<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
REGISTRATION NO. 333-11287
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
AMENDMENT NO. 3 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>
DELAWARE 7941 13-3878295
<S> <C> <C>
(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:
<TABLE>
<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 ..... 3,852,500(2) $5.00 $19,262,500 $ 6,642.24
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Common Stock, $.01 par value ................. 3,852,500(3) 7.50 28,893,750 9,963.36
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Unit Purchase Options (4) .................... 335,000 .001 335 .12
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Units, each consisting of one share of Common
Stock, $.01 par value, and one Warrant (5) .. 335,000 8.25 2,763,750 953.02
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Common Stock, $.01 par value (5) ............. 335,000 7.50 2,512,500 866.38
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
Total ...................................... $53,432,835 $18,425.22(6)
- --------------------------------------------- -------------- ------------------ ------------------ ----------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 502,500 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 $16,422.51 was previously paid.
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 DECEMBER 5, 1996
PROSPECTUS
THE MARQUEE GROUP, INC.
3,350,000 UNITS CONSISTING OF 3,350,000 SHARES
OF COMMON STOCK AND 3,350,000 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 December ,
1996 (the "Separation Date"). 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 Units, the Common Stock and the Warrants have been approved
for quotation on the Nasdaq SmallCap Market ("Nasdaq") under the symbols
MRQEU, MRQE and MRQEW, respectively. 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 BEGINS 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 PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
------------- ---------------------- -------------
<S> <C> <C> <C>
Per Unit .... $5.00 $.40 $4.60
- ------------ ------------- ---------------------- -------------
Total (3) .. $16,750,000 $1,340,000 $15,410,000
- ------------ ------------- ---------------------- -------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include additional compensation to be received by Royce
Investment Group, Inc., the representative of the Underwriters (the
"Representative") and Continental Broker-Dealer Corp. (collectively,
the "Underwriters") in the form of (i) a non-accountable expense
allowance of $376,875, or $.1125 per Unit ($433,406 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 335,000 Units at $8.25 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 $1,127,000 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 502,500 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
$19,262,500, $1,541,000 and $17,721,500, 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 December , 1996.
ROYCE INVESTMENT GROUP, INC. CONTINENTAL BROKER-DEALER CORP.
The date of this Prospectus is December , 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
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>
FOR CALIFORNIA INVESTORS: In order to purchase securities pursuant to this
prospectus, you must either have (l) a net worth (exclusive of home, home
furnishings and automobile) of not less than $250,000, plus at least $60,000
gross annual income; or (2) a net worth (exclusive of home, home furnishings
and automobile) of $500,000.
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 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 666,662
Units. Unless the context otherwise requires, the "Company" refers to The
Marquee Group, Inc. and its subsidiaries after giving effect to the mergers
of wholly-owned subsidiaries of the Company into Athletes and Artists, Inc.
(the "A&A Acquisition") and Sports Marketing & Television International, Inc.
(the "SMTI Acquisition") 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 Executive Chairman of the Board of SFX
Broadcasting, Inc., a publicly-traded company which owns and operates radio
stations.
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
1,292,308 shares of Common Stock to Mr. Trager, who is currently a Director
of the Company and who will become an executive officer of the Company upon
the closing of this Offering, and Mr. Letis, who will become an executive
officer and director of the Company upon the closing of this Offering.
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, who is
currently a Director of the Company and who will become an executive officer
of the Company upon the closing of this Offering, and Louis J. Oppenheim, who
will become an executive officer and Director of the Company upon the closing
of this Offering, 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 969,230 shares of Common
Stock.
Marquee has agreed to provide certain production and promotional services
in the sports and events programming area, 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 ..... 3,350,000 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 ... 666,662 shares(3) --
To be issued in connection with this Offering ........ 3,350,000 shares(4) --
Common Stock Outstanding after this Offering ......... 6,991,662 shares(2)(3)(4) 1,275,000 shares
</TABLE>
(footnotes on following page)
4
<PAGE>
Use of Proceeds ........ To fund the initial cash portion
($9,000,000) of the purchase price of the
Acquisitions, to pay interest on the
Debentures, for working capital and general
corporate purposes and capital expenditures.
See "Use of Proceeds."
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" 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 666,662 shares of Common Stock issuable upon exercise of the
Warrants issuable upon conversion of the Debentures.
(4) Excludes up to (i) 1,005,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,350,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby and (iii) 670,000 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 September 30, 1996 and for
the nine-month period ended September 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 nine-month period 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 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 and the
completion of this Offering. 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 NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 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 $ 1,465,731 $9,497,000
Operating expenses ................... 5,549,887 1,239,017 5,437,348
General and administrative expenses . 3,154,710 1,257,840 4,131,954
----------------- -------------- ----------------
Operating income (loss) .............. $ 1,637,230 $(1,031,126) (72,302)
================= ============== ================
Net income (loss) .................... $ 789,773 $(1,116,806) $ (117,040)
================= ============== ================
Net income (loss) per share .......... $ .11 $ (.54) $ (.02)
================= ============== ================
Weighted average common stock and
common stock equivalents outstanding 6,991,662(1) 2,066,662 6,991,662(1)
================= ============== ================
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------------------------------
PRO FORMA FOR
OFFERING AND
BALANCE SHEET DATA: ACTUAL ACQUISITIONS(2)
------------- ---------------
<S> <C> <C>
Current assets ................ $ 937,086 $ 7,632,744
Current liabilities ........... 369,295 1,802,967
Total assets .................. 1,426,251 8,008,765
Long-term debt ................ 2,121,615 1,697,615
Accumulated deficit ........... (1,116,806) (1,535,526)
Stockholders' equity (deficit) (1,064,659) 4,508,183
</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) Adjusted to give effect to the sale of the 3,350,000 Units offered
hereby and the application of the net proceeds therefrom to complete
the Acquisitions and to pay interest on the Debentures. See "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.
Limited Operating History; History of Losses. Although the Company was
formed in July 1995, it did not commence operations until January 1996 and,
since that time, it has engaged in only limited activities, consisting
primarily of negotiating the agreements relating to the Acquisitions and
performing limited sports marketing and consulting activities. For the period
from July 11, 1995 (inception) through December 31, 1995, the Company had no
revenues and expenses. For the nine months ended September 30, 1996, the
Company sustained a net loss of $1,116,806 (unaudited). At September 30,
1996, the Company had an accumulated deficit of $1,116,806 (unaudited) and a
stockholders' deficiency of $1,064,659 (unaudited). There can be no assurance
that these trends will not continue after the consummation of this Offering
and the Acquisitions.
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.
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."
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 of this Offering to Benefit Insiders." Although the
Company has entered into a five-year employment agreement with Mr. Gutkowski
and has agreed to 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
7
<PAGE>
on the business and operations of the Company. The Company has obtained
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 nine-month period ended September 30,
1996, the agreement with the Breeders' Cup Limited accounted for
approximately 78%, 75% and 52% 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
30% of the Company's revenues for the year ended December 31, 1995 and the
nine-month period ended September 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."
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 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.
8
<PAGE>
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 of this 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 27.4% 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 $3.00 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
$4,528,600 (approximately 31.7%) 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 director of the Company, will
control 54.4% 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."
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 1, 1996
9
<PAGE>
equal to the estimated fair market value of such shares on the date of
issuance. The Company also expects to incur charges to operations aggregating
$419,000 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 of $250,000 and interest expense of $169,000. Interest expense in
connection therewith of approximately $86,000 was recognized during the
quarter ended September 30, 1996. 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. At September 30, 1996, the Company had a
negative net tangible book value of $(.76) per share and, accordingly,
investors participating in this Offering will incur immediate and substantial
dilution in net tangible book value of approximately $4.36 per share (87.2%),
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, SMTI and A&A. The Debentures will automatically
convert upon completion of this Offering into 666,662 Units, which are
identical to the Units offered hereby, resulting in a conversion rate of
$3.00 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 December , 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. 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 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."
10
<PAGE>
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 which represent the right to purchase an aggregate of
3,350,000 shares of Common Stock, (ii) Warrants issuable upon conversion of
the Debentures which represent the right to purchase 666,662 shares of Common
Stock and (iii) Unit Purchase Options which represent the right to purchase
an aggregate of 670,000 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."
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
11
<PAGE>
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.
On November 6, 1996, Nasdaq proposed changes to its listing requirements
which, after a 30-day comment period and consideration of changes to the
proposals, will be submitted to the Securities and Exchange Commission (the
"Commission") for final approval. If the current proposal is approved without
modification, a company's qualification for continued listing on Nasdaq would
require that such company, among other things, have at least $2,000,000 in
"net tangible assets" ("net tangible assets" equals total assets less total
liabilities and goodwill) or at least $35,000,000 in total market value or at
least $500,000 in net income in two out of its last three fiscal years, as
well as at least 500,000 shares in the public float, at least $1,000,000 in
market value of the public float, a bid price of not less than $1.00 per
share, a minimum of two independent directors and other corporate governance
criteria which are the same as those for the Nasdaq National Market.
