<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-11287
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE MARQUEE GROUP, INC.
(Name of Small Business Issuer in Its Charter)
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<CAPTION>
<S> <C>
DELAWARE 7941 13-3878295
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
888 SEVENTH AVENUE, 40TH FLOOR
NEW YORK, NEW YORK 10019
(212) 977-0300
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
ROBERT M. GUTKOWSKI, PRESIDENT
888 SEVENTH AVENUE, 40TH FLOOR
NEW YORK, NEW YORK 10019
(212) 977-0300
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
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<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
</TABLE>
(212) 751-5700
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]
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 NOVEMBER 27, 1996
PROSPECTUS
- ----------
THE MARQUEE GROUP, INC.
3,000,000 UNITS CONSISTING OF 3,000,000 SHARES
OF COMMON STOCK AND 3,000,000 WARRANTS
[LOGO]
Each unit ("Unit") offered by The Marquee Group, Inc., a Delaware
corporation (the "Company"), consists of one share of common stock, par value
$.01 per share ("Common Stock"), and one redeemable warrant ("Warrants"). The
components of the Units will not be transferable separately until
, 1997 or such earlier date (the "Separation Date") as Royce
Investment Group, Inc., the representative of the Underwriters (the
"Representative"), shall determine. Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $7.50, subject to
adjustment, at any time from the Separation Date until the fifth anniversary
of the date of this Prospectus. Commencing one year from the date hereof, the
Warrants are subject to redemption by the Company at a redemption price of
$.05 per Warrant on 30 days' written notice, provided the closing bid price
of the Common Stock averages in excess of $11.50, subject to adjustment, for
any 20 consecutive trading days ending within five days of the notice of
redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Warrants and there can be no assurance that such a market
will develop. The Company has applied for quotation of the Units, the Common
Stock and the Warrants on the Nasdaq SmallCap Market ("Nasdaq") under the
symbols MRQEU, MRQE and MRQEW, respectively. It is anticipated that the
initial public offering price will be $5.00 per Unit. See "Underwriting" for
a discussion of factors considered in determining the initial public offering
price.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," WHICH 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
- -----------------------------------------------------------------------------
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PRICE TO UNDERWRITING DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- -------------- ------------ -------------------------- ---------------
<S> <C> <C> <C>
Per Unit ...... $ $ $
- -------------- ------------ -------------------------- ---------------
Total (3) ..... $ $ $
- -------------- ------------ -------------------------- ---------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the
Representative and Continental Broker-Dealer Corp. (collectively, the
"Underwriters") in the form of (i) a non-accountable expense allowance
of $ , or $ per Unit ($ if the over-allotment option is exercised
in full) and (ii) options, exercisable over a period of three years
commencing two years from the date of this Prospectus, to purchase up
to 300,000 Units at $ per Unit (the "Unit Purchase Options"). In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company,
including the Underwriters' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase
up to 450,000 additional Units on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The Units are being offered on a "firm commitment" basis by the
Underwriters when, as and if delivered and accepted by the Underwriters,
subject to their right to reject orders in whole or in part and subject to
certain other conditions. It is expected that delivery of the certificates
representing the Units will be made against payment at the offices of Royce
Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York 11797 on
or about , 1996.
ROYCE INVESTMENT GROUP, INC.
CONTINENTAL BROKER-DEALER CORP.
The date of this Prospectus is , 1996
<PAGE>
[LOGO]
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 RESIDENTS ONLY: In order to purchase securities pursuant to this
Prospectus, you must either have (1) 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 an initial public offering price of $5.00 per Unit and no exercise of
the Underwriters' over-allotment option, the Warrants or the Unit Purchase
Options and (iii) gives effect to the automatic conversion, upon the closing
of this Offering, of $2,000,000 aggregate principal amount of debentures (the
"Debentures"), issued in the Company's private placement (the "Private
Placement") in August 1996, into 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 Athletes and Artists, Inc.
(the "A&A Acquisition") and Sports Marketing & Television International, Inc.
(the "SMTI Acquisition") into wholly-owned subsidiaries of the Company upon
the closing of this Offering. The consummation of this Offering is
conditioned upon the closing of the acquisition of each of Athletes and
Artists, Inc. and Sports Marketing & Television International, Inc.
(collectively, the "Acquisitions") concurrently with the closing of this
Offering. Investors should consider carefully the information set forth under
"Risk Factors."
THE COMPANY
The Marquee Group, Inc. ("Marquee" or the "Company") was organized in July
1995 to provide comprehensive management, marketing, sales, consulting and
production services to sports and entertainment-related businesses, events,
athletes, broadcasters, journalists and executives. In recent years,
significant developments in mass media, including the growth of satellite
communications and cable television, have resulted in increased national and
global exposure for sports personalities and the events and projects in which
they participate, and have created national and international audiences for
sports personalities, products and events. In addition, the recent
proliferation of sports-related television and radio stations has created an
increased demand for sports-related programming. As a result, the promotion
and sponsorship of sports events has become a major area of corporate
advertising and product development. The Company believes that the successful
exploitation of this market by sports personalities and corporations requires
integrated marketing and management services.
Marquee was organized by Robert M. Gutkowski, the Company's President and
Chief Executive Officer, who has more than 20 years of experience in the
television, sports and entertainment industries and who served as President
of Madison Square Garden Corporation from November 1991 until September 1994,
and The Sillerman Companies, Inc. ("TSC"), which provides financial advisory,
marketing and consulting services to media companies and sports-related
businesses. TSC is controlled by Robert F.X. Sillerman, Chairman of the
Company, whose principal occupation is Chief Executive Officer and 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 in five equal annual installments, and the issuance of
an aggregate of 1,292,308 shares of Common Stock
3
<PAGE>
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 ..... 3,000,000 Units, each Unit consisting of one
share of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one
share of Common Stock at an exercise price
of $7.50, subject to adjustment, at any time
from the Separation Date until the fifth
anniversary of the date of this Prospectus.
The Warrants are subject to redemption in
certain circumstances. See "Description of
Securities."
Common Stock Outstanding:
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<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 ........ 3,000,000 shares(4) --
Common Stock Outstanding after this Offering ......... 6,641,662 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."
Proposed Nasdaq Symbols
Units ................. MRQEU
Common Stock .......... MRQE
Warrants .............. MRQEW
Risk Factors ........... This Offering involves a high degree of risk
and immediate substantial dilution. See
"Risk Factors" and "Dilution."
- ------------
(1) In connection with this Offering, the existing stockholders have
deposited 588,462 shares of Common Stock into escrow and the persons
who are to receive shares of Common Stock in connection with the
Acquisitions have agreed to deposit 686,538 shares of Common Stock into
escrow upon completion of the Acquisitions (collectively, the "Escrow
Shares"). The Escrow Shares are subject to cancellation and will be
contributed to the capital of the Company if the Company does not
attain certain earnings levels or the market price of the Common Stock
does not achieve certain levels. If such earnings or market price
levels are met, the Company will record a substantial non-cash charge
to operations, for financial reporting purposes, as compensation
expense relating to the value of the Escrow Shares released to the
Company's officers, directors, employees and consultants. See "Risk
Factors--Future Charges to Operations" 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) 900,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,000,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby and (iii) 600,000 shares of Common Stock issuable upon exercise
of the Unit Purchase Options and the Warrants contained therein.
5
<PAGE>
SUMMARY FINANCIAL DATA
The Summary Financial Data of the Company as of 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, the
Private Placement and the completion of this Offering at an assumed initial
public offering price of $5.00 per Unit and the application of the net
proceeds therefrom to complete the Acquisitions. The Acquisitions have been
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements
as a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of A&A and SMTI
following the completion of the Acquisitions. The following data should be
read in conjunction with the notes thereto, the audited and unaudited
financial statements and notes thereto contained elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- --------------------------------
PRO FORMA FOR PRO FORMA FOR
OFFERING AND OFFERING AND
ACQUISITIONS HISTORICAL ACQUISITIONS
----------------- -------------- ----------------
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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 .......... $ .12 $ (.54) $ (.02)
================= ============== ================
Weighted average common stock and
common stock equivalents outstanding 6,641,662(1) 2,066,662 6,641,662(1)
================= ============== ================
</TABLE>
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<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------
PRO FORMA FOR
OFFERING AND
BALANCE SHEET DATA: ACTUAL ACQUISITIONS(2)
------------- ---------------
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Current assets ............... $ 937,086 $ 6,099,744
Current liabilities .......... 369,295 1,802,967
Total assets ................. 1,426,251 6,475,765
Long-term debt ............... 2,121,615 1,697,615
Accumulated deficit .......... (1,116,806) (1,535,526)
Stockholders' equity
(deficit) ................... (1,064,659) 2,975,183
</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 3,000,000 Units offered
hereby at an assumed offering price of $5.00 per Unit 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 and 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 28.6% 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
$2,996,000 (approximately 23.5%) 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 56.2% 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 $4.55 per share (91.0%),
assuming an initial public offering price of $5.00 per Unit and giving effect
to the conversion of the Debentures into Units. See "Dilution." In August
1996, the Company completed the Private Placement pursuant to which it sold
$2,000,000 aggregate principal amount of Debentures, of which $750,000
principal amount were issued to officers, directors and principal
stockholders of the Company, 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 , 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
3,000,000 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 600,000 shares of Common Stock, assuming exercise of the
underlying Warrants. In addition, the Company has 500,000 shares of Common
Stock reserved for issuance under the Plan, under which options to purchase
230,000 shares have been granted. Holders of such warrants and options are
likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by the
warrants and options. Further, while these warrants and options are
outstanding, the Company's ability to obtain additional financing on
favorable terms may be adversely affected. See "Management--1996 Stock Option
Plan," "Description of Securities" and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company
at a redemption price of $.05 per Warrant upon not less than 30 days' prior
written notice if the closing bid price of the Common Stock shall have
averaged in excess of $11.50 per share for 20 consecutive trading days ending
within five days of the notice. Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price therefor at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to
hold the Warrants or to accept the nominal redemption price which, at the
time the Warrants are called for redemption, is likely to be substantially
less than the market value of the Warrants. See "Description of
Securities--Warrants."
