTI, whether caused
by Letis or SMTI, or for any reason, or the unavailability of Letis (for
whatever reason) to perform services necessary to enable SMTI to comply with
the terms of this Agreement, it being understood that an important inducement
to BCL to enter this Agreement is the availability of Letis as an employee of
SMTI.
11.3. The occurrence of any of the following events shall constitute an
event of default upon which SMTI may, at its option, forthwith terminate this
Agreement effective the date notice of termination is mailed by SMTI to BCL:
(a) The filing by or against BCL in any forum or jurisdiction of any
petition, voluntary or involuntary (which petition if involuntary is not
dismissed or vacated within sixty (60) days), for relief and accord in
bankruptcy or for a reorganization or rearrangement under the bankruptcy laws,
or an action for receivership of any nature or for an assignment for the
benefit of BCL's creditors.
(b) The dissolution of BCL for any reason, where BCL shall not
continue, without interruption, its business affairs.
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11.4. The occurrence of any of the following events shall constitute an
event of default upon which SMTI may, at its option, terminate this Agreement
effective thirty (30) days after BCL receives notice of said default, provided
said default remains uncured at the conclusion of the thirty (30) day period:
(a) The failure of BCL to make payments of any sums due hereunder on
the date said payments are due.
(b) The granting by BCL to any person or company other than SMTI the
rights of advertising (other than as provided in paragraph 1.3 hereunder),
broadcast negotiation, broadcast sales, sponsorship sales, or any other right
granted by the terms of this Agreement to SMTI.
(c) The breach of any representation or warranty made by BCL
hereunder.
11.5. It is expressly understood and agreed between the parties hereto
that the rights and remedies provided hereunder are cumulative and that the
exercise of any right or remedy upon the occurrence of an event of default
shall not constitute a waiver of any other rights or remedies which may be
available hereunder or at law or in equity to either party hereto.
XII. AUTHORITY OF SMTI.
It is expressly understood by the parties hereto that SMTI has no
authority to cause BCL to become liable upon any contract without BCL's prior
written authorization, which may be general or specific, and any agreement
which may be negotiated by SMTI shall be submitted to BCL for approval,
modification or rejection. In addition, before being utilized, published or
distributed, all advertising, publicity and promotional materials shall be
approved by BCL.
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XIII RIGHTS UPON TERMINATION.
13.1. It is expressly understood that upon the termination or expiration
of this Agreement, all rights and privileges granted by BCL to SMTI except for
the Preview Day television production rights in paragraph 1.8 hereof shall
immediately revert back to BCL and BCL, thereafter, shall have no further
obligation to SMTI, except for payment of sums which became due to SMTI prior
to termination or expiration of this Agreement and except for payment of all
commissions due to SMTI pursuant to paragraphs 3.3 and 3.4 hereof in respect of
agreements consummated during the term of this Agreement.
13.2. It is further agreed that, notwithstanding the provisions of
paragraph 13.1 hereof, in the event of termination of this Agreement pursuant
to paragraphs 11.1 or 11.2 hereof, except for termination resulting from the
death or disability of Letis, BCL shall have no obligation to pay commissions
to SMTI pursuant to paragraphs 3.3 or 3.4 hereof in respect of broadcast media
rights fees, sponsorship fees or license fees received by BCL if:
(a) Such fees are received after the date of termination, and
(b) BCL has been reasonably required to retain the services of
persons or firms other than SMTI (including BCL employees) to perform BCL's
obligations under such broadcast media rights agreements, sponsorship
agreements or license agreements.
XIV. NOTICES.
All notices, requests, statements and other communications hereunder shall
be in writing and shall be given by certified or registered mail, return
receipt requested, as follows:
If to SMTI: Sports Marketing & Television
International, Inc.
410 Greenwich Avenue
Greenwich, Connecticut 06830
Attn: Michael A. Letis
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If to BCL: Breeders' Cup Limited
2525 Harrodsburg Road
P.O. Box 4230
Lexington, Kentucky 40544
Attn: James E. Bassett, III
cc: Robert M. Watt, III, Esq.
Stoll, Keenon & Park
201 East Main Street
Suite 1000
Lexington, Kentucky 40507-1380
or at such other addresses as the parties may designate in writing in
accordance with this Article XIV.
XV. MISCELLANEOUS.
15.1. This Agreement shall be construed and interpreted in accordance with
and governed by the laws of the Commonwealth of Kentucky and the parties hereby
agree that this Agreement is made in Fayette County, Kentucky, and is to be
performed in Fayette County, Kentucky.
15.2. In the event any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidation, illegality or unenforceability shall not
affect any other provisions hereof, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
15.3. Each party hereto has the full right, power and authority to execute
this Agreement, which execution and delivery has been duly authorized by all
requisite corporate action of the parties hereto, the persons executing this
Agreement have been duly authorized to do so, and this Agreement is a legal,
valid and binding obligation of each party hereto. The
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execution and performance of this Agreement will not violate any provisions of
law or the Articles of Incorporation or Bylaws of the parties hereto or any
amendments thereto.