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
12
<PAGE>
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 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 4,449,996 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, substantially all of 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 the 249,996 Units issuable upon
conversion of the Debentures, for a period of two years from the closing of
this Offering (except that with the exception of the securities issuable to
them upon conversion of the Debentures, they may transfer such securities,
after consent of the Representative, to affiliates of such stockholders who
agree to be bound by the terms of such lock-up agreement). Holders of an
additional 416,666 Units issuable upon conversion of the Debentures have
agreed not to sell any of their securities for one year from the date of this
Prospectus. 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 "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
$14,283,000 (approximately $16,538,000 if the Underwriters' over-allotment
option is exercised in full). 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) 45.5%
Initial cash portion of acquisition price for A&A 2,500,000(2) 17.5
Working capital ................................... 4,528,600(3) 31.7
Capital expenditures .............................. 500,000 3.5
Interest on Debentures ............................ 254,400 1.8
------------
Total ............................................. $14,283,000 100.0%
=============== ============
</TABLE>
- ------------
(1) Does not include $1,500,000 to be paid in equal annual installments
during the four-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 four-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
September 30, 1996 and (ii) pro forma as of September 30, 1996 to reflect the
sale of the Units offered hereby 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>
SEPTEMBER 30, 1996
------------------------------
PRO FORMA FOR
OFFERING AND
ACTUAL ACQUISITIONS
------------- ---------------
<S> <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
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; 8,266,662
shares issued and outstanding pro forma for Offering and
Acquisitions (3)(4) ........................................... 19,885 82,667
Additional paid-in capital ...................................... 119,345 6,048,125
Deferred compensation (5) ....................................... (87,083) (87,083)
Accumulated deficit ............................................. (1,116,806) (1,535,526)
------------- ---------------
Total stockholders' equity (deficit) ............................ (1,064,659) 4,508,183
------------- ---------------
Total capitalization ............................................ $ 1,056,956 $ 6,205,798
============= ===============
</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 1,005,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,350,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby, (iii) 670,000 shares of Common Stock issuable upon exercise of
the Unit Purchase Options and the Warrants contained therein, (iv)
666,662 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) Represents deferred compensation related to 50,000 shares of Common
Stock issued to an officer in partial consideration of such officer
entering into an employment agreement with the Company.
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 reflects the issuance of
$445,103 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
Indebt-
15
<PAGE>
edness." The Representative acted as placement agent in connection with the
Private Placement. In connection with the Company's application to list its
securities on Nasdaq, the Company and the Representative negotiated
modifications to certain terms of the Debentures which have been agreed to by
the Debenture holders. Pursuant to their modified terms, the Debentures will
automatically convert upon the completion of this Offering into 666,662 Units
(a conversion rate of $3.00 per unit), each of which will be identical to the
Units offered hereby. The Debentures bear interest at the rate of 10% per
annum calculated for the period commencing on the date of the final closing
of the Private Placement through one year following the effective date of the
registration statement, and payable in full at the closing of this Offering.
As a result of the modification, interest to be charged to operations will
aggregate $254,400, of which $86,000 was recognized in the quarter ended
September 30, 1996 and the balance will be expensed over the period the
Debentures remain outstanding.
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 416,666 Units issuable upon conversion of such
Debentures for a period of one year from the date of this Prospectus . 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 249,996 Units issuable upon conversion of such Debentures for
a period of two years from the closing of this Offering. The Company has
agreed to file a registration statement covering the resale of the securities
issuable upon conversion of the Debentures nine months from the date of this
Prospectus and to use its best efforts to have such registration statement
declared effective within one year from the date of this Prospectus. 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 September 30, 1996
was $(1,064,659), or $(.76) 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 September
30, 1996 would have been $(9,774,817), or $(2.68) per share. In addition,
after giving effect to the sale of the Units offered hereby, the pro forma
net tangible book value would have been $4,508,183 or $.64 per share. This
represents an immediate increase in net tangible book value of $1.40 per
share to existing stockholders, and an immediate dilution of $4.36 per share
(87.2%) to persons purchasing shares at the initial public offering price
(the "New Investors"). The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price of the Units ............................ $ 5.00(1)
Marquee negative net tangible book value per share at
September 30, 1996 .................................................. $ (.76)
Increase in negative net tangible book value per share attributable
to the Acquisitions and the conversion of Debentures (2) ........... (1.92)
Increase in net tangible book value per share attributable to
purchase by the New Investors ....................................... 3.32
--------
Pro forma net tangible book value per share after this Offering ..... .64
----------
Dilution per share to New Investors .................................. $ 4.36
==========
</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 $.90 per share, which would
result in dilution to New Investors of $4.10 (82.0%) 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 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
----------------------------------------------------
NON-ESCROW ESCROW
SHARES SHARES TOTAL NUMBER PERCENT
------------ ----------- -------------- ---------
<S> <C> <C> <C> <C>
Original stockholders ... 1,400,000 588,462 1,988,462 24.1%
Acquisition stockholders 1,575,000 686,538 2,261,538 27.4
Stockholders resulting
from conversion of the
Debentures .............. 666,662 -- 666,662 8.1
New Investors ............ 3,350,000 -- 3,350,000 40.4
------------ ----------- -------------- ---------
Total .................... 6,991,662 1,275,000 8,266,662 100.0%
============ =========== ============== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
------------------------- AVERAGE PRICE
AMOUNT (1) PERCENT PER SHARE
-------------- --------- -------------
<S> <C> <C> <C>
Original stockholders ... $ 20,000 0.1% $0.01
Acquisition stockholders --(2) -- --(2)
Stockholders resulting
from conversion of the
Debentures .............. 2,000,000(3) 10.7 $3.00(4)
New Investors ............ 16,750,000 89.2 $5.00(4)
-------------- ---------
Total .................... $18,770,000 100.0%
============== =========
</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
September 30, 1996 and the Unaudited Pro Forma Condensed Combined Statement
of Operations for the nine months ended September 30, 1996 give effect to the
following transactions and adjustments as if they had occurred as of
September 30, 1996 and January 1, 1995, respectively: (i) the Acquisitions
and related contractually required reductions in salaries and benefits and
(ii) the completion of this Offering 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 Acquisitions and related contractually required reductions in
salaries and benefits and (ii) the completion of this Offering 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
SEPTEMBER 30, 1996(1)
<TABLE>
<CAPTION>
PRO FORMA FOR
HISTORICAL PRO FORMA THE OFFERING AND
MARQUEE SMTI A&A ADJUSTMENTS ACQUISITIONS
------------- ------------ ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets ................ $ 937,086 $1,767,447 $358,611 $ 14,283,000 (2) $7,632,744
(9,000,000)(3)
(459,000)(4)
(254,400)(5)
Noncurrent assets ............. 489,165 61,074 75,782 (250,000)(5) 376,021
------------- ------------ ---------- --------------- ----------------
Total assets ................ $ 1,426,251 $1,828,521 $434,393 $ 4,319,600 $8,008,765
============= ============ ========== =============== ================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........... $ 369,295 $ 775,151 $350,201 $ 394,000 (3) $1,802,967
(85,680)(5)
Long-term debt ................ 2,121,615 -- -- 1,576,000 (3) 1,697,615
(2,000,000)(5)
Stockholders' equity (deficit) (1,064,659) 1,053,370 84,192 14,283,000 (2) 4,508,183
(10,970,000)(3)
(459,000)(4)
(168,720)(5)
1,750,000 (5)
------------- ------------ ---------- --------------- ----------------
Total liabilities and
stockholders' equity ......... $ 1,426,251 $1,828,521 $434,393 $ 4,319,600 $8,008,765
============= ============ ========== =============== ================
</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 from this Offering:
<TABLE>
<CAPTION>
<S> <C>
Offering ........................ $16,750,000
Less:Fees and expenses .......... 2,467,000
-------------
Net proceeds from this Offering $14,283,000
=============
</TABLE>
(3) 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.
(4) 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 ($459,000 at September 30, 1996).
(5) To reflect the issuance of 666,662 Units upon the conversion of the
Debentures, the related write-off of $250,000 of deferred financing
costs and the payment of interest in the amount of approximately
$254,400.