Current Prospectus and State Registration to Exercise Warrants. Holders of
Warrants will only be able to exercise the Warrants if (i) a current
prospectus under the Securities Act relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states
in which the various holders of Warrants reside. Although the Company has
undertaken and intends to use its best efforts to maintain a current
prospectus covering the securities underlying the Warrants following
completion of this Offering to the extent required by Federal securities
laws, there can be no assurance that the Company will be able to do so. The
value of the Warrants may be greatly reduced if a prospectus covering the
securities issuable upon the exercise of the Warrants is not kept current or
if the securities are not qualified, or exempt from qualification, in the
states in which the holders of Warrants reside. If and when the Warrants
become redeemable by the terms thereof, the Company may exercise its
redemption right even if it is unable to qualify the underlying securities
for sale under all applicable state securities laws. As indicated above,
holders of Warrants called for redemption residing in states where the
underlying securities have not been qualified for sale would generally still
be able to sell their Warrants at the then market price thereof. See
"Description of Securities--Warrants."
Possible Restrictions on Market-Making Activities in Company's
Securities. The Underwriters have advised the Company that they each intend
to make a market in the Company's securities. Rule 10b-6 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may
prohibit the Underwriters from engaging in any market-making activities with
regard to the Company's securities for the period from nine business days (or
such other applicable period as Rule 10b-6 may provide) prior to such
solicitation by the Underwriters of the exercise of Warrants until the later
of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriters
11
<PAGE>
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 the 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 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 no assurance that the Company's securities will qualify for exemption
from these restrictions. In any
12
<PAGE>
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 their securities issued upon
conversion of the Debentures, they may transfer such securities, after consent
from 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 "Concurrent Offering" and "Shares Eligible for
Future Sale."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") authorizes the issuance of 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), on terms which may be
fixed by the Company's Board of Directors without further stockholder action.
The terms of any series of Preferred Stock, which may include priority claims
to assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock. The issuance of the Preferred Stock,
while providing flexibility in connection with possible acquisitions,
financing transactions and other corporate transactions, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring capital stock of the Company, which
may adversely affect the market price of the Common Stock. The Company has no
present plans to issue shares of Preferred Stock. See "Description of Capital
Stock--Preferred Stock."
13
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, after deducting
underwriting discounts and commissions and other estimated expenses of this
Offering payable by the Company, are estimated to be approximately
$12,750,000 (approximately $14,775,000 if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$5.00 per Unit. The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
AMOUNT OF NET OF NET
PROCEEDS PROCEEDS
--------------- ------------
<S> <C> <C>
Initial cash portion of acquisition price for SMTI $ 6,500,000(1) 51.0%
Initial cash portion of acquisition price for A&A . 2,500,000(2) 19.6
Working capital .................................... 2,995,600(3) 23.5
Capital expenditures ............................... 500,000 3.9
Interest on Debentures ............................. 254,400 2.0
--------------- ------------
Total .............................................. $12,750,000 100.0%
=============== ============
</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 at an assumed initial public offering price
of $5.00 per Unit and the Acquisitions. This table should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
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; 7,916,662
shares issued and outstanding pro forma for Offering and
Acquisitions (3)(4) ........................................... 19,885 79,167
Additional paid-in capital ...................................... 119,345 4,518,625
Deferred compensation (5) ....................................... (87,083) (87,083)
Accumulated deficit ............................................. (1,116,806) (1,535,526)
------------- ---------------
Total stockholders' equity (deficit) ............................ (1,064,659) 2,975,183
------------- ---------------
Total capitalization ............................................ $ 1,056,956 $ 4,672,798
============= ===============
</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 900,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option (and the Warrants
included therein), (ii) 3,000,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered
hereby, (iii) 600,000 shares of Common Stock issuable upon exercise of
the Unit Purchase Options and the Warrants contained therein, (iv)
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 for 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
remaining amount 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 at an assumed
initial public offering price of $5.00 per Unit, the pro forma net tangible
book value would have been $2,975,183 or $.45 per share. This represents an
immediate increase in net tangible book value of $1.21 per share to existing
stockholders, and an immediate dilution of $4.55 per share (91.0%) to persons
purchasing shares at the initial public offering price (the "New Investors").
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price of the Units ................... $ 5.00(1)
Marquee negative net tangible book value per share at
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 ....................................... 3.13
--------
Pro forma net tangible book value per share after this Offering ..... .45
----------
Dilution per share to New Investors .................................. $ 4.55
==========
</TABLE>
- ------------
(1) Assumes no allocation of the offering price to the Warrants included in
the Units.
(2) Does not reflect the completion of this Offering, which will occur
simultaneously with these transactions.
If the over-allotment option is exercised in full, the pro forma net
tangible book value after this Offering would be $.71 per share, which would
result in dilution to New Investors of $4.29 (85.8%) per share.
The following table summarizes the differences between the original
stockholders, the stockholders who are to receive shares of Common Stock in
connection with the Acquisitions (the "Acquisition Stockholders"), the
stockholders who are to receive shares of Common Stock upon the conversion of
the Debentures and the New Investors (at an assumed initial public offering
price of $5.00 per share) with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED
----------------------------------------------------
NON-ESCROW ESCROW
SHARES SHARES TOTAL NUMBER PERCENT
------------ ----------- -------------- ---------
<S> <C> <C> <C> <C>
Original stockholders ... 1,400,000 588,462 1,988,462 25.1%
Acquisition stockholders 1,575,000 686,538 2,261,538 28.6
Stockholders resulting
from conversion of the
Debentures .............. 666,662 -- 666,662 8.4
New Investors ............ 3,000,000 -- 3,000,000 37.9
------------ ----------- -------------- ---------
Total .................... 6,641,662 1,275,000 7,916,662 100.0%
============ =========== ============== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL CONSIDERATION AVERAGE PRICE
------------------------- PER SHARE
AMOUNT (1) PERCENT
-------------- --------- ---------------
<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) 11.8 $3.00(4)
New Investors ............ 15,000,000 88.1 $5.00(4)
-------------- ---------
Total .................... $17,020,000 100.0%
============== =========
</TABLE>
- ------------
(1) Prior to deduction of costs of issuance.
(2) Exclusive of the consideration provided in connection with the
Acquisitions. See "Certain Transactions--SMTI Acquisition Agreement"
and "--A&A Acquisition Agreement."
(3) Includes $445,103 paid through the cancellation of promissory notes in
an equal aggregate principal amount. See "Capitalization--Private
Placement" and "Certain Transactions--Private Placement and Corporate
Indebtedness."
(4) Assumes no allocation of the offering price to the Warrants included in
the Units.
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet at
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 at an assumed initial public offering
price of $5.00 per Unit and the application of the net proceeds therefrom to
complete the Acquisitions.
The following Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1995 gives effect to the following
transactions and adjustments as if they had occurred as of January 1, 1995:
(i) the Acquisitions and related contractually required reductions in
salaries and benefits and (ii) the completion of this Offering at an assumed
initial public offering price of $5.00 per Unit and the application of the
net proceeds therefrom to complete the Acquisitions.
The Acquisitions have been reflected in the Unaudited Pro Forma Condensed
Combined Financial Statements as a consolidation at historical cost due to
the significance of the equity interests in the Company to be held by the
stockholders of SMTI and A&A following the completion of the Acquisitions.
The Unaudited Pro Forma Condensed Combined Financial Statements are based
upon the historical audited and unaudited financial statements of the
Company, SMTI and A&A and give effect to the assumptions and adjustments in
the accompanying notes thereto. This pro forma information may not be
indicative of the results of operations or financial position that would have
occurred or existed if the transactions described above had been consummated
on the date assumed and do not purport to project the Company's financial
position or results of operations for any future date or period. In the
opinion of the Company's management, all adjustments considered necessary for
a fair presentation of the Unaudited Pro Forma Condensed Combined Financial
Statements have been included. The Unaudited Pro Forma Condensed Combined
Financial Statements should be read in conjunction with the notes thereto,
the audited and unaudited financial statements and notes thereto of the
Company, SMTI and A&A contained elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
18
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
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 $ 12,750,000 (2) $6,099,744
(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 $ 2,786,600 $6,475,765
============= ============ ========== =============== ================
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 12,750,000 (2) 2,975,183
(10,970,000)(3)
(459,000)(4)
(168,720)(5)
1,750,000 (5)
------------- ------------ ---------- --------------- ----------------
Total liabilities and $ 1,426,251 $1,828,521 $434,393 $ 2,786,600 $6,475,765
stockholders' equity ...........
============= ============ ========== =============== ================
</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 ........................ $15,000,000
Less:Fees and expenses .......... 2,250,000
-------------
Net proceeds from this Offering $12,750,000
=============
</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
PRO FORMA THE OFFERING AND
MARQUEE SMTI A&A ADJUSTMENTS THE 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 6,641,662
============== ========================== ================
</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 ................ $ .12
=============
Weighted average number of common
stock and common stock equivalents
outstanding ........................ 6,641,662
=============
</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, the
Private Placement and the completion of this Offering at an assumed initial
public offering price of $5.00 per Unit and the application of the net
proceeds therefrom to complete the Acquisitions. The Acquisitions have been
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements
as a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of A&A and SMTI
following the completion of the Acquisitions. The following data should be
read in conjunction with the notes thereto, the audited and unaudited
financial statements and notes thereto contained elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, 1995 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 ......... $ .12 $ (.54) $ (.02)
================= ============== ================
Weighted average common stock and
common stock equivalents
outstanding ........................ 6,641,662(1) 2,066,662 6,641,662(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 $ 6,099,744
Current liabilities .......... 369,295 1,802,967
Total assets ................. 1,426,251 6,475,765
Long-term debt ............... 2,121,615 1,697,615
Accumulated deficit .......... (1,116,806) (1,535,526)
Stockholders' equity
(deficit) ................... (1,064,659) 2,975,183
</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 3,000,000 Units offered
hereby at an assumed offering price of $5.00 per Unit 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 $1,208,000 included
salary and other employee benefit expenses of approximately $900,000, legal
and professional fees of $91,000, 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.
24
<PAGE>
On a pro forma basis, as if the Acquisitions had occurred on January 1,
1995, the Company would have had revenues of $9,297,000 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 $3,329,000 or
55.8%. 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."
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.
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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 a 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 $4,297,000. 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
$12,750,000, 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 Chief
Executive Officer and 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 1,292,307 shares of Common Stock to Messrs. Trager and Letis,
each of whom will become an executive officer and director of the Company.