15.4. This provisions of this Agreement shall inure to the benefit and
responsibility of the parties hereto, their successors and assigns (but only to
the extent such assignment is permitted herein) and shall not benefit or affect
any third party.
15.5. All exhibits attached hereto, and all terms and provisions thereof,
are deemed to be a part hereof as if fully set forth herein and are deemed to
be incorporated by reference herein.
15.6. This Agreement constitutes the entire understanding between the
parties hereto, supersedes all prior written and oral agreements pertaining
hereto, and shall not be modified or amended unless in writing signed by duly
authorized representatives of such parties. The failure of either SMTI or BCL
to enforce, or the delay of either SMTI or BCL in enforcing, any of the said
party's rights under this Agreement shall not be deeded a continuing waiver and
such party may, within such time as is provided by applicable law, commence
appropriate suits, actions or proceedings to enforce any or all such rights.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SPORTS MARKETING & TELEVISION
INTERNATIONAL, INC.
By: /s/ Michael Letis
------------------
Michael Letis
BREEDERS' CUP LIMITED
By: /s/ James Bassett III
----------------------
James Bassett III
18
PROMISSORY NOTE
$121,615.00 1996
New York, New York
FOR VALUE RECEIVED, the undersigned, THE MARQUEE GROUP, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of ROBERT M.
GUTKOWSKI the principal sum of ONE HUNDRED TWENTY ONE THOUSAND SIX HUNDRED
FIFTEEN DOLLARS ($121,615), together with accrued interest on the unpaid
balance of said principal from the date hereof at the rate of twelve percent
(12%) per annum. Payment of the principal and intest due shall be payable on
January 1, 1998 (the "Maturity Date").
The principal balance of this Note may be prepaid in whole or in part at
the option of the Borrower, without premium or penalty. Payment of the
principal and interest due under this Note shall be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of all public and private debt. Interest accrued
hereunder shall be computed on the basis of a 360 day year, based upon the
number of days actually elapsed.
If any payment of principal and/or interest on this Note shall not be paid
within five (5) business days of the Maturity Date, the unpaid principal of and
interest accrued on this Note shall, until paid, bear interest at a rate per
annum equal to the lesser of (i) fourteen percent (14%), or (ii) the highest
rate permitted by applicable law.
Anything in this Note to the contrary notwithstanding, the obligation of
the Borrower to make payments of interest shall be subject to the limitation
that payments of interest shall not be required to be made to the Company to
the extent that the receipt thereof would not
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be permissible under the law or laws applicable to the Company limiting rates
of interest which may be charged or collected by the Company. Any such payments
of interest which are not made as a result of the limitation referred to in the
preceding sentence shall be made by the Borrower to the Company on the earliest
interest payment date or dates on which the receipt thereof would be
permissible under the laws applicable to the Company limiting rates of interest
which may be charged or collected by the Company.
The Borrower hereby waives presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance or enforcement of this Note. The Borrower
shall pay all reasonable fees, expenses and disbursements of Mr. Gutkowski's
counsel in connection with the enforcement and collection of this Note.
This Note shall be binding upon the Borrower, its successors and assigns
and shall inure to the benefit of the successors and assigns of Mr. Gutkowski.
This Note and the rights and obligations of the Borrower hereunder shall
be governed by and construed and interpreted in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the Borrower has executed this Note as
of the day and year first written above. THE MARQUEE GROUP, INC.
By:/s/ James E. Sileo
------------------
Name: James E. Sileo
Title: Chief Financial Officer
Agreed and acknowledged:
/s/ Robert M. Gutkowski
- -----------------------
Robert M. Gutkowski
2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated July 23, 1996, relating to the financial
statements of The Marquee Group, Inc., April 3, 1996 relating to the financial
statements of Sports Marketing and Television International, Inc. and April 3,
1996, relating to the financial statements of Athletes and Artists, Inc.
included in the Registration Statement (Form SB-2) and related Prospectus of
The Marquee Group, Inc. for the registration of shares of its common stock.
New York, New York
October 24, 1996
/s/ Ernst & Young LLP
---------------------
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption "Experts" and
to the use of my reports dated January 24, 1996, relating to the financial
statements of Sports Marketing and Television International, Inc. and March 7,
1996, relating to the financial statements of Athletes and Artists, Inc.
in the Registration Statement (Form SB-2) and related Prospectus of
The Marquee Group, Inc. for the registration of shares of its common stock.
New York, New York
/s/ Scott Gildea, CPA
---------------------
Scott Gildea, CPA
New York, New York
October 24, 1996
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated
under the Securities Act of 1933, as amended, to his being named as about to
become a director of The Marquee Group, Inc. in such company's Registration
Statement on Form SB-2.
/s/ Arthur Barron
-----------------
Arthur Barron
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated
under the Securities Act of 1933, as amended, to his being named as about to
become a director of The Marquee Group, Inc. in such company's Registration
Statement on Form SB-2.
/s/ Myles W. Schumer
--------------------
Myles W. Schumer