19
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996(1)
<TABLE>
<CAPTION>
PRO FORMA FOR THE
PRO FORMA OFFERING AND THE
MARQUEE SMTI A&A ADJUSTMENTS ACQUISITIONS(4)
-------------- ------------ ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 1,465,731 $5,523,633 $2,507,636 -- $9,497,000
Operating expenses ................... 1,239,017 3,147,398 1,050,933 -- 5,437,348
General and administrative expenses . 1,257,840 1,235,094 1,639,020 -- 4,131,954
-------------- ------------ ------------ -------------- -------------
Operating income (loss) .............. (1,031,126) 1,141,141 (182,317) -- (72,302)
Interest income (expense) ............ (85,680) 7,452 490 $(79,500)(2) (157,238)
-------------- ------------ ------------ -------------- -------------
Income (loss) before income taxes ... (1,116,806) 1,148,593 (181,827) (79,500) (229,540)
Income taxes (provision) benefit .... -- (132,000) 86,148 158,352 (3) 112,500
-------------- ------------ ------------ -------------- -------------
Net income (loss) .................... $(1,116,806) $1,016,593 $ (95,679) $ 78,852 $ (117,040)
============== ============ ============ ============== =============
Net income (loss) per share .......... $ (.54) $ (.02)
============== =============
Weighted average common stock and
common stock equivalents outstanding 2,066,662 6,991,662
============== =============
</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 nine
months ended September 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 of
$356,000; to record the income tax benefit of the adjustments set forth
in footnote (2) above ($37,000); and the pro forma tax benefit for the
separate net loss of Marquee ($477,352).
(4) Excludes additional interest expense of $169,000 related to the
Debentures.
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 (5)
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Revenue ............................. $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 (1,485,000)(2) 3,154,710
------------ ------------ -------------- -------------
Operating income (loss) ............. 83,470 68,760 1,485,000 1,637,230
Interest income (expense) ........... 9,972 7,571 (106,000)(3) (88,457)
------------ ------------ -------------- -------------
Income before taxes ................. 93,442 76,331 1,379,000 1,548,773
Income taxes (provision) benefit ... (9,000) (77,172) (672,828)(4) (759,000)
------------ ------------ -------------- -------------
Net income (loss) ................... $ 84,442 $ (841) $ 706,172 $ 789,773
============ ============ ============== =============
Net income per share ................ $ .11
=============
Weighted average number of common
stock and common stock equivalents
outstanding ........................ 6,991,662
=============
</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 ($1,345,000) and in benefits ($140,000) which
commenced during the nine-month period ended September 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 of
$46,000 and to record the income taxes of $626,828 related to the
adjustments set forth in footnotes (2) and (3) above.
(5) Excludes the interest expense related to the Debentures of
approximately $254,400.
21
<PAGE>
SELECTED FINANCIAL DATA
The Selected Financial Data of the Company as of September 30, 1996 and
for the nine-month period ended September 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 nine-month period 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 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 and the
completion of this Offering. 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 NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 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 $ 1,465,731 $9,497,000
Operating expenses ................... 5,549,887 1,239,017 5,437,348
General and administrative expenses . 3,154,710 1,257,840 4,131,954
Operating income (loss) .............. $ 1,637,230 $(1,031,126) $ (72,302)
================= ============== ================
Net income (loss) .................... $ 789,773 $(1,116,806) $ (117,040)
================= ============== ================
Net income (loss) per share .......... $ .11 $ (.54) $ (.02)
================= ============== ================
Weighted average common stock and
common stock equivalents outstanding 6,991,662(1) 2,066,662 6,991,662(1)
================= ============== ================
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------------
PRO FORMA FOR
OFFERING AND
BALANCE SHEET DATA: ACTUAL ACQUISITIONS(2)
------------- ----------------
<S> <C> <C>
Current assets ................ $ 937,086 $ 7,632,744
Current liabilities ........... 369,295 1,802,967
Total assets .................. 1,426,251 8,008,765
Long-term debt ................ 2,121,615 1,697,615
Accumulated deficit ........... (1,116,806) (1,535,526)
Stockholders' equity (deficit) (1,064,659) 4,508,183
</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) Adjusted to give effect to the sale of the 3,350,000 Units offered
hereby and the application of the net proceeds therefrom to complete
the Acquisitions and to pay interest on the Debentures. See "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 $1,345,000 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 $332,000 (based upon the date employment
commenced) has been charged to Marquee's operations for the nine-month period
ended September 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 $563,000 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
23
<PAGE>
Offering. See "Certain 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 nine-month period ended September 30, 1996 and are not included in the
Pro Forma Condensed Combined Financial Statements for 1995.
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. The Company also expects to incur charges to
operations aggregating approximately $419,000 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 of $250,000
incurred by the Company in connection with the Private Placement and interest
expense of $169,000. Interest expense in connection therewith of
approximately $86,000 was recognized during the quarter ended September 30,
1996. 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."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
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 nine-month period ended September 30, 1996, Marquee generated
revenues of approximately $1,466,000, principally from Marquee's performance
under its contract for production and tabulation of ballots for the Major
League Baseball All-Star Balloting Program and revenues derived from
production of boxing programs broadcast on ESPN and ESPN2. Revenues were also
derived from miscellaneous other productions.
Marquee's total operating expenses for the nine-month period ended
September 30, 1996 were approximately $1,239,000 and principally consisted of
production expenses for the Major League Baseball All-Star Balloting Program
and ESPN boxing. General and administrative expenses of $1,258,000
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included salary and other employee benefit expenses of approximately
$900,000, legal and professional fees of $141,000, office expenses of
approximately $109,000 and all other expenses of approximately $108,000.
Marquee's operating loss for the nine-month period ended September 30, 1996
was approximately $1,031,000.
On a pro forma basis, as if the Acquisitions had occurred on January 1,
1995, the Company would have had revenues of $9,497,000 for the nine-month
period ended September 30, 1996, compared to revenues of $5,968,000 for the
nine month period ended September 30, 1995, an increase of $3,529,000 or
59.1%. 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 nine-month period ended September 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 64% 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 nine-month
period ended September 30, 1996 of $5,437,000, compared to operating expenses
of $2,738,000 for the same period in 1995, an increase of approximately
$2,699,000 or 98.6%. 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 nine-month period ended September
30, 1996, general and administrative expenses increased $1,607,000, or 63.6%,
principally related to costs and expenses associated with Marquee's
operations, as described above. The pro forma adjustments for the nine-month
period ended September 30, 1995 reflect contractually required reductions in
salaries and benefits of approximately $720,000. See "--Introduction."
For the nine-month period ended September 30, 1996, the Company's pro
forma loss before taxes would have been $229,000 as compared to income of
$711,000 for the same period in 1995. Pro forma net loss for the nine-month
period ended September 30, 1996 would have been $117,000 after income tax
benefit of 112,000. Pro forma net income for the 1995 period would have been
$363,000 after provision for taxes of $348,000.
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
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 $8,705,000 in
1995 as compared to $9,286,000 for 1994. Pro forma adjustments reflect the
reductions in salaries and benefits required by the agreements relating to
the Acquisitions ($1,485,000 in 1995 and $423,000 in 1994). The decrease of
$581,000, or 6.2%, 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."
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For the year ended December 31, 1995, the Company's pro forma income
before taxes would have been $1,548,000 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 $759,000 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 $767,000. Of the
shareholder advances, promissory notes evidencing approximately $445,000 of
shareholder indebtedness were exchanged for Debentures in the Private
Placement, $75,000 was repaid from working capital, $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 666,662 Units upon the closing of this
Offering. At September 30, 1996, the Company had working capital of $568,000.
On a pro forma basis, after giving effect to this Offering and the
Acquisitions if they had occurred on such date, the Company would have had
working capital of approximately $5,830,000. 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
$14,283,000, 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 four-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 September 30, 1996, the distribution would have been approximately
$459,000. In connection with the conversion of the Debentures, upon the
closing of this Offering, the Company will pay interest of approximately
$254,000. 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
Executive Chairman of the Board 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 1,292,308 shares of Common Stock to Mr. Trager, who is
currently a Director of the Company and who will become an executive officer
of the Company upon the closing of this Offering, and Mr. Letis, who will
become an executive officer and director of the Company upon the closing of
this Offering.
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, who is
currently a Director of the Company and who will become an executive officer
of the Company upon the closing of this Offering, and Louis J. Oppenheim, who
will become an executive officer and director of the Company upon the closing
of this Offering, 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 969,230 shares of Common
Stock.
Marquee has agreed to provide certain production and promotional services
in the sports and events programming area, 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
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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.