A&A, which was founded in 1977 by Arthur C. Kaminsky, is a sports and
media representation firm whose roster of clients includes broadcasters
(including Al Michaels -ABC Sports, Forrest Sawyer -ABC News, Christiane
Amanpour -CNN and CBS News, Dan Dierdorf -ABC Sports and Chris Berman -ESPN
and ABC Sports), athletes (including Brian Leetch -New York Rangers, Eric
Heiden -U.S. Olympic five-time gold medalist in speed skating and Nick Lowery
- -New York Jets), authors (including Dick Schaap -author of Bo Knows Bo and
Instant Replay, Rick Reilly -author of The Boz and Missing Links and a writer
for Sports Illustrated and John Powers -author of One Goal and Mary Lou! and
a sportswriter for The Boston Globe) and media executives (including Terry
O'Neil -a sports and news executive producer, Curt Gowdy, Jr. -ABC Sports and
John Faratzis -a sports programming producer who has worked with ABC, CBS and
NBC). The Company has agreed to acquire A&A upon the closing of this Offering
for an aggregate cash purchase price payable to Mr. Kaminsky and Louis J.
Oppenheim, each of whom will become an executive officer and director of the
Company, of $3,500,000, of which $2,500,000 is payable at closing and
$1,000,000 is payable in five equal annual installments, and the issuance to
Messrs. Kaminsky and Oppenheim of an aggregate of 969,231 shares of Common
Stock.
Marquee has agreed to provide 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 PBA to serve as the PBA's exclusive representative
in connection with its negotiations with respect to television broadcasting.
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The Company believes that the combination of its business with those of
SMTI and A&A will provide opportunities to provide enhanced services to
clients and will enable it to construct comprehensive packages of sports
events and sports personality endorsements.
EVENTS PRODUCTION AND CORPORATE SPONSORSHIP
Through SMTI, the Company intends to provide production and promotion
services to major sporting events, sports television shows and professional
and collegiate leagues and organizations. In conjunction with its production
and marketing services, SMTI develops and implements corporate sponsorship
campaigns which are designed to promote an event, team or sponsor.
Although it may vary from event to event, events production includes site
selection, recruitment of athletes or personalities, procurement of
television coverage, merchandising and administration of concessions, sale of
corporate sponsorship, creation of corporate hospitality programs and general
administrative duties, including contract negotiation and scheduling. For
each client, the Company will generally receive a fixed fee and/or commission
generally ranging from 15% to 40% of the contracted amount, although these
fees and commissions are negotiated between the parties on an event-by-event
basis and the amount of fees and/or commissions the Company will receive
depends to a large extent upon its performance. The Company's corporate
sponsorship projects are generally on a short-term basis and may not be
evidenced by written agreements in advance of Company expenditures or at all,
which the Company believes is common in its industry.
The Company anticipates that its events management and corporate
sponsorship businesses will be primarily conducted by SMTI, under the
direction of Michael Trager, the Chairman of SMTI, and Michael Letis, the
President of SMTI. See "Management" and "Certain Transactions--SMTI
Acquisition Agreement."
SMTI provides events management services for the following events:
o The Breeders' Cup Championship -- In 1984, SMTI, together with the
Thoroughbred Racing Association and NBC Sports, created The Breeders'
Cup Championship, an annual series of thoroughbred horse races held at
a rotating series of racetracks, including Churchill Downs, Santa Anita
and Belmont Park. In July 1994, SMTI entered into a marketing agreement
(the "Breeders' Cup Agreement") with the Breeders' Cup Limited ("BCL"),
pursuant to which SMTI was granted the right to provide general
marketing consultation, broadcast and sponsorship rights sales,
advertising production and media placement, publicity and public
relations, television and video production, production of promotional
materials and merchandising and licensing of BCL in connection with The
Breeders' Cup Championship. SMTI also supervises the televising of the
event and has sold the television rights to NBC-TV, with which it works
to create a four-hour broadcast.
The Breeders' Cup Agreement terminates on December 31, 1997, unless
terminated earlier in accordance with the terms of the agreement,
including the termination, for any reason, of SMTI's employment of
Michael Letis or the unavailability of Mr. Letis to perform the
services necessary to enable SMTI to comply with the terms of the
Breeders' Cup Agreement.
o Major League Baseball -- SMTI represents Major League Baseball in its
negotiations with potential corporate sponsors and in creating
sponsorship campaigns. SMTI also implemented Major League Baseball's
All-Star Balloting Program for the 1996 All-Star Game.
o Celebrity Golf Association -- In January 1995, SMTI and NBC formed
Celebrity Golf Championship, LLC ("CGC") to conduct the annual golfing
tournament known as the Celebrity Golf Championship, an annual
celebrity professional golf tournament, where the competitors include
well-known sports, entertainment and media personalities. In connection
therewith, SMTI organized and conducted the 1996 Celebrity Golf
Championship held in Lake Tahoe, Nevada. SMTI also supervised the
televising of the tournament and arranged for the tournament to be
televised on NBC and ESPN.
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o The Hambletonian -- In July 1995, SMTI entered into an agreement with
The Hambletonian Society to act as exclusive television agent for The
Hambletonian, a premier event in harness racing held annually at The
Meadowlands, which agreement, unless renewed by mutual agreement, will
terminate in March 1998.
o The Big 12 Conference -- In September 1995, SMTI agreed with The Big 12
Conference to represent this athletic conference, which includes
universities such as The University of Texas, The University of
Oklahoma and The University of Nebraska, in negotiations with broadcast
and cable television networks of the conference's basketball games.
A significant portion of SMTI's revenues have been derived from a small
number of clients or one-time events. During the years ended December 31,
1994 and 1995 and the 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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<PAGE>
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
<PAGE>
At September 30, 1996, A&A's client roster included 33 professional
athletes, consisting of the following persons:
Brian Leetch -New York Rangers
Eric Heiden -U.S. Olympic five-time gold medalist
in speed skating
Nick Lowery -New York Jets
Ken Dryden -Montreal Canadiens (retired) and member
of the Hockey Hall of Fame
Sergei Zubov -Dallas Stars
Adam Oates -Boston Bruins
Rico Brogna -New York Mets
Keith Elias -New York Giants
William Gaines -Washington Redskins
Darren Turcotte -San Jose Sharks
Jeff Blatnick -U.S. Olympic gold medalist in
Greco-Roman wrestling
Sean Jones -Green Bay Packers
Mike Remlinger -Cincinnati Reds
Beth Heiden -U.S. Olympic gold medalist in speed
skating
Joe Grahe -Montreal Expos
Tommy John -Former Major League Baseball player and
television analyst for the Minnesota Twins
Quinn Buckner -Former National Basketball
Association player and coach and CBS Sports
commentator
Calle Johansson -Washington Capitals
Harry Carson -Former New York Giants
linebacker and analyst for the MSG Network
Bernard King -Former National Basketball
Association player and broadcaster on WFAN-FM (New
York)
Tim Daggett -U.S. Olympic gold medalist in
gymnastics and NBC Sports commentator
Jody Hull -Florida Panthers
Tommy Albelin -Calgary Flames
Jozef Stumpel -Boston Bruins
Nikolai Khabibulin -Phoenix Coyotes
Willie Jackson -Jacksonville Jaguars
Kris King -Phoenix Coyotes
Dainius Zubrus -Philadelphia Flyers
Andrei Zyuzin -San Jose Sharks
Alexander Volchkov -Washington Capitals
Sergei Samsonov -Detroit Vipers (International
Hockey League) and projected top-pick in the 1997
National Hockey League draft
Jerry Bailey -Jockey and member of the Horse Racing
Hall of Fame
Mike Golic -Former National Football League player
and ESPN analyst
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<PAGE>
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 45
full-time employees, none of whom will be covered by a collective bargaining
agreement. Each of the Company, A&A and SMTI considers its relations with its
employees to be good. In addition, the Company intends to engage independent
contractors to provide many of the services required by its business.
LEGAL PROCEEDINGS
Neither the Company, A&A nor SMTI is a party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company and the persons expected to
become executive officers or directors of the Company upon completion of this
Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- ----- -----------------------------------------------
<S> <C> <C>
Robert M. Gutkowski .. 48 President, Chief Executive Officer and Director
Robert F.X. Sillerman 48 Chairman
Arthur C. Kaminsky ... 49 Director and Executive Vice President
Michael Letis ......... 55 Director and Executive Vice President
Louis J. Oppenheim ... 38 Director and Executive Vice President
Michael Trager ........ 54 Director and Executive Vice President
James E. Sileo ........ 43 Chief Financial Officer
Howard J. Tytel ....... 50 Director
Arthur R. Barron ...... 62 Director
Myles W. Schumer ...... 50 Director
Kraig G. Fox .......... 28 Secretary
</TABLE>
ROBERT M. GUTKOWSKI has served as President, Chief Executive Officer and
Director of the Company since December 1995. Mr. Gutkowski has more than 20
years of experience in the television, sports and entertainment industries.
From September 1994 until December 1995, Mr. Gutkowski was a consultant to
sports-related businesses. From November 1991 to September 1994, he served as
President and Chief Executive Officer of Madison Square Garden Corporation,
where he oversaw the operations of the New York Knicks, the New York Rangers,
the MSG Entertainment Group, the MSG Cable Network, Madison Square Garden and
the Paramount Theater. From July 1990 to November 1991, Mr. Gutkowski served
as President of MSG Communications Group, having served as Executive Vice
President thereof from September 1987 to July 1990. From October 1985 to
September 1987, he served as President of Madison Square Garden Network.
Prior to his tenure at Madison Square Garden, Mr. Gutkowski was Vice
President-Sales for Paramount Television Domestic Distribution. From February
1981 to September 1983, Mr. Gutkowski was Vice President-Programming for
ESPN. Mr. Gutkowski earned a B.A. from Hofstra University.
ROBERT F.X. SILLERMAN has been Chairman of the Company since July 1995.
Mr. Sillerman has been Chief Executive Officer of SFX Broadcasting, Inc.
("SFX"), a publicly-traded company which owns and operates radio stations,
since June 1996, and from 1992 through June 1996 he served as Executive
Chairman, Chairman and/or Chief Executive Officer of SFX. Since 1985, Mr.