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 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 nine-month period ended September 30, 1996, the
Breeders' Cup Agreement accounted for approximately 78%, 75% and 52% 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 30% of the Company's revenues for the
year ended December 31, 1995 and the nine-month period ended September 30,
1996, respectively. On a pro forma basis, for the nine-month period ended
September 30, 1996, three clients would have accounted for approximately 64%
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 written 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 Mu|fnoz -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 -Philadelphia Phillies
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 49
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 Marquee, A&A nor SMTI is a party to any material legal proceedings
which the Company believes could result in any judgments or fines that would
have a material adverse effect on the Company or its financial condition. On
or about November 18, 1996, a lawsuit was filed in the United States District
Court, Southern District of New York, by Central Sports Army Club and
National Association of Army Sports, which are engaged in managing a hockey
club in Moscow, Russia, against Arena Associates, Inc., The Detroit Vipers,
International Hockey League, A&A and Jay Grossman, alleging, among other
things, that defendants interfered with plaintiffs' business relationship
with Sergei Samsonov, a professional hockey player, seeking compensatory and
punitive damages. The Company believes it has meritorious defenses to such
lawsuit and the Company intends to contest this lawsuit vigorously.
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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:
NAME AGE POSITION
---- --- --------
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
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 Executive Chairman of SFX Broadcasting, Inc. ("SFX"),
a publicly-traded company which owns and operates radio stations, since 1995,
and from 1992 through 1995 he served as 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.
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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.
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 New York 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 1990 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.
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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.
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
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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 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 annual installments over the three to five 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.
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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 outstanding shares 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. No participant may receive, in the aggregate, options in respect of
more than 125,000 shares.
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 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,
however, 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 provides for the earlier
expiration of options of a participant in the event of certain terminations
of employment. The Committee will have discretion on a case by case basis,
with respect to any optionee whose employment is terminated for any reason
whatsoever, to accelerate the vesting of any options outstanding on the date
employment is terminated to permit the optionee to exercise the option during
the remaining term of such options. 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.
Notwithstanding the above, the option agreement accompanying the issuance of
any ISOs shall limit the transferability of such ISOs to the extent required
by the then applicable tax provisions governing the qualification of ISOs.
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.
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(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, or an increase in, the alternative minimum tax. A
participant's holding period for shares acquired upon the exercise of an
ISO will commence the day after the acquisition. 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.
(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.
(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 September 30, 1996, Robert M. Gutkowski made
loans to the Company in the aggregate principal amount of $437,000, which
loans accrued interest at the rate of 12% per annum. 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 38,461 Units. In September 1996 the Company
repaid $75,000 of its indebtedness to Mr. Gutkowski from working capital. The
Company will repay the balance of such indebtedness plus accrued interest at
the rate of 12% per annum to Mr. Gutkowski 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 76,924 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 is or
will be 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 76,924
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 19,230 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 38,461 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 a
wholly-owned subsidiary of the Company will be merged with and into SMTI on
the date of the 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 September 30, 1996, the amount of
such distribution would be approximately $459,000.
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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<PAGE>
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 should be
considered a tax-free exchange to the extent of the receipt of Common Stock
under Section 351 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 wholly-owned subsidiary of the Company will be merged with and into
A&A on the date of the 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 323,076 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 should be considered a tax-free exchange to the extent of the
receipt of Common Stock under Section 351 of the Code.
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<PAGE>
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 3,350,000
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) 1,369,230(2) 65.0% 16.6%
Robert M. Gutkowski ........................ 646,154(3) 684,615(3) 32.5 8.3
Arthur C. Kaminsky ......................... --(4) 684,615(4) -- 8.3
Louis J. Oppenheim ......................... --(5) 342,306(5) -- 4.1
Michael Letis .............................. --(6) 684,615(6) -- 8.3
Michael Trager ............................. --(7) 684,615(7) -- 8.3
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) 4,449,996(8) 100.0% 58.3%
</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
76,922 Units upon completion of this Offering. Includes 392,308 shares
of Common Stock which are held in escrow but in respect of which TSC
retains the power to vote. See "--Escrow Shares." Does not include
76,922 shares of Common Stock issuable upon exercise of an equal number
of Warrants, which are not exercisable until one year from the date of
this Prospectus. 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 38,461 Units upon
completion of this Offering. Includes 196,154 shares of Common Stock
which are held in escrow but in respect of which Mr. Gutkowski retains
the power to vote. See "--Escrow Shares." Does not include 38,461
shares of Common Stock which are issuable upon exercise of an equal
number of Warrants, which are not exercisable until one year from the
date of this Prospectus. 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 38,461 Units upon completion of this
Offering. Includes 196,154 shares of Common Stock which Mr. Kaminsky
has agreed to place in escrow but in respect of which he will retain
the power to vote. See "--Escrow Shares." Does not include 38,461
shares of Common Stock which are issuable upon exercise of an equal
number of Warrants, which are not exercisable until one year from the
date of this Prospectus. 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.
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<PAGE>
(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 19,230 Units upon completion of this
Offering. Includes 98,076 shares of Common Stock Mr. Oppenheim has
agreed to place in escrow but in respect of which he will retain the
power to vote. See "--Escrow Shares." Does not include 19,230 shares of
Common Stock issuable upon exercise of an equal number of Warrants,
which are not exercisable until one year from the date of this
Prospectus. See "Capitalization--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 38,461 Units upon completion of this Offering. Includes
196,154 shares of Common Stock which Mr. Letis has agreed to place in
escrow but in respect of which he will retain the power to vote. See
"--Escrow Shares." Does not include 38,461 shares of Common Stock which
are issuable upon exercise of an equal number of Warrants, which are
not exercisable until one year from the date of this Prospectus. 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 38,461 Units upon completion of this
Offering. Includes 196,154 shares of Common Stock which Mr. Trager has
agreed to place in escrow but in respect of which he will retain the
power to vote. See "--Escrow Shares." Does not include 38,461 shares of
Common Stock which are issuable upon exercise of an equal number of
Warrants, which are not exercisable until one year from the date of
this Prospectus. 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 date of this Prospectus 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
Certain existing stockholders (including persons who will become
stockholders in connection with the Acquisitions) deposited or agreed to
deposit an aggregate of 1,275,000 shares of Common Stock into escrow. The
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;
(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; and
(iv) all of the Escrow Shares will be released from escrow if one or more
of the following conditions is/are met:
(a) the Closing Price (as defined in the escrow agreement) of the
Company's Common Stock averages in excess of $15.00 per share for 20
consecutive trading days during the period from December , 1998 until
December 31, 1999; or
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<PAGE>
(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 (x) any extraordinary earnings or charges (including any charges
incurred in connection with the release from escrow of the Escrow Shares and
any Escrow Property (as defined herein) in respect thereof) and (y) any
interest expense relating to the Debentures issued by the Company in
connection with the Private Placement; (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.
Any money, securities, rights or property distributed in respect of the
Escrow Shares shall be received by the escrow agent, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution or total or partial liquidation of the Company
(the "Escrow Property"); provided however, that with the exception of any
securities of the Company or any successor to the Company issued as a result
of any of the foregoing, such property shall be delivered to the holders of
the Escrow Shares promptly upon the escrow agent's receipt thereof. If the
applicable Minimum Pretax Income levels or Closing Price level set forth
above have not been met by March 31, 2000, 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 December , 1996 (the "Separation Date").
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 December , 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.
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.
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<PAGE>
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
335,000 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 $8.25 per Unit, 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
annualor 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
49
<PAGE>
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
8,266,662 shares of Common Stock, of which 1,275,000 are Escrow Shares. Of
these shares, the 3,350,000 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 666,662 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,
substantially all of the holders of the outstanding shares of Common Stock
(including those persons who are to receive shares of Common Stock in
connection with 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 after the closing of
this Offering (except that, with the exception of the securities issued upon
conversion of the Debentures, such stockholders may transfer such shares,
with the consent of the Representative, to affiliates of such stockholder who
agree to be bound by the terms of the lock-up agreement). The holders of the
416,666 Units issuable upon conversion of the Debentures who are not
affiliates of the Company have agreed not to sell such Units or the
underlying securities for a period of one year from the date of this
Prospectus. 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 "Capitalization --
Private Placement" and "Underwriting."
Upon completion of this Offering, the Company will have outstanding (i)
Warrants which are components of the Units offered hereby which represent the
right to purchase an aggregate of 3,350,000 shares of Common Stock, (ii)
Warrants issuable upon conversion of the Debentures which represent the right
to purchase 666,662 shares of Common Stock and (iii) Unit Purchase Options
which represent the right to purchase an aggregate of 670,000 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.
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:
UNDERWRITERS NUMBER OF UNITS
- -------------- ---------------
Royce Investment Group, Inc. ...
Continental Broker-Dealer Corp. .
---------------
Total ....................... 3,350,000
===============
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 2.25% 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 502,500
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
335,000 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
$8.25 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. The Representative has advised the
Company that it has no current plans, proposals, arrangements or
understandings with respect to introducing to the Company any party relating
to any such merger, acquisition, joint venture, strategic introduction or
similar transaction.
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 September 30, 1996 (unaudited) ............. F-3
Statements of Operations for the period from July 11, 1995 (inception)
to December 31, 1995 and the period from July 11, 1995 (inception) to September 30,
1995 (unaudited) and for the nine months ended September 30, 1996 (unaudited) ........ F-4
Statements of Stockholders' Equity for the period from July 11, 1995 (inception)
to December 31, 1995 and the period from July 11, 1995 (inception) to September 30,
1995 (unaudited) and for the nine months ended September 30, 1996 (unaudited) ........ F-5
Statements of Cash Flows for the period from July 11, 1995 (inception)
to December 31, 1995 and the period from July 11, 1995 (inception) to September 30,
1995 (unaudited) and for the nine months ended September 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 September 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 nine months ended
September 30, 1995 and 1996 (unaudited) ............................................... F-15
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the
nine months ended September 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 September 30, 1996 (unaudited) ............. F-22
Statements of Operations and Retained Earnings for the years ended December 31, 1994
and 1995 and for the nine months ended September 30, 1995 and 1996 (unaudited) ....... F-23
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the
nine months ended September 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 SEPTEMBER 30, 1996
----------------- ------------------------------
PRO FORMA FOR
OFFERING AND
HISTORICAL ACQUISITIONS
------------- ---------------
(UNAUDITED) (UNAUDITED)
(NOTES 3 AND 4)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ..................................... $19,980 $ 408,862 $ 5,280,457
Accounts receivable ...................... -- 371,703 1,394,837
Due from employee ........................ -- 12,115 12,115
Prepaid expenses and other current assets -- 144,406 945,335
----------------- ------------- ---------------
Total current assets .................... 19,980 937,086 7,632,744
Deferred financing costs .................. -- 449,278 199,278
Property and equipment, net ............... -- 13,962 137,966
Other assets .............................. -- 25,925 38,777
----------------- ------------- ---------------
$19,980 $ 1,426,251 $ 8,008,765
================= ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ -- $ 189,295 $ 865,656
Acquisition indebtedness -current
portion ................................. -- -- 394,000
Other current liabilities ................ -- 180,000 543,311
----------------- ------------- ---------------
Total current liabilities ............... 369,295 1,802,967
Debentures--net ......................... -- 2,000,000 --
Loan payable to related party ............. -- 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 82,667
Additional paid-in capital ............... 595 119,345 6,048,125
Deferred compensation .................... -- (87,083) (87,083)
Accumulated deficit ...................... -- (1,116,806) (1,535,526)
----------------- ------------- ---------------
19,980 (1,064,659) 4,508,183
----------------- ------------- ---------------
$19,980 $ 1,426,251 $ 8,008,765
================= ============= ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------------------- -------------------------------
FOR THE PERIOD
FROM JULY 11, FOR THE PERIOD
1995 FROM JULY 11,
(INCEPTION) TO PRO FORMA FOR 1995 (INCEPTION) PRO FORMA FOR
DECEMBER 31, OFFERING AND TO SEPTEMBER 30, OFFERING AND
1995 ACQUISITIONS 1995 HISTORICAL ACQUISITIONS
--------------- --------------- ---------------- -------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(NOTES 3 AND 4) (NOTES 3 AND 4)
<S> <C> <C> <C> <C> <C>
Revenues ......................
Commissions and fee income . $ -- $10,110,379 $ -- $ 1,465,731 $9,297,000
Income from joint ventures .. -- 231,448 -- -- 200,000
--------------- --------------- ---------------- -------------- ---------------
-- 10,341,827 -- 1,465,731 9,497,000
Operating expenses ............ -- 5,549,887 -- 1,239,017 5,437,348
General and administrative
expenses ..................... -- 3,154,710 -- 1,257,840 4,131,954
--------------- --------------- ---------------- -------------- ---------------
Income (loss) from operations -- 1,637,230 -- (1,031,126) (72,302)
Interest income/(expense) .... -- (88,457) -- (85,680) (157,238)
--------------- --------------- ---------------- -------------- ---------------
Income (loss) before income
taxes ........................ -- 1,548,773 -- (1,116,806) (229,540)
Income tax provision/(benefit) -- 759,000 -- -- (112,500)
--------------- --------------- ---------------- -------------- ---------------
Net income (loss) ............. $ -- $ 789,773 $ -- $(1,116,806) $ (117,040)
--------------- --------------- ---------------- -------------- ---------------
Net income (loss) per share .. $ -- $ .11 $ -- $ (.54) $ (.02)
=============== =============== ================ ============== ===============
Weighted average common stock
and common stock equivalents
outstanding .................. 2,066,662 6,991,662 2,066,662 2,066,662 6,991,662
=============== =============== ================ ============== ===============
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF COMMON ADDITIONAL DEFERRED ACCUMULATED
SHARES STOCK PAID-IN CAPITAL COMPENSATION DEFICIT TOTAL
----------- ---------- --------------- -------------- -------------- -------------
<S> <C> <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 .......... 50,000 500 118,750 (118,750) -- 500
Amortization of deferred
compensation ..................... -- -- -- 31,667 -- 31,667
Net loss for the nine months ended
September 30, 1996 ............... -- -- -- -- (1,116,806) (1,116,806)
----------- ---------- --------------- -------------- -------------- -------------
Balance -- September 30, 1996
(unaudited) ...................... 1,988,462 $ 19,885 $ 119,345 $ (87,083) $(1,116,806) $(1,064,659)
=========== ========== =============== ============== ============== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JULY 11, 1995 JULY 11, 1995
(INCEPTION) TO DECEMBER (INCEPTION) TO NINE MONTHS ENDED
31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------------- ----------------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................... $ -- $ -- $(1,116,806)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation .................................. -- -- 368
Non-cash compensation ......................... -- -- 32,167
Changes in operating assets and liabilities:
Accounts receivable ........................... -- -- (371,703)
Due from employee ............................. -- -- (12,115)
Prepaids and other current assets ............. -- -- (144,406)
Accounts payable and accrued liabilities ..... -- -- 189,295
Other current liabilities ..................... -- -- 180,000
------------------
Net cash (used in) operating activities ..... -- -- (1,243,200)
INVESTING ACTIVITIES:
Purchase of fixed assets ...................... -- -- (14,330)
Other assets .................................. -- -- (25,925)
----------------------- ----------------------- ------------------
Net cash (used in) investing activities ...... -- -- (40,255)
FINANCING ACTIVITIES:
Proceeds from loans payable to related parties -- -- 766,718
Repayments of loans payable to related parties -- -- (200,000)
Deferred financing costs ...................... -- -- (256,778)
Proceeds from Private Placement ............... -- -- 1,362,397
Proceeds from issuance of common stock ....... 19,980 19,980 --
----------------------- ----------------------- ------------------
Net cash provided by financing activities .. 19,980 19,980 1,672,337
Net increase in cash ........................... 19,980 19,980 388,882
Cash at beginning of period .................... -- -- 19,980
----------------------- ----------------------- ------------------
Cash at end of period .......................... $19,980 $19,980 $ 408,862
======================= ======================= ==================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Exchange of loans payable to related parties to
Debentures ..................................... $ -- $ -- $ 445,103
======================= ======================= ==================
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE PERIOD FROM JULY 11, 1995
(INCEPTION) TO SEPTEMBER 30, 1995 AND FOR THE NINE-MONTH PERIOD
ENDED SEPTEMBER 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 period from July 11, 1995
(Inception) to September 30, 1995 and for the nine months ended September 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. 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 the initial public offering of the
Company's securities (the "IPO") occurs prior to February 15, 1997, accrued
interest on the Debentures will be deemed waived) and are payable, together
with accrued interest on June 30, 1999. The Debentures shall, upon completion
of 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.
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. In addition, the
Company repaid $125,000 to one of the stockholders from the proceeds of the
private placement.
Subsequent to September 30, 1996 the terms of the Debentures were modified
to reflect (i) a change in the conversion rate to one Unit for each $3.00
principal amount of Debentures and (ii) a change in the interest rate to 10%
per annum, such interest to be calculated for the period from the final
closing of the Private Placement to a date one year from the effective date
of the Company's IPO. In addition, the holders of the Debentures (other than
the Stockholder Purchasers) agreed not to sell, transfer or otherwise dispose
of the Debenture Units held by them for a period of one year from the
effective date of the Company's IPO. The Stockholder Purchasers agreed
previously to a two-year lock up period on their Debenture Units. As a result
of the modification, the interest charged to operations will aggregate
$254,400 of which $86,000 was recognized in the quarter ended September 30,
1996 and the remaining amount will be expensed over the period the Debentures
remain outstanding. Holders of the securities issuable upon conversion of the
Debentures have demand and piggy back registration rights.