Sillerman has been Chairman of the Board and Chief Executive Officer of SCMC,
a private investment company which makes investments in and provides
financial consulting services to companies engaged in media and
sports-related businesses, including the Company, and, through privately-held
entities, he controls the general partner of Sillerman Communications
Partners, L.P. ("SCP"), an investment partnership. Since 1985, he has been
Chairman and Chief Executive Officer of TSC, a private investment company
which provides financial advisory, marketing, consulting and investment
banking services to media companies and sports-related businesses and which
is a principal stockholder of the Company. See "Certain Transactions" and
"Principal Stockholders." Mr. Sillerman earned a B.A. from Brandeis
University. In 1993, Mr. Sillerman became the Chancellor of the Southampton
campus of Long Island University.
ARTHUR C. KAMINSKY has been a Director of the Company since March 1996 and
will become an Executive Vice President of the Company concurrently with the
completion of the A&A Acquisition. Mr. Kaminsky has served as President and
Chief Executive Officer of A&A since 1977, and he is expected to continue in
that position following the A&A Acquisition. From 1974 to 1990, Mr. Kaminsky
was a partner with the law firm of Taft & Kaminsky. Mr. Kaminsky earned a
B.A. from Cornell University and a J.D. from Yale University.
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<PAGE>
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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<PAGE>
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
36
<PAGE>
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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<PAGE>
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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<PAGE>
(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 323,077 of which will be issued to Mr.
Oppenheim. The Company has also agreed to enter into five-year employment
agreements with each of Messrs. Kaminsky and Oppenheim. See "Use of Proceeds"
and "Management--Employment Agreements."
The A&A Acquisition Agreement provides that the representations and
warranties contained therein shall survive for a period of six months
following the closing, after which time the indemnification obligations for
breaches of representations and warranties will be limited to claims asserted
during such six-month period. Each of Messrs. Kaminsky and Oppenheim has
agreed to indemnify the Company against losses, claims and damages which the
Company may suffer or incur and which arise out of the breach by A&A or
Messrs. Kaminsky or Oppenheim of any representation, warranty, covenant or
agreement in the A&A Acquisition Agreement, provided, however, that the
amount of Messrs. Kaminsky's and Oppenheim's indemnity shall be limited to
$500,000 and $250,000, respectively. Each of Mr. Gutkowski and TSC has agreed
to indemnify each of Messrs. Kaminsky and Oppenheim and A&A from any losses,
claims or damages which either such party shall suffer or incur and which
arise out of the breach by Mr. Gutkowski, TSC or the Company of any
representation, warranty, covenant or agreement in the A&A Acquisition
Agreement, provided that each of Mr. Gutkowski's and TSC's indemnity shall be
limited to $250,000.
A&A has agreed, until the closing of the A&A Acquisition, not to pay to
either of Messrs. Kaminsky and Oppenheim an annual salary in excess of
$300,000 and $175,000, respectively, and not to amend any employment
agreement requiring A&A to pay a salary or bonus in excess of $50,000 per
year, except in certain circumstances. In addition, at the Company's
direction, A&A has agreed to terminate any employee benefit plans it
maintains.
Prior to the closing of the A&A Acquisition, Messrs. Kaminsky and
Oppenheim may withdraw from A&A an aggregate amount of $100,000 if such
amount shall have been recovered from pending lawsuits of A&A. In the event
that such sum shall not have been withdrawn prior to the closing, then
Messrs. Kaminsky and Oppenheim shall be entitled to withdraw such sum as
salary from A&A following the closing from amounts recovered from such
lawsuits.
The closing of the A&A Acquisition is subject to certain closing
conditions, including (i) the Company completing an initial public offering
or similar private financing providing gross proceeds of at least
$13,800,000, (ii) the employment agreements between each of Messrs. Kaminsky
and Oppenheim and the Company, on the terms set forth under
"Business--Employment Agreements," shall have been entered into and (iii) a
legal opinion shall have been delivered to the effect that the A&A
Acquisition 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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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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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock, including the Escrow Shares, by (i) each person known by the
Company to own beneficially more than five percent of the outstanding Common
Stock, (ii) each director and each nominee for director of the Company and
(iii) all executive officers and directors of the Company as a group, prior
to this Offering and as adjusted to give effect to the sale of the 3,000,000
Units offered hereby, the completion of the Acquisitions and the conversion
of the Debentures into Units upon the closing of this Offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------ ----------------------
NAME AND ADDRESS BEFORE BEFORE AFTER
OF BENEFICIAL OWNER (1) OFFERING AFTER OFFERING OFFERING OFFERING
- ------------------------------------------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman (2) .................. 1,292,308(2) 1,369,230(2) 65.0% 17.30%
Robert M. Gutkowski ........................ 646,154(3) 684,615(3) 32.5 8.65
Arthur C. Kaminsky ......................... --(4) 684,615(4) -- 8.65
Louis J. Oppenheim ......................... --(5) 342,306(5) -- 4.30
Michael Letis .............................. --(6) 684,615(6) -- 8.65
Michael Trager ............................. --(7) 684,615(7) -- 8.65
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% 56.20%
</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 , 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 , 1997 or such earlier date (the "Separation Date") as
the Representative shall determine.
COMMON STOCK
Holders of Common Stock have the right to cast one vote for each share
held of record on all matters submitted to a vote of the stockholders,
including the election of directors. Holders of Common Stock are entitled to
receive such dividends, pro rata, based on the number of shares held, when,
as and if declared by the Board of Directors, from funds legally available
therefor, subject to the rights of holders of any outstanding Preferred
Stock. In the event of the liquidation, dissolution or winding up of the
affairs of the Company, all assets and funds of the Company remaining after
the payment of all debts and other liabilities, subject to the rights of the
holders of any outstanding Preferred Stock, shall be distributed, pro rata,
among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive, subscription, cumulative voting or conversion rights,
and there are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock included in the Units offered hereby will be, when issued, fully
paid and non-assessable.
WARRANTS
Each Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $7.50 at any time from the Separation
Date until 5:00 P.M., New York City time, on , 2001. Commencing one year
from the date of this Prospectus, the Warrants are redeemable by the Company
on 30 days' written notice at a redemption price of $.05 per Warrant if the
"closing price" of the Common Stock for any 20 consecutive trading days
ending within five days of the notice of redemption averages in excess of
$11.50 per share. "Closing price" shall mean the closing bid price if listed
in the over-the-counter market on Nasdaq or otherwise or the closing sale
price if listed on the Nasdaq National Market or a national securities
exchange. All Warrants must be redeemed if any are redeemed.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriters and Continental Stock
Transfer & Trust Company, as warrant agent, and will be evidenced by warrant
certificates in registered form. The Warrants provide for adjustment of the
exercise price and for a change in the number of shares issuable upon
exercise to protect holders against dilution in the event of a stock
dividend, stock split, combination or reclassification of the Common Stock or
upon issuance of shares of Common Stock at prices lower than the market price
of the Common Stock, with certain exceptions.
The exercise price of the Warrants was determined by negotiation between
the Company and the Underwriters and should not be construed to be predictive
of or to imply that any price increases in the Company's securities will
occur.
A Warrant may be exercised upon surrender of the Warrant certificate on or
prior to its expiration date (or earlier redemption date) at the offices of
Continental Stock Transfer & Trust Company, the warrant agent, with the form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and non-assessable.
48
<PAGE>
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders,
the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants.
UNIT PURCHASE OPTIONS
Upon the closing of this Offering, the Company has agreed to issue to the
Underwriters or their designees the Unit Purchase Options to purchase up to
300,000 Units. These Units will be identical to the Units offered hereby
except that the Warrants included in the Unit Purchase Options will not be
subject to redemption by the Company unless, at the time the Warrants are
called for redemption, the Unit Purchase Options have been exercised and the
underlying Warrants are outstanding. The Unit Purchase Options cannot be
transferred, sold, assigned or hypothecated for two years, except to any
officer of either Underwriter or members of the selling group or their
officers. The Unit Purchase Options are exercisable during the three-year
period commencing two years from the date of this Prospectus at an exercise
price of $ per Unit (150% of the initial public offering price) subject
to adjustment in certain events to protect against dilution. The holders of
the Unit Purchase Options have certain demand and piggyback registration
rights. See "Underwriting."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue this Preferred Stock
in one or more series and to fix the number of shares and the relative
rights, conversion rights, voting rights and terms of redemption (including
sinking fund provisions) and liquidation preferences, without further vote or
action by the stockholders. If shares of Preferred Stock with voting rights
are issued, such issuance could affect the voting rights of the holders of
the Company's Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights.
If the Board of Directors authorizes the issuance of shares of Preferred
Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased by up to the authorized amount.
Issuances of Preferred Stock could, under certain circumstances, have the
effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock. Also, Preferred Stock
could have preferences over the Common Stock (and other series of preferred
stock) with respect to dividend and liquidation rights. The Company currently
has no plans to issue any Preferred Stock.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to the "business combination" statute of the
Delaware Law, an anti-takeover law enacted in 1988. In general, Section 203
of the Delaware Law prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (a) prior to such date the board
of directors of the corporation approved either the "business combination" or
the transaction which resulted in the stockholder becoming an "interested
stockholder," (b) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (c) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an
annual
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<PAGE>
or special meeting of stockholders by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, stock or asset sales
and other transactions resulting in a financial benefit to the "interested
stockholders." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of the corporation's voting stock. Although Section 203 permits the Company
to elect not to be governed by its provisions, the Company to date has not
made this election. Upon closing of this Offering and the registration of its
shares of Common Stock under the Exchange Act, the restrictions imposed by
such statute will apply to the Company and, as a result of the application of
Section 203, potential acquirers of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
7,916,662 shares of Common Stock, of which 1,275,000 are Escrow Shares. Of
these shares, the 3,000,000 shares of Common Stock included in the Units
offered hereby will be freely transferable without restriction or further
registration under the Securities Act, unless purchased by affiliates of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The 4,250,000 shares of Common Stock currently
outstanding (including the shares to be issued in connection with the
Acquisitions) and the 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 3,000,000 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 600,000 shares of
Common Stock, assuming exercise of the underlying Warrants. In addition, the
Company has 500,000 shares of Common Stock reserved for issuance under the
Plan, under which options to purchase 230,000 shares have been granted.
Prior to this Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
51
<PAGE>
UNDERWRITING
Royce Investment Group, Inc. and Continental Broker-Dealer Corp. (the
"Underwriters"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of Units set forth opposite
their respective names in the table below at the price set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
- -------------------------------- ---------------
<S> <C>
Royce Investment Group, Inc. ...
Continental Broker-Dealer Corp.
---------------
Total ....................... 3,000,000
===============
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD"), at such price less a
concession of not in excess of $ per Unit, of which a sum not in excess
of $ may in turn be reallowed to other dealers who are members of the
NASD. After the commencement of the Offering, the public offering price, the
concession and the reallowance may be changed by the Underwriters. The
Underwriters are committed to purchase all of the Units offered hereby if any
are purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of the Units offered
hereby, including any Units purchased pursuant to the Underwriters'
over-allotment option, $50,000 of which has been paid to date.
The Company has granted to the Underwriters an option exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price set forth on the cover page of this
Prospectus less underwriting discounts and commissions, up to 450,000
additional Units for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of additional Units proportionate to such
Underwriter's initial commitment.
The Representative has the right to appoint an observer to be present at
the Company's Board of Directors meetings for a period of five years from the
completion of this Offering, although it has not yet selected any such
observer. Such observer may be a director, officer, partner, employee or
affiliate of the Representative.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriters. Upon any exercise of the Warrants after the first
anniversary of the date of this Prospectus, the Company will pay the
Underwriters a fee of 5% of the aggregate Warrant exercise price, if (i) the
market price of the Company's Common Stock on the date the Warrants are
exercised is greater than the then exercise price of the Warrants, (ii) the
exercise of the Warrants was solicited by a member of the NASD and such
solicitation has been designated in writing by the warrantholder, (iii) the
Warrants are not held in a discretionary account, (iv) disclosure of
compensation arrangements was made both at the time of the offering and at
the time of exercise of the Warrants and (v) the solicitation of exercise of
the Warrant was not in violation of Rule 10b-6 promulgated under the Exchange
Act. Rule 10b-6 may prohibit the Underwriters from engaging in any
market-making activities with regard to the Company's securities for the
period from nine business days (or such other applicable period as Rule 10b-6
may provide) prior to any solicitation by the Underwriters of the exercise of
Warrants until the later of the termination of such solicitation activity or
the termination (by waiver or otherwise) of any right that the Underwriters
may have to receive a fee for the exercise of Warrants following such
solicitation. As a result, the Underwriters may be unable to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable.
The Company has agreed to sell to the Underwriters and their designees,
for nominal consideration, the Unit Purchase Options to purchase up to
300,000 Units, substantially identical to the Units offered
52
<PAGE>
hereby, except that the Warrants included therein are not subject to
redemption by the Company unless, on the redemption date, the Unit Purchase
Options have been exercised and the underlying warrants are outstanding. The
Unit Purchase Options will be exercisable during the three-year period
commencing two years from the date of this Prospectus at an exercise price of
$ per Unit, subject to adjustment in certain events, and are not
transferable for a period of two years from the date of this Prospectus
except to officers of the Underwriters or to members of the selling group.
The Company has agreed to register during the four-year period commencing one
year from the date of this Prospectus, on two separate occasions, the
securities issuable upon exercise thereof under the Securities Act, the
initial such registration to be at the Company's expense and the second at
the expense of the holders. The Company has also granted certain "piggyback"
registration rights to holders of the Unit Purchase Options. The Unit
Purchase Options include a provision permitting the holders to elect a
cashless exercise.
For the life of the Unit Purchase Option, the holders are given, at
nominal cost, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Unit
Purchase Option at a time when the Company would in all likelihood be able to
obtain equity capital on terms more favorable than those provided in the Unit
Purchase Option.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary
authority.
The Representative acted as placement agent for the Private Placement in
August 1996 for which it received a placement agent fee of $155,000 and a
non-accountable expense allowance of $37,500 and was issued warrants to
purchase $200,000 aggregate principal amount of Debentures at an exercise
price of $200,000, which warrants will be canceled prior to the date of this
Prospectus. In connection with the Private Placement, the Representative also
received a right of first refusal for future financings by the Company, which
right will terminate at the closing of this Offering.
In connection with the Private Placement, the Company entered into an
agreement with the Representative which provides that during the period from
the completion of the Private Placement until the fifth anniversary of the
date of this Prospectus, in the event the Representative originates a merger,
acquisition, joint venture, strategic introduction or other similar
transaction to which the Company is a party, the Representative will be
entitled to receive a finder's fee in consideration for origination of such
transaction. The fee is based on a percentage of the consideration paid in
the transaction ranging from 7% of the first $1,000,000 to 2-1/2% of any
consideration in excess of $9,000,000. 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 $ 3,747,457
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 6,099,744
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 $ 6,475,765
================= ============= ===============
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 79,167
Additional paid-in capital ............... 595 119,345 4,518,625
Deferred compensation .................... -- (87,083) (87,083)
Accumulated deficit ...................... -- (1,116,806) (1,535,526)
----------------- ------------- ---------------
19,980 (1,064,659) 2,975,183
----------------- ------------- ---------------
$19,980 $ 1,426,251 $ 6,475,765
================= ============= ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE MARQUEE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31, 1995 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 . $ -- $ .12 $ -- $ (.54) $ (.02)
=============== =============== ================ ============== ===============
Weighted average common stock
and common stock equivalents
outstanding ................. 2,066,662 6,641,662 2,066,662 2,066,662 6,641,662
=============== =============== ================ ============== ===============
</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 piggyback 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 3,000,000 units (the "IPO Units"), each unit consisting of
one share of common stock and one redeemable warrant, at an assumed initial
public offering price of $5.00 per IPO Unit, less applicable discounts and
commissions. Each warrant will entitle the holder to purchase one share of
common stock at an exercise price of $7.50, subject to adjustment, for a
period up to five years from the date the common stock and warrants are
separately transferable. The warrants are redeemable by the Company under
certain circumstances at a redemption price of $.05 per warrant.
The Company has granted the underwriters of the initial public offering an
option to purchase up to an additional 450,000 IPO Units at the offering
price, solely to cover over-allotment in the sale of the IPO Units.
The Company has also agreed to grant to the underwriters or their
designees options (the "Unit Purchase Options") to purchase up to 300,000
units. The units purchasable upon exercise of the Unit
F-8
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED) (Continued)
Purchase Options are identical to the units described above, except that the
underlying warrants are redeemable only by the Company under limited
circumstances. The Unit Purchase Options are exercisable during a three-year
period commencing two years from the date of the public offering at an
exercise price of 150% of the initial public offering price, subject to
adjustment in certain events.
The Company has also entered into an agreement with Royce Investment
Group, Inc. ("Royce") whereby Royce will be paid a fee in connection with
various types of financial transactions entered into by the Company for a
period of five years from the date of the public offering.
Certain of the Company's stockholders and the stockholders of SMTI and A&A
have placed or have agreed to place an aggregate of 1,275,000 of their shares
of common stock in escrow. These shares will not be assignable or
transferable (but may be voted) until such time as they are released from
escrow based upon the Company meeting certain annual earnings levels or the
common stock attaining certain price levels. All reserved shares remaining in
escrow on March 31, 2000 will be forfeited and contributed to the Company's
capital. In the event the Company attains any of the earnings thresholds or
stock prices providing for the release of the escrow shares to the
stockholders, the Company will recognize compensation expense at such time
based on the fair market value of the shares.
On March 21, 1996 the Company entered into agreements with Sports
Marketing & Television International, Inc. ("SMTI") and Athletes and Artists,
Inc. ("A&A"), pursuant to which the Company agreed to acquire by merger SMTI
and A&A concurrently with the completion of the IPO. The SMTI stockholders
will receive cash of $6,500,000 from the offering, an additional $1,500,000
payable over five years and 1,292,307 shares of the Company's common stock.
The A&A stockholders will receive cash of $2,500,000 from the offering, an
additional $1,000,000 payable over five years and 969,231 shares of the
Company's common stock.
The acquisition by merger of each of SMTI and A&A will be accounted for as
a consolidation at historical cost due to the significance of the equity
interests in the Company to be held by the stockholders of these companies
following completion of the Acquisitions. Accordingly, the acquired assets
and liabilities of SMTI and A&A will be recorded at their historical amounts.
The capital stock of SMTI and A&A will be included in additional paid-in
capital. The cash to be paid to the SMTI and A&A stockholders will be
recorded as a reduction to additional paid-in capital.
The pro forma balance sheet at 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 $12,750,000 (net of expenses of $2,250,000) from the
sale of 3,000,000 IPO Units at an assumed initial public offering price
of $5 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>
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;
F-9
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPOSED PUBLIC OFFERING AND ACQUISITIONS (UNAUDITED)
(Continued)
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
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,
F-10
<PAGE>
THE MARQUEE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- STOCK OPTION PLAN (Continued)
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 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>
SEPTEMBER 30,
DECEMBER 31, 1995 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>
SEPTEMBER 30,
DECEMBER 31, 1995 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:
<TABLE>
<CAPTION>
<S> <C>
1997 ........ $ 135,000
1998 ........ 135,000
1999 ........ 135,000
2000 ........ 135,000
2001 ........ 135,000
Thereafter . 375,000
-----------
$1,050,000
===========
</TABLE>
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In the opinion of management, settlement of these actions, when
ultimately concluded, will not have a material adverse effect on the results
of operations, cash flows or the financial condition of the Company.
NOTE 7 -- OTHER MATTERS
On March 21, 1996, the stockholders of the Company agreed to be acquire by
The Marquee Group, Inc. ("Marquee"), subject to, among other matters, the
completion of an initial public offering of Marquee's securities.
F-27
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use of Proceeds ............................ 14
Dividend Policy ............................ 14
Capitalization ............................. 15
Dilution ................................... 17
Unaudited Pro Forma Condensed Combined
Financial Statements ...................... 18
Selected Financial Data .................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 23
Business ................................... 27
Management ................................. 34
Certain Transactions ....................... 40
Principal Stockholders ..................... 45
Description of Securities .................. 48
Shares Eligible for Future Sale ............ 51
Underwriting ............................... 52
Legal Matters .............................. 54
Experts .................................... 54
Additional Information ..................... 54
Index to Financial Statements .............. F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS AN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "MARQUEE1"
#############################################################################
THE MARQUEE
GROUP, INC.
3,000,000 UNITS
CONSISTING OF 3,000,000 SHARES OF
COMMON STOCK AND 3,000,000 WARRANTS
PROSPECTUS
ROYCE INVESTMENT
GROUP, INC.
CONTINENTAL
BROKER-DEALER CORP.