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 3,350,000 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.
The Company has granted the underwriters of the initial public offering an
option to purchase up to an additional 502,500 IPO Units at the offering
price, solely to cover over-allotment in the sale of the IPO Units.
F-8
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
The Company has also agreed to grant to the underwriters or their
designees options (the "Unit Purchase Options") to purchase up to 335,000
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 165% 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 1,292,308 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 969,230 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 September 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 $14,283,000 (net of expenses of $2,467,000) from the
sale of 3,350,000 IPO Units at an assumed initial public offering price
of $5.00 per IPO Unit;
o The September 30, 1996 assets and liabilities and equity of SMTI and
A&A at their historical amounts as follows:
<TABLE>
<CAPTION>
SMTI A&A
------------- -----------
<S> <C> <C>
Current assets ....... $ 1,767,000 $ 358,000
Non current assets .. 61,000 76,000
------------- -----------
$ 1,828,000 $ 434,000
============= ===========
Current liabilities . $ 775,000 $ 350,000
Stockholders' equity 1,053,000 84,000
------------- -----------
$ 1,828,000 $ 434,000
============= ===========
</TABLE>
F-9
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
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 666,662 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 payment of
related interest of $254,400.
o The payment of an S Corporation distribution ($459,000 at September 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 nine months ended September 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 nine months
ended September 30, 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
----------------------------
SMTI A&A
------------- -------------
<S> <C> <C>
Revenues ....................... $ 5,524,000 $ 2,508,000
Costs and expenses ............. (4,375,000) (2,690,000)
------------- -------------
Income (loss) before taxes .... 1,149,000 (182,000)
Income tax (provision) benefit (132,000) 86,000
------------- -------------
Net income (loss) .............. $ 1,017,000 $ (96,000)
============= =============
</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 $1,345,000 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 nine-month period ended
September 30, 1996 (therefore no pro forma adjustment is required); and
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
F-10
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- STOCK OPTION PLAN (Continued)
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. 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
and have an exercise price of $6.25 per share, all of which options vest
ranging from a three to five year period commencing from the date of grant.
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 September 30, 1996, the Company has a loan payable of $121,615 to a
stockholder which is due on January 1, 1998 with interest at 12% per annum.
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. 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, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................ $ -- $ 301,995
Accounts receivable ............................. 391,352 805,094
Due from Celebrity Golf Championship, LLC ...... 186,500 200,000
Due from stockholders ........................... 56,909 56,909
Employee loan receivable ........................ 5,000 5,000
Prepaid expenses ................................ 17,987 398,449
-------------- ---------------
Total current assets ......................... 657,748 1,767,447
Property and equipment, net ...................... 39,674 60,089
Deposits ......................................... 985 985
-------------- ---------------
$698,407 $1,828,521
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft .................................. $ 438,651 $ --
Accounts payable and accrued liabilities ....... 141,044 652,218
Accrued pension payable ......................... 76,298 --
Income taxes payable ............................ 5,637 122,933
-------------- ---------------
Total current liabilities .................... 661,630 775,151
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 1,052,370
-------------- ---------------
36,777 1,053,370
-------------- ---------------
$698,407 $1,828,521
============== ===============
</TABLE>
See accompanying notes.
F-14
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Fee income ..................................... $6,047,789 $6,263,892 $3,236,255 $5,323,633
Income from joint venture companies ............ 262,715 231,448 231,448 200,000
------------ ------------ ------------ ------------
6,310,504 6,495,340 3,467,703 5,523,633
Operating expenses .............................. 4,322,942 4,080,477 1,772,477 3,147,398
General and administrative expenses ............. 1,101,451 911,393 663,627 785,094
------------ ------------ ------------ ------------
Income from operations before officers' salaries 886,111 1,503,470 1,031,599 1,591,141
Officers' salaries .............................. 988,533 1,420,000 1,065,000 450,000
Interest income, net ............................ 8,035 9,972 6,587 7,452
------------ ------------ ------------ ------------
Income (loss) before income taxes ............... (94,387) 93,442 (26,814) 1,148,593
Income tax (provision) benefit .................. (250) (9,000) 2,300 (132,000)
------------ ------------ ------------ ------------
Net income (loss) ............................... (94,637) 84,442 (24,514) 1,016,593
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 $ (73,179) $1,052,370
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-15
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------------
1994 1995 1995 1996
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................ $ (94,637) $ 84,442 $ (24,514) $1,016,593
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization .............. 13,300 31,667 23,750 25,544
Equity in earnings of joint venture
companies ................................. (262,715) (231,448) (231,448) (200,000)
Changes in operating assets and liabilities:
Accounts receivable ......................... (5,490) (188,858) (228,107) (413,742)
Due from Celebrity Golf Championship, LLC . -- -- -- 186,500
Prepaid expenses ............................ 10,900 (9,832) (230,963) (380,462)
Accounts payable and accrued liabilities ... (185,303) 63,029 1,016,677 511,174
Due to Celebrity Golf Championship, LLC .... -- -- 150,000 --
Deferred income ............................. (31,250) -- -- --
Accrued pension payable ..................... 2,007 (4,088) 38,154 (76,298)
Income taxes payable ........................ -- 5,637 -- 117,296
----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities .................................. (553,188) (249,451) 513,549 786,605
INVESTING ACTIVITIES:
Distribution received from joint venture
companies ................................... 263,417 53,338 15,229 --
Purchase of property and equipment ........... (37,281) (25,448) (20,448) (45,959)
----------- ----------- ----------- ------------
Net cash (used in) provided by
investing activities ........................ 226,136 27,890 (5,219) (45,959)
FINANCING ACTIVITIES:
Bank overdraft ............................... 217,090 221,561 (217,090) (438,651)
----------- ----------- ----------- ------------
Net increase (decrease) in cash .............. (109,962) -- 291,240 301,995
Cash at beginning of period .................. 109,962 -- -- --
----------- ----------- ----------- ------------
Cash at end of period ........................ $ -- $ -- $ 291,240 $ 301,995
=========== =========== =========== ============
</TABLE>
See accompanying notes.
F-16
<PAGE>
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 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 September 30, 1996 and for the
nine months ended September 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 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment . $ 169,681 $ 215,640
Leasehold improvements .................... 15,000 15,000
----------------- ------------------
184,681 230,640
Accumulated depreciation and amortization (145,007) (170,551)
----------------- ------------------
$ 39,674 $ 60,089
================= ==================
</TABLE>
NOTE 3 -- LOANS TO STOCKHOLDERS
At December 31, 1995 and September 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 $60,290 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, $41,825 and $ 43,125 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 results of CGA and CGC for the nine-month periods ended September 30,
1995 and 1996 are approximately $231,000 and $200,000, respectively.
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, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................. $ -- $ --
Accounts receivable .............................. 866,452 218,040
Advances ......................................... 62,948 67,974
Due from stockholders ............................ -- 33,081
Prepaid expenses ................................. 56,691 39,516
Prepaid taxes .................................... 8,280 --
-------------- ---------------
Total current assets ............................ 994,371 358,611
Property and equipment, net ......................... 47,950 63,915
Deposits ............................................ 11,867 11,867
-------------- ---------------
$1,054,188 $434,393
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ................................... $ 272,429 $ 12,380
Accounts payable and accrued liabilities ......... 208,821 109,823
Income taxes payable ............................. -- 167,684
Accrued profit sharing expense ................... 53,809 --
Due to stockholders .............................. 1,377 648
Deferred income taxes payable .................... 337,881 59,666
-------------- ---------------
Total current liabilities ....................... 874,317 350,201
Stockholders' equity:
Common stock, $1 par value, 20,000 shares
authorized, 15 shares issued and outstanding ..... 15 15
Retained earnings ................................... 179,856 84,177
-------------- ---------------
Total stockholders' equity .......................... 179,871 84,192
-------------- ---------------
Total liabilities and stockholders' equity ......... $1,054,188 $434,393
============== ===============
</TABLE>
See accompanying notes.