, 1996
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-Laws of the Registrant provide
that the Registrant shall indemnify any person to the full extent permitted
by the General Corporation Law of the State of Delaware (the "GCL"). Section
145 of the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of
directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director with certain limited exceptions set
forth in Section 102(a)(7).
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriters of the Registrant and
its directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriters' non-accountable
expense allowance of $ ), are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC Registration Fee .............. $ 16,423
NASD Filing Fee ................... 5,263
Nasdaq Filing Fees ................ 10,000
Printing and Engraving Expenses .. 100,000
Accounting Fees and Expenses ..... 150,000
Legal Fees and Expenses ........... 300,000
Blue Sky Fees and Expenses ........ 50,000
Transfer Agent's Fees and Expenses 5,000
Miscellaneous Expenses ............ 113,314
---------
Total ......................... $ 750,000
=========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion gives retroactive effect to the Stock Split
effected by the Company in August 1996. Since its organization in July 1995,
the Registrant has sold and issued the following unregistered securities:
In July 1995 and August 1995, respectively, the Registrant sold 1,292,308
and 646,154 shares of Common Stock to The Sillerman Companies, Inc. and
Robert M. Gutkowski, respectively, both of whom were accredited investors. In
May 1996, the Registrant sold 50,000 shares of Common Stock to Martin C.
Ehrlich, the Company's Senior Vice-President--Programming. Such issuances
were private transactions not involving a public offering and were exempt
from the registration provisions of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.
In August 1996, the Registrant issued $2,000,000 principal amount of
debentures, 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.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale of
securities was without the use of an underwriter, and the certificates
evidencing the shares bear a restrictive legend permitting the transfer
thereof only upon registration of the shares or an exemption under the
Securities Act of 1933, as amended.
II-1
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C> <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 27th of November, 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>
*
---------------------------
Robert F.X. Sillerman Chairman of the Board of Directors November 27, 1996
*
--------------------------- President, Chief Executive Officer and
Robert M. Gutkowski Director (Principal Executive Officer) November 27, 1996
*
---------------------------
Arthur C. Kaminsky Director November 27, 1996
*
---------------------------
Howard J. Tytel Director November 27, 1996
*
---------------------------
Michael Trager Director November 27, 1996
/s/ JAMES E. SILEO
--------------------------- Chief Financial Officer (Principal
James E. Sileo Accounting and Financial Officer) November 27, 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.
CERTIFICATE OF MERGER
OF
ATHLETES ACQUISITION CORP.
AND
ATHLETES AND ARTISTS, INC.
INTO
ATHLETES AND ARTISTS, INC.
(Under Section 904 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: The Board of Directors of each of the constituent corporations
has duly adopted a plan of merger setting forth the terms and conditions of the
merger of said corporations.
SECOND: The name of the constituent corporation which is to be the
surviving corporation, and which is hereinafter sometimes referred to as the
"surviving constituent corporation", is Athletes & Artists, Inc. and the name
under which it was formed is W.A.C.K. Sports, Inc. The date upon which its
certificate of incorporation was filed by the Department of State is June 27,
1977.
THIRD: The name of the other constituent corporation, which is being
merged into the surviving constituent corporation, and which is hereinafter
sometimes referred to as the "merged constituent corporation", is Athletes
Acquisition Corp. The date upon which its certificate of incorporation was
filed by the Department of State is November 12, 1996.
FOURTH: As to each constituent corporation, the plan of merger sets
forth the designation and number of outstanding shares of each class and
series, the specification of the classes and series entitled to vote on the
plan of merger, and the specification of each class and series entitled to vote
as a class on the plan of merger, as follows:
<PAGE>
Athletes and Artists, Inc.
<TABLE>
<CAPTION>
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote
series of shares each class vote as a class
- ---------------- --------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Common Stock, par 15 Common Stock, par N/A
value $.01 per share value $.01 per share
</TABLE>
Athletes Acquisition Corp.
<TABLE>
<CAPTION>
Designation of each Number of Designation of class Classes and series
outstanding class and outstanding shares of and series entitled to entitled to vote
series of shares each class vote as a class
- ---------------- --------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Common Stock, par 100 Common Stock, par N/A
value $.01 per share value $.01 per share
</TABLE>
FIFTH: The merger herein certified was authorized in respect of the
surviving constituent corporation by the written consent of the holders of all
outstanding shares of the corporation entitled to vote on the plan of merger.
SIXTH: The merger herein certified was authorized in respect of the
merged constituent corporation by the written consent of the holders of all
outstanding shares of the corporation entitled to vote on the plan of merger.
SEVENTH: The following is a statement of any amendments or changes in
the certificate of incorporation of Athletes & Artists, Inc. to be effected by
the merger:
The certificate of incorporation of Athletes & Artists, Inc. shall be
amended to decrease the aggregate number of authorized shares of the
corporation. To accomplish said amendments, Article 4.1 of the
certificate of incorporation of the corporation, relating to the
number of authorized shares, shall be stricken out in its entirety,
and the following new Article 4.1 shall be substituted in lieu
thereof:
4.1 The aggregate number of shares which the
Corporation shall have authority to issue is: One Thousand
(1,000), all of which shall be Common Shares of the par value
of One Cent ($.01) each.
2
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
Date: , 1996 _______________
-----------------------------------
Arthur C. Kaminsky, President of
Athletes and Artists, Inc.
and
--------------------------
Louis J. Oppenheimer, Secretary of
Athletes and Artists, Inc.
and
--------------------------
Robert M. Gutkowski, President of
Athletes Acquisition Corp.
and
---------------------------
Kraig G. Fox, Secretary of
Athletes Acquisition Corp.
3
<PAGE>
INDIVIDUAL
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
Arthur C. Kaminsky, being duly sworn, deposes and says that he is one
of the persons who signed the foregoing certificate of merger on behalf of
Athletes and Artists, Inc.; that he signed said certificate in the capacity set
opposite or beneath his signature thereon; that he has read the foregoing
certificate and knows the contents thereof; and that the statements contained
therein are true to his own knowledge.
-----------------------------
Arthur C. Kaminsky, President
Subscribed and sworn to before me
on , 1996.
- ----------------------------
and
INDIVIDUAL
STATE OF )
) SS.:
COUNTY OF )
Robert M. Gutkowski, being duly sworn, deposes and says that he is one
of the persons who signed the foregoing certificate of merger on behalf of
Athletes Acquisition Corp.; that he signed said certificate in the capacity set
opposite or beneath his signature thereon; that he has read the foregoing
certificate and knows the contents thereof; and that the statements contained
therein are true to his own knowledge.
------------------------------
Robert M. Gutkowski, President
Subscribed and sworn to before me
on , 1996.
- ----------------------------
4
CERTIFICATE OF MERGER
OF
SMTI ACQUISITION CORP.
AND
SPORTS MARKETING & TELEVISION INTERNATIONAL, INC.
To the Secretary of State
State of Connecticut
Pursuant to the provisions of the Stock Corporation Act of
the State of Connecticut governing the merger of one or more foreign
corporations with and into a domestic corporation, it is hereby certified that:
1. The names of the merging corporations are SMTI Acquisition
Corp., which is a business corporation organized under the laws of the State of
Delaware, and which is to be the terminating corporation, and Sports Marketing
& Television International, Inc., which is a business corporation organized
under the laws of the State of Connecticut, and which is to be the surviving
corporation.
2. Annexed hereto and made a part hereof is the Agreement and Plan of
Merger for merging SMTI Acquisition Corp. with and into Sports Marketing &
Television International, Inc. as approved by resolution of the Board of
Directors of each of said merging corporations.
3. The shareholder vote required to approve and adopt the Agreement
and Plan of Merger upon behalf of Sports Marketing & Television International,
Inc. is _____ votes.
4. The vote for the approval and the adoption of the Plan of Merger
upon behalf of Sports Marketing & Television International, Inc. is _____
votes.
5. The laws of the jurisdiction of organization of SMTI Acquisition
Corp. permit the merger of a business corporation of that jurisdiction with and
into a business corporation of another jurisdiction; and the merger of SMTI
Acquisition Corp. with and into Sports Marketing & Television International,
Inc. is in compliance with the laws of the jurisdiction of organization of SMTI
Acquisition Corp.
6. The Agreement and Plan of Merger provides that Sports Marketing &
Television International, Inc. will continue its existence as the surviving
corporation under its present name pursuant to the provisions of the laws of
the State of Connecticut.
<PAGE>
7. The following is a statement of any amendments or changes in the
certificate of incorporation of Sports Marketing & Television International,
Inc. to be effected by the merger:
The certificate of incorporation of Sports Marketing & Television
International, Inc. shall be amended to decrease the aggregate number
of authorized shares of the corporation. To accomplish said
amendments, Article Third of the certificate of incorporation of the
corporation, relating to the number of authorized shares, shall be
stricken out in its entirety, and the following new Third shall be
substituted in lieu thereof:
THIRD: The aggregate number of shares which the
Corporation shall have authority to issue is: One Thousand (1,000),
all of which shall be Common Shares of no par value each.
Dated at __________, on __________, 1996.
SMTI Acquisition Corp.
The undersigned officers of SMTI Acquisition Corp. do hereby state
under the penalties of false statement that the statements pertaining to SMTI
Acquisition Corp. contained in the foregoing Certificate of Merger are true.
-------------------------------
Robert M. Gutkowski, President
-------------------------------
Kraig G. Fox, Secretary
Dated at ___________, on __________, 1996.
Sports Marketing & Television International, Inc.
The undersigned officers of Sports Marketing & Television
International, Inc. do hereby state under the penalties of false statement that
the statements pertaining to Sports Marketing & Television International, Inc.
contained in the foregoing Certificate of Merger are true.
---------------------------------
2
<PAGE>
Michael Letis, President
-----------------------------------
Michael Trager, Chairman
3
November 26, 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) 3,000,000 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 450,000 Units for which the
Underwriters have an option to purchase from the Company solely to cover
over-allotments; and (iii) 300,000 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.