F-22
<PAGE>
ATHLETES AND ARTISTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ................................ $3,291,077 $3,846,487 $2,499,952 $2,507,636
Operating expenses ...................... 1,236,562 1,469,410 965,804 1,050,933
General and administrative expenses .... 2,060,918 2,308,317 1,516,340 1,639,020
------------ ------------ ------------ ------------
Operating (loss) income ................. (6,403) 68,760 17,808 (182,317)
Interest and dividend income ............ 590 7,571 -- 490
------------ ------------ ------------ ------------
(Loss) income before income taxes ...... (5,813) 76,331 17,808 (181,827)
Income tax benefit (provision) .......... (28,203) (77,172) (17,986) 86,148
------------ ------------ ------------ ------------
Net loss ................................ (34,016) (841) (178) (95,679)
Retained earnings--beginning of period .. 214,713 180,697 180,697 179,856
------------ ------------ ------------ ------------
Retained earnings--end of period ....... $ 180,697 $ 179,856 $ 180,519 $ 84,177
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE>
ATHLETES AND ARTISTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ..................................... $(34,016) $ (841) $ (178) $ (95,679)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Officers' salaries advanced (expensed) ..... 150,587 12,287 (69,498) (33,081)
Depreciation and amortization ............... 11,094 12,719 9,600 9,600
Deferred income taxes payable ............... 15,286 77,172 17,986 (278,215)
Changes in operating assets and liabilities:
Accounts receivable ....................... (15,386) (288,730) 423,283 648,412
Advances .................................. (9,474) (42,160) (12,207) (5,026)
Prepaid taxes ............................. 1,591 159 160 8,280
Prepaid expenses .......................... -- (56,691) (6,421) 17,175
Security deposits ......................... (496) -- -- --
Accounts payable and accrued liabilities .. (18,290) 182,241 20,673 (98,998)
Income taxes payable ...................... 160 (160) (160) 167,684
Accrued profit sharing expense ............ (53,002) 811 (12,642) (53,809)
Due to stockholders ....................... -- 1,377 16,027 (729)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities .................................. 48,054 (101,816) 386,623 285,614
INVESTING ACTIVITIES:
Purchases of property and equipment ......... (11,056) (18,441) (14,557) (25,565)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Bank overdraft ............................... (36,998) 120,257 (152,172) (260,049)
----------- ----------- ----------- -----------
Net increase (decrease) in cash .............. -- -- 219,894 --
Cash at beginning of period .................. -- -- -- --
----------- ----------- ----------- -----------
Cash at end of period ........................ $ -- $ -- $ 219,894 $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes ................................ $ 17,416 $ 3,662 $ -- $ 15,934
</TABLE>
See accompanying notes.
F-24
<PAGE>
ATHLETES AND ARTISTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE-MONTH PERIODS ENDED SEPTEMBER 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 September 30, 1996 and for the six
months ended September 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 SEPTEMBER 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) (197,995)
----------------- ------------------
$ 47,950 $ 63,915
================= ==================
</TABLE>
NOTE 3 -- INCOME TAXES
The Company has deferred tax assets of $110,509 and $50,798 and deferred
tax liabilities of $436,605 and $110,464 at December 31, 1995 and September
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 nine months ended September 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 September 30, 1996 the Company had loans payable
to its stockholders in the aggregate amount of $1,377 and $648, 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 $40,356 for the years ended December 31,
1994 and 1995 and for the nine months ended September 30, 1995, respectively.
There was no pension expense for the six months ended September 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, $90,000
and $89,000 for the years ended December 31, 1994 and 1995 and for the nine
months ended September 30, 1995 and 1996, respectively. At September 30,
1996, the future minimum lease commitments excluding escalation charges, are
as follows:
1997 ........ $ 135,000
1998 ........ 135,000
1999 ........ 135,000
2000 ........ 135,000
2001 ........ 135,000
Thereafter . 375,000
-----------
$1,050,000
===========
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
PAGE
----
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
- -----------------------------------------------------------------------------
UNTIL DECEMBER , 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.
#############################################################################
GRAPHIC OMITTED
IGT: "MARQUEE1"
#############################################################################
THE MARQUEE
GROUP, INC.
3,350,000 UNITS
CONSISTING OF 3,350,000 SHARES OF
COMMON STOCK AND 3,350,000 WARRANTS
PROSPECTUS
ROYCE INVESTMENT
GROUP, INC.
CONTINENTAL
BROKER-DEALER CORP.
DECEMBER , 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 $376,875), are as follows:
AMOUNT
---------
SEC Registration Fee .............. $ 18,425
NASD Filing Fee ................... 6,780
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 ............ 109,920
---------
Total ......................... $ 750,125
=========
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 $445,103 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.
Subsequently, certain terms of the debentures were modified and, pursuant to
their modified terms, the debentures will automatically convert upon the
completion of this Offering into 666,662 units (resulting in a conversion
rate of $3.00 per unit) each of which will be identical to the units offered
hereby.
II-1
<PAGE>
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.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 -- Form of Revised Underwriting Agreement
2.1* -- Form of Certificate of Merger between Athletes 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
10.8B* -- Form of Second Amendment to Escrow Agreement
10.9* -- Financial Consulting Agreement between the Registrant and Sillerman Communications
Management Corporation
10.10* -- Form of 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* -- Form of 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.
+ 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 4th of December, 1996.
THE MARQUEE GROUP INC.
By: /s/ James E. Sileo
-----------------------------------
James E. Sileo, Chief Financial Officer
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 December 4, 1996
--------------------------
Robert F.X. Sillerman
* President, Chief Executive Officer and
-------------------------- Director (Principal Executive Officer) December 4, 1996
Robert M. Gutkowski
* Director December 4, 1996
--------------------------
Arthur C. Kaminsky
* Director December 4, 1996
--------------------------
Howard J. Tytel
* Director December 4, 1996
--------------------------
Michael Trager
/s/JAMES E. SILEO
-------------------------- Chief Financial Officer (Principal
James E. Sileo Accounting and Financial Officer) December 4, 1996
*/s/ JAMES E. SILEO
--------------------------
by James E. Sileo as
attorney in fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------ --------------- --------
<S> <C> <C> <C>
1.1 -- Form of Revised Underwriting Agreement
2.1* -- Form of Certificate of Merger between Athletes 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
10.8B* -- Form of Second Amendment to Escrow Agreement
10.9* -- Financial Consulting Agreement between the Registrant and Sillerman
Communications Management Corporation
10.10* -- Form of 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* -- Form of 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.
+ Confidential treatment applied for.
<PAGE>
3,350,000 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. December 5, 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 representative (the "Representative"),
an aggregate of 3,350,000 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 at any time from the Separation
Date (as defined in the Warrant Agreement) until December 5, 2001. 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 the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 502,500 additional Units. Unless the context otherwise
indicates, the term "Units" shall include the 502,500 additional Units referred
to above.
The aggregate of 3,350,000 Units to be sold by Marquee, together with
all or any part of the 502,500 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
-2-
<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 the business,
properties or financial condition of Marquee and the Merger Subsidiaries, taken
as a whole.
(d) The authorized, issued and outstanding capital stock of
Marquee as of September 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
-3-
<PAGE>
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") which will merge into
each of Athletes and Artists, Inc., a New York corporation ("A&A") and Sports
Management & Television International, Inc., a Connecticut corporation ("SMTI")
simultaneously on the First Closing Date (as hereinafter defined) and A&A
Acquisition Corp. Each of the Merger Subsidiaries is a corporation duly
organized and validly existing under the
-4-
<PAGE>
laws of the state of the jurisdiction
of its incorporation. Marquee owns all of 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 (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, 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
-5-
<PAGE>
Marquee and the Merger Subsidiaries owns or leases all such properties described
in the 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) Each of Ernst & Young LLP and Scott Gildea CPA, who have
given their respective 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.
-6-
<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
-7-
<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 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 $5.00 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 pursuant to the provisions of Section 9
hereof. The First Units shall consist of 3,350,000 Units to be purchased from
Marquee.
-8-
<PAGE>
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, December
11, 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
to purchase all or any part of an aggregate of an additional 502,500 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.
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.
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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 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 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
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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 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
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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) 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
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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.
(j) Marquee will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary
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<PAGE>
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) The Company will deliver to the Representative agreements
to the effect that 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 provided, however, that (i) the restrictions shall only apply to those
securities owned by the Principal Stockholders at the effective date of the
Prospectus, those securities to be received by the Principal Stockholders in
connection with the conversion of debentures issued in the Private Placement
(as such term is defined in the Prospectus) and those securities to be received
by the Principal Stockholders in connection with the Acquisitions (as such is
defined in the Prospectus), and (ii) with respect to any securities which were
not acquired or issued upon conversion of securities acquired in connection
with the Private Placement, the restrictions shall not apply to transfers to
affiliates of the Principal Stockholders after receipt of the written consent
of the Representative on behalf of the Underwriters (which consent shall not be
unreasonably withheld). 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. And for a period of twelve
months from the First Closing Date, 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
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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 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 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 offer or sell any of its
securities pursuant to Regulation S under the Act, without the prior written
consent of the Representative, which consent shall not be unreasonably
withheld.
(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.