November 26, 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
AMENDMENT NO. 2 TO
ESCROW AGREEMENT
Reference is hereby made to that certain Agreement dated as of the
15th day of August, 1996 and amended by Amendment No. 1 thereto (the "Escrow
Agreement"), by and among Continental Stock Transfer & Trust Company, a New
York corporation (hereinafter referred to as the "Escrow Agent"), The Marquee
Group, Inc., a Delaware corporation (the "Company"), and the individuals and
entities listed on Exhibit A to the Escrow Agreement (the "Stockholders"). The
undersigned each being a party to the Escrow Agreement and collectively being
all of such parties thereto, do hereby amend ("Amendment No. 2") the Escrow
Agreement as follows:
A. By striking Section 3 thereof in its entirety and
by substituting in lieu thereof the following new Section 3:
"3. During the Escrow Period, the Escrow Agent shall receive all of
the money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as
dividends or pursuant to any stock split, stock distribution, merger,
recapitilization, dissolution, or total or partial liquidation of the Company
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 (which
shall be held and distributed as herein provided and hereinafter referred to
collectively as the "Escrow Property"), such property shall be delivered to
the Stockholders promptly upon the Escrow Agent's receipt thereof."
B. By striking Section 4(c) of the Escrow Agreement in
its entirety and by substituting in lieu thereof the following
Section 4(c):
"(c) The determination of Minimum Pretax Income 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 in respect thereof pursuant to the provisions
of this paragraph 4) and (y) any interest expense relating to the debentures
issued by the Company in connection with the Company's August 1996 private
placement; (ii) derived solely from the businesses owned and operated by the
Company as of the closing date of the Public Offering and upon consummation of
the Acquisitions and shall not give effect to any operations relating to
businesses or assets acquired after such date; and (iii) audited by the
Company's independent public accountants."
<PAGE>
THE MARQUEE GROUP, INC.
By:
---------------------------------------
Robert M. Gutkowski, President
and Chief Executive Officer
Continental Stock Transfer & Trust Company
By:
--------------------------------------------
STOCKHOLDERS:
The Sillerman Companies, Inc.
By:
----------------------------- -----------------------
----------------------------- -----------------------
Robert F.X. Sillerman Michael Letis
----------------------------- -----------------------
----------------------------- -----------------------
Robert M. Gutkowski Michael Trager
-----------------------------
-----------------------------
Arthur C. Kaminsky
-----------------------------
-----------------------------
Louis Oppenheim
-2-
AMENDED AND RESTATED ACQUISITION AGREEMENT
AMENDED AND RESTATED ACQUISITION AGREEMENT, dated as of the
21st day of March, 1996, by and among The Marquee Group, Inc., a Delaware
corporation, having an office at 150 East 58th Street, New York, New York 10155
("Marquee"); Athletes and Artists, Inc., a New York corporation, having an
office at 421 Seventh Avenue, Suite 1410, New York, New York 10001
("Athletes"); Arthur Kaminsky ("Kaminsky") and Louis J. Oppenheim
("Oppenheim"), individuals having an address at 421 Seventh Avenue, New York,
New York 10001 (Kaminsky and Oppenheim are collectively referred to herein as
the "Sellers" and individually as a "Seller"); Robert Gutkowski ("Gutkowski"),
an individual having an address at 152 West 57th Street, New York, New York
10019; and The Sillerman Companies, Inc. ("TSC"), a corporation having an
address at 150 East 58th Street, New York, New York 10155.
WHEREAS, Marquee and Athletes have entered into a letter
agreement dated December 7, 1995 (the "Letter Agreement"), whereby Marquee has
agreed to acquire Athletes, and Athletes has agreed to be acquired by Marquee,
on the terms and conditions hereinafter set forth;
WHEREAS, the boards of directors and stockholders of Marquee
and Athletes each have adopted resolutions declaring advisable the acquisition
of Athletes by Marquee on the terms and conditions hereinafter set forth,
whereby the outstanding Common Stock of Athletes will be converted into Common
Stock of Marquee and cash in a transaction which, when considered with other
related transactions occurring on or about the same time, is intended to
qualify as an exchange to the extent of the receipt of stock of Marquee under
Section 351 of the United States Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the parties hereto have previously entered into an
Amended and Restated Acquisition Agreement, dated as of March 21, 1996, and
such parties deem it to be in their respective best interests to amend and
restate certain provisions in such agreement and, to that end, the parties
hereby amend and restate such agreement.
NOW, THEREFORE, the parties to this Agreement agree as
follows:
SECTION 1 -- MERGER
1.1 Agreement to Merger. Subject to the terms and conditions
herein set forth, Athletes and Marquee agree to effect a merger (the "Merger")
of a wholly-owned subsidiary of Marquee to be formed for the purpose of
effecting the Merger (the "Subsidiary") with and into Athletes, with Athletes
as the surviving corporation, in accordance with the Agreement and Plan of
Merger attached hereto as Exhibit A (the "Merger Agreement").
<PAGE>
1.2 Purchase Price. The aggregate purchase price for all
of the issued and outstanding shares of capital stock of Athletes shall be
$3,500,000, which shall be payable in accordance with the provisions set forth
in Section 10.3 hereof, and that number of shares of the Common Stock, par value
$.01 per share (the "Common Stock"), of Marquee as is equal to three-thirteenths
(3/13) of the total number of shares of Common Stock of Marquee held by (i) the
shareholders of Athletes, (ii) the shareholders of SMTI (as defined in Section
4.3 hereof), (iii) Gutkowski and (iv) TSC in the aggregate (collectively, the
"Management Stock") immediately after the Closing Date (as defined in Section
10.1 hereof). If necessary, on or prior to the Closing Date, Marquee will make
whatever adjustments in its issued and outstanding shares of Common Stock as are
required so that, immediately after the Closing Date, the shareholders of
Athletes will own, in the aggregate, that number of shares of Common Stock of
Marquee equal to three-thirteenths (3/13) of the total number of shares of
Management Stock.
1.3 Marquee Common Stock. Marquee will make available to
Subsidiary a sufficient number of shares of Common Stock of Marquee and a
sufficient amount of cash in order to effect the Merger pursuant to the Merger
Agreement.
1.4 Per Share Purchase Price. The number of shares of Common
Stock of Marquee to be received for each issued and outstanding share of
capital stock of Athletes, as set forth in Section 2.2 of the Merger Agreement,
shall be calculated on or prior to the Closing Date.
SECTION 2 -- CONVERSION OF STOCK OF ATHLETES
2.1 Conversion of Shares. The manner of converting the shares
of Athletes into shares of Common Stock of Marquee and cash shall be as set
forth in Section 2 of the Merger Agreement.
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND ATHLETES
The Sellers and Athletes jointly and severally represent and
warrant to Marquee that:
3.1 Organization and Good Standing. Athletes is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of New York and has corporate power to own its property and to carry on
its business as it is now being conducted. Copies of Athletes' Certificate of
Incorporation and Bylaws (certified to be correct by the Secretary of Athletes)
have been delivered to Marquee and are complete and correct as at the date
hereof. Athletes' minute books contain a complete and accurate record of all
meetings and other corporate action of its shareholders and board of directors.
3.2 Capitalization. Athletes' authorized capital stock
consists of 20,000 shares of Common Stock, par value $1.00 per share, 15 of
which are issued and outstanding. No shares are held in Athletes' treasury. All
of the outstanding shares of Common Stock of Athletes are validly issued, fully
paid, and nonassessable. There are no outstanding options, agreements,
contracts, calls,
2
<PAGE>
or commitments of any character which would require the issuance by Athletes of
any capital stock. All of the issued and outstanding Common Stock of Athletes
are owned by Kaminsky and Oppenheim, free and clear of any liens, claims or
encumbrances of any nature. Their ownership of shares of Common Stock of
Athletes is as set forth below:
<TABLE>
<CAPTION>
Name No. of Shares
- ---- -------------
<S> <C>
Arthur Kaminsky 10
Louis J. Oppenheim 5
</TABLE>
3.3 Subsidiaries. Athletes has no subsidiaries, nor does
it have an ownership interest in any partnership, corporation, association or
other business entity.
3.4 Financial Statements. Athletes has delivered to Marquee
copies of the following financial statements, all of which have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods indicated:
(1) 1995 Financial Statements. Balance sheet of
Athletes as of December 31, 1995 (the "Athletes Balance Sheet"), together with
the related statement of operations, which present fairly as of their date the
financial condition of Athletes and its results of operations for the period
indicated and which areunaudited. The parties hereto acknowledge their
understanding that the retained earnings, if any, of Athletes have been paid
out as compensation prior to the date hereof.
(2) 1993 and 1994 Financial Statements. Balance
sheet of Athletes as of December 31, 1993 and 1994, together with the related
statements of operations, which present fairly as of their date the financial
condition of Athletes and its results of operations for the periods indicated
and which have been audited by independent certified public accountants.
3.5 Absence of Undisclosed Liabilities. Athletes did not have
at the date of the Athletes Balance Sheet any liabilities or obligations,
secured or unsecured (whether accrued, absolute, contingent, or otherwise), of
a nature that would be reflected or reserved against in a corporate balance
sheet or disclosed in the notes thereto prepared in accordance with generally
accepted accounting principles that are not reflected or reserved against in
the Athletes Balance Sheet or disclosed in the notes thereto.
3.6 Absence of Certain Changes. There have not been
since the date of the Athletes Balance Sheet any changes of the following
nature:
(1) Business, properties and financial
condition. Any material adverse change in Athletes' properties, business,
financial condition, or results of operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Athletes; any granting of any stock option or right
3
<PAGE>
to purchase shares of capital stock or any issuance of any security convertible
into shares of capital stock of Athletes; any purchase, redemption, retirement,
or other acquisition of any shares of capital stock by Athletes; any agreement
to do any of the foregoing; or any declaration, setting aside, or payment of any
dividend or other distribution in respect of the capital stock of Athletes.
(3) Sales, leases, borrowings and so forth.
Any sale or lease of Athletes' property or assets with an original cost in
excess of $10,000 for any single item or any mortgage or pledge of any
properties or assets of Athletes, or any borrowing incurred, assumed, or
guaranteed by Athletes.
(4) Employee benefit plans and certain salaries.
Any employment contract in excess of $50,000 per year, bonus, stock option,
profit sharing, pension, retirement, incentive, medical, health, disability,
other employee benefits or similar arrangement or plan instituted, agreed to,
or amended, nor any contributions or other payments made (nor contribution or
other obligations incurred) with respect to existing arrangements and plans of
the aforementioned types, except in accordance with past practices (and no such
plans have any unfunded liability).