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<PAGE>
(t) Upon the exercise of any Warrant or Warrants after
December 5, 1997, 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 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
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Acquisition Agreements and the Prospectus, subject to such changes therein as
are not material and are agreed to by the Representative.
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 jurisdiction of its incorporation, 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
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obtained are in full force and effect, and (c) Marquee and each of the Merger
Subsidiaries are in all material respects complying therewith;
(iii) the authorized capitalization of Marquee as of
September 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 are 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 any statutory preemptive rights or, to the
best knowledge of such counsel, any other 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 any statutory 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
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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;
(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) to the best of such counsel's knowledge, 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, 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 of 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
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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 participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the 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.
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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 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 October 31,
1996 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
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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 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
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scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(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.
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<PAGE>
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 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
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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 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
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than Marquee and the Underwriters. No contribution shall be requested with
regard to the 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 The Underwriters a non-accountable expense
allowance of $376,875, of which $50,000 has been paid. In the event the
overallotment option is exercised, Marquee shall pay to The Underwriters at the
Option Closing Date an additional amount equal to 2.25% 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 Underwriters (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
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hereunder required to be fulfilled by the Company or any of the Merger
Subsidiaries is not fulfilled) Marquee shall be liable for the accountable
out-of-pocket expenses of the Underwriters, 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 Underwriters, 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 The
Underwriters or their designees, as permitted by the NASD, for a consideration
of $335, 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 335,000 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
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SCHEDULE A
Underwriter Number of Units to be Purchased
--------------------------- ---------------------------------
Royce Investment Group, Inc.
Continental Broker-Dealer Corporation
Total Units:_____________________
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WARRANT AGREEMENT
AGREEMENT, dated as of this 5th day of December, 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 New Jersey 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
3,852,500 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 December 5, 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 335,000 additional Units, to be dated as of
December 11, 1996 (the "Unit Purchase Options"), and (iii) the issuance of
666,662 Warrants (the "Private Placement Warrants") to certain securityholders
of the Company upon conversion of $2 million principal amount of debentures
acquired by them in a private placement in August 1996, the Company may issue
up to 4,854,162 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
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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.
(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).
(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.
(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 December __, 1996.
(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 December 5, 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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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 immediately separately transferable from the shares of Common
Stock constituting part of such Units until the Separation Date.
(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 4,854,162 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.
(f) Pursuant to the terms of the Unit Purchase Options, the
Underwriters, or their designees, may purchase up to 335,000 Units, which
include up to 335,000 Warrants. Notwithstanding anything to the contrary
contained herein, the Warrants underlying the Unit
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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 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
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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 December 5, 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
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
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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 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
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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 Agent, or, with the
prior written consent of the Underwriters, disposed of or destroyed, at the
direction of the Company.
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(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 December 5, 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 (the
"Target Price"), subject to adjustment as set forth in Section 8(f), below.
Market Price shall mean (i) the average of the closing bid price of the Common
Stock, as reported by Nasdaq, if the Common Stock is traded on the Nasdaq
SmallCap Market, or (ii) the average of the closing sales prices 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 in any case for twenty (20) consecutive
business days ending on the Calculation Date. 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 five 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 Royce to mail a Redemption Notice to each of the Registered Holders of
the Warrants to be redeemed, first class, 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
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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 Price 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 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
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sale or other transaction referred to in this Section 9) on the Calculation
Date 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.
(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
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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, 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
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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 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,
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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
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
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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 rights represented
by the Warrants. The Company will promptly make the
adjustments described therein.
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(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
outstanding as of the date of this Agreement 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 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
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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 thereon, by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of
this Warrant; or
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(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.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates
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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 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
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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.
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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,
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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.
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<PAGE>
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
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ____ Warrants
VOID AFTER December 5, 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
December 5, 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
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<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 December 5, 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
of 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
December 5, 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.
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
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<PAGE>
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
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<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.
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<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.
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<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
<PAGE>
Option to Purchase
335,000 Units
The Marquee Group, Inc.
Unit Purchase Option
Dated: December 11, 1996.
THIS CERTIFIES THAT ___________________________ (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 at any time
from the Separation Date (as defined in the Warrant Agreement) until December
5, 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 December 5, 1996 (the "Registration Statement"). This
Option, together with options of like tenor, constituting in the aggregate
options (the "Options") to purchase 335,000 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 3,350,000 Units (the "Public Units") through the Underwriters,
in consideration of $335 received for the Options.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to the Options 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 December 5, 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 Warrants may then be
listed or
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<PAGE>
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 December 5, 1996
to December 4, 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 December 5, 1996,
the Holder shall have the right to exercise this
Option and the Warrants included herein at such time
or thereafter 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 December 5, 1997 and December
5, 2001, inclusive, the Holder shall have the option
to purchase Option Units hereunder at a price of
$8.25 per Unit. For purposes of the adjustments
under Section 8 hereof, the Per Share Exercise Price
shall be deemed to be $7.50, subject to further
adjustment as provided in such Section 8.
(c) After December 5, 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
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<PAGE>
the close of business on the date this Option is surrendered and payment is
made in accordance 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
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<PAGE>
the means of the last reported bid and asked prices,
respectively, of Common 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 one year
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
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<PAGE>
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will haveauthorized 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 Options, 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 Options, 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
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<PAGE>
Option Units and/or the Common Stock issuable upon the exercise of the
Warrants, and such 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. 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 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
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<PAGE>
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
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,
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<PAGE>
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.
(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
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<PAGE>
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 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,
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<PAGE>
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 therein. The fees and expenses of such independent
public accountants shall be borne by the Company.
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<PAGE>
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 as of the date first written above.
THE MARQUEE GROUP, INC.
By: ____________________________
Robert M. Gutkowski, President
(Corporate Seal)
Attest:
- --------------------------
Kraig Fox, Secretary
<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 ___ shares of $.01 Par Value Common Stock and one Warrant to
purchase ___ 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 ___ shares of $.01 Par Value Common Stock
and one Warrant to purchase ___ shares 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:
<PAGE>
December 4, 1996
The Marquee Group, Inc.
888 Seventh Avenue, 40th Floor
New York, New York 10019
RE: SECURITIES AND EXCHANGE COMMISSION -
REGISTRATION STATEMENT ON FORM SB-2
-----------------------------------
Gentlemen:
As counsel to The Marquee Group, Inc., a Delaware corporation (the
"Company"), we have assisted in the preparation of the Company's Registration
Statement on Form SB-2, File No. 333-11287, filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, covering:
(i) 3,350,000 Units (the "Units"), each Unit consisting of one share of Common
Stock, $.01 par value (the "Common Stock") and one Warrant (the "Warrants") to
be sold to the Underwriters named in the Registration Statement pursuant to
the Underwriting Agreement filed as an Exhibit to the Registration Statement
(the "Underwriting Agreement"); (ii) up to 502,500 Units for which the
Underwriters have an option to purchase from the Company solely to cover
over-allotments; and (iii) 335,000 Units to be issued upon exercise of the
Unit Purchase Option to be granted by the Company to the Underwriters.
In this connection, we have examined and considered the original or
copies, certified or otherwise identified to our satisfaction, of the
Company's Certificate of Incorporation, as amended to date, its Amended and
Restated By-laws, resolutions of its Board of Directors, officers'
certificates and such other documents and corporate records relating to the
Company and the issuance and sale of the Common Stock and the Warrants, as we
have deemed appropriate for purposes of rendering this opinion.
In all examinations of documents, instruments and other papers, we
have assumed the genuineness of all signatures on original and certified
documents and the conformity to original and certified documents of all copies
submitted to us as conformed, photostat or other copies. As
<PAGE>
The Marquee Group, Inc.
December 4, 1996
Page 2
to matters of fact which have not been independently established, we have
relied upon representations of officers of the Company.
Based upon the foregoing examination, and the information thus
supplied, it is our opinion that: (i) the shares of Common Stock included in
the Units have been validly authorized and will, when sold as contemplated by
the Registration Statement, be legally issued, fully paid and non-assessable;
(ii) the Warrants included in the Units, when sold as contemplated by the
Registration Statement, constitute legal, valid and binding obligations of the
Company; and (iii) the shares of Common Stock issuable upon exercise of the
Warrants will, upon issuance and payment in accordance with the terms of the
Warrants, be legally issued, fully paid and non-assessable.
We hereby expressly consent to the reference to our Firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate government agency.
Very truly yours,
/s/ Baker & McKenzie
Baker & McKenzie
HMB/JHJB/SRM
<PAGE>
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.
/s/ Ernst & Young LLP
New York, New York
December 4, 1996
<PAGE>
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.
/s/ SCOTT GILDEA, CPA
-----------------
Scott Gildea, CPA
New York, New York
December 4, 1996