3.7 Litigation and so forth. Except as set forth on Schedule
13 described in Section 3.8(13) hereof, there is no litigation, proceeding, or
governmental investigation pending or, to the knowledge of Athletes, threatened
against or relating to Athletes, its properties or business or the transactions
contemplated by this Agreement; nor, to the knowledge of Athletes, is there any
reasonable basis for any such actions or for any claims; and Athletes is not a
party to or subject to the provisions of any judicial decree or judgment or any
order of any governmental agency.
3.8 Lists of properties, contracts and so forth. Athletes has
delivered to Marquee lists or summary descriptions (certified as correct to the
best of their knowledge by authorized officers of Athletes), each of which is
complete and accurate in all material respects as of the date hereof, of the
following:
(1) Real property. All real property owned of
record or beneficially or leased by Athletes ("Schedule 1"), accompanied by
copies of the deeds, title insurance policies, and leases relating thereto.
(2) Other property. Inventories and tangible
fixed assets, as shown on Athletes' books, showing, with respect to
inventories, the amounts of raw materials, work-in-process, and finished goods,
and with respect to fixed assets, the total of each of the following
categories: leasehold improvements, machinery and equipment, furniture and
fixtures, and automotive equipment ("Schedule 2").
(3) Insurance policies. All policies of
insurance with respect to Athletes' properties, buildings, machinery,
equipment, furniture, fixtures, operations, and the lives of its directors,
officers, and employees ("Schedule 3").
4
<PAGE>
(4) Certain leases and contracts. Each
existing lease, contract, or other commitment of Athletes involving an
aggregate payment by Athletes of more than $25,000 or to Athletes of more than
$50,000 other than leases, contracts, or commitments furnished pursuant to
other paragraphs of this Section 3.8 ("Schedule 4").
(5) Certain salaried employees. The names and
1995 annual compensation of Athletes' directors, officers, employees, and
agents whose annual rate of compensation for 1995 was $50,000 or more
("Schedule 5").
(6) Labor contracts. Each existing labor
contract to which Athletes is a party ("Schedule 6").
(7) Intellectual property. All of Athletes'
patents, trademarks, trade names, service marks, service names, copyrights, and
registrations and applications therefor; and all patent, trademark, trade name,
service mark, service name, or copyright licenses, assignments, or royalty
agreements to which Athletes is a party ("Schedule 7").
(8) Profit sharing plans and so forth. All
employment contracts, bonus, stock option, profit sharing, pension, retirement,
incentive, medical, health, disability or other employee benefit plans or
arrangements of Athletes ("Schedule 8").
(9) Banks. The name of each bank in which
Athletes has an account or safe deposit box, and the names of all persons
authorized to draw thereon or having access thereto ("Schedule 9").
(10) Powers of attorney. The names of all
persons, if any, holding powers of attorney from Athletes ("Schedule 10").
(11) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar instruments to which Athletes is a party, and all
amendments or modifications of any thereof ("Schedule 11"), with a statement of
any as to which there is any existing default by Athletes.
(12) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Athletes and, with respect to each, the date of grant or issue, the expiration
date, the number and class of shares subject thereto, and the purchase price
("Schedule 12").
(13) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Athletes is a party (whether as plaintiff,
defendant, or otherwise), including the damages or relief sought therein, the
name of counsel for Athletes in charge of such matter, and its current status
("Schedule 13").
5
<PAGE>
(14) Material assets. A list of every material
asset used by Athletes in the conduct of its business that is not either owned
by Athletes or leased by or licensed to it under an agreement listed on
Schedules 1 through 13 ("Schedule 14").
(15) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Marquee
pursuant to this Section 3.8) that Athletes would be required to file or
describe in a Registration Statement on Form S-1 filed by Athletes under the
Securities Act of 1933 Act, as amended ("Schedule 15").
3.9 Title. With respect to the property listed in Schedules 1
and 2, Athletes has good and marketable title to the real property stated to be
owned by it, has good title to the leasehold interests in real property stated
to be held by it, and good title to all of the tangible property stated to be
owned by it, in each case free and clear of all liens and encumbrances, except
for (1) liens and encumbrances disclosed in Schedules 1 and 2; (2) the lien of
current taxes not yet due and payable; and (3) such liens by operation of law
and such imperfections of title, and other liens and encumbrances, if any, as
are not substantial in character, amount, or extent and do not interfere with
the present or future use by Athletes of the properties subject thereto or
affected thereby.
Athletes has received no notice of violation of any
applicable zoning regulation, ordinance, or other law, order, regulation, or
requirement relating to its operations or its properties and, so far as is
known to Athletes (1) there is no such violation of a material nature and (2)
all buildings and structures used by Athletes substantially conform with all
applicable ordinances, codes, and regulations.
Except as stated in Schedule 7, Athletes (1) has clear record
title to the patents, trademarks, trade names, service marks, service names,
and copyrights, and registrations and applications therefor, and copyright
registrations listed in Schedule 7 as owned by it; (2) has not entered into any
agreements, contracts, or licenses that would impair free and unencumbered use
by Marquee of the patents, trademarks, trade names, service marks, service
names, or copyrights enumerated in Schedule 7; (3) does not know of any
asserted infringement by it of any patent, trademark, trade name, service mark,
service name, or copyright of another; and (4) does not believe that it is
infringing a patent, trademark, trade name, service mark, service name, or
copyright of another.
3.10 Tax Returns. Except for liabilities with respect to
taxes and interest thereon, to which reference is made in notes to the Athletes
Balance Sheet, the provision for taxes therein is sufficient for the payment of
all accrued and unpaid federal, state, county, and local taxes of Athletes
(including any penalties or interest payable in respect of such taxes), whether
or not disputed, for the period ended December 31, 1995, and for all fiscal
years prior thereto.
3.11 No Violation. The execution of this Agreement and
the Merger Agreement does not, and performance hereof and thereof will not,
violate the provisions of Athletes' Certificate of Incorporation, Bylaws, or
any indenture, agreement, or other instrument to which Athletes is a
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party, except insofar as any such instrument may require consent by a lender,
mortgagee, lessor, or other party to such actions, whose consent Athletes
agrees to obtain before the Closing Date.
3.12 Authorization. The execution, delivery, and performance
of this Agreement and the Merger Agreement have been duly authorized and
approved by Athletes' board of directors and by all of Athletes' shareholders;
this Agreement and the Merger Agreement and the consummation of the
transactions contemplated herein and therein have been duly and validly
authorized by all necessary corporate action on the part of Athletes; and this
Agreement is, and (upon execution and delivery as provided herein) the Merger
Agreement will be, binding upon and enforceable against Athletes in accordance
with their respective terms.
3.13 General. None of the representations or warranties made
by the Sellers or Athletes in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 4 -- REPRESENTATIONS, WARRANTIES, COVENANTS, AND
AGREEMENTS OF GUTKOWSKI, TSC AND MARQUEE
Gutkowski, TSC and Marquee jointly and severally represent
and warrant to, and covenant and agree with, Athletes and the Sellers that:
4.1 Organization and Good Standing. Marquee is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power to own its property and to carry on
its business as it is now being conducted. At the Closing Date Subsidiary will
be a corporation duly organized, validly existing and in good standing under
the laws of the State of New York and have corporate power to own its property
and to carry on its business as it is then being conducted. Copies of Marquee's
Certificate of Incorporation and Bylaws (certified to be correct by the
Secretary of Marquee) have been delivered to Athletes and are complete and
correct as of the date hereof. Marquee's minute books contain a complete and
accurate record of all meetings and other corporate action of its shareholders
and board of directors. On or prior to the Closing Date Marquee will deliver to
Athletes copies of Subsidiary's Certificate of Incorporation and Bylaws
(certified to be correct by an officer of Subsidiary), which shall be complete
and correct as of the date of such delivery. On the Closing Date Subsidiary's
minute books will contain a complete and accurate record of all meetings and
other corporate action of its shareholders and board of directors.
4.2 Capitalization. Marquee's authorized capital stock
consists of 1,000 shares of Common Stock, par value $.01 per share, all of
which are issued and outstanding. No shares are held in Marquee's treasury. All
of the outstanding shares of Common Stock of Marquee are validly issued, fully
paid, and nonassessable. All of the shares of capital stock of Subsidiary to be
issued will be validly issued, fully paid and nonassessable. Other than
Marquee's pending agreements regarding a private placement as described in
Marquee's Confidential Term Sheet dated July 30, 1996, and its initial public
offering, there are no outstanding options, agreements, contracts, calls,
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or commitments f any character which would require the issuance by Marquee or
Subsidiary of any capital stock (it being understood that Marquee may, prior to
the Closing Date, issue stock, options or warrants to key employees of or
advisors to Marquee (other than Gutkowski, TSC or any of their affiliates)).
All of the issued and outstanding Common Stock of Marquee is owned by
Gutkowski, TSC and Martin Ehrlich. Their ownership of shares of Common Stock of
Marquee is as set forth below:
<TABLE>
<CAPTION>
Name No. of Shares
- ---- -------------
<S> <C>
Robert Gutkowski 333
The Sillerman Companies, Inc. 666
Martin Ehrlich 1
</TABLE>
All of Subsidiary's outstanding shares of Common Stock will be owned by
Marquee.
4.3 Subsidiaries. Marquee has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association, or
other business entity (it being understood that prior to the Closing Date
Marquee (a) will form and own two wholly-owned subsidiaries, Subsidiary and a
wholly-owned subsidiary to be formed for the purpose of effecting the
acquisition of Sports Marketing & Television International, Inc., a Connecticut
corporation ("SMTI"), by Marquee by the merger of SMTI with and into such
subsidiary and (b) may acquire all of the outstanding capital stock of The
Marquee Group, a Sports, News and Entertainment Company, Inc., a New York
corporation ("Marquee NY") for a purchase price not to exceed $1,000).
Subsidiary will not have any subsidiaries, nor will it have an ownership
interest in any partnership, corporation, association, or other business
entity. Marquee NY does not have any subsidiaries, nor does it have any
ownership interest in any partnership, corporation, association, or other
business entity.
4.4 Financial Statements. Marquee has delivered to Athletes a
copy of an unaudited operating income statement of Marquee as of December 31,
1995 (the "Marquee Balance Sheet") and an unaudited operating income statement
of Marquee NY as of December 31, 1995 (the "Marquee NY Balance Sheet"),
together with the related balance sheet, which present fairly as of their date
the financial condition of Marquee and Marquee NY and their results of
operations for the periods indicated. On or prior to the Closing Date Marquee
will deliver to Athletes a copy of a balance sheet of Subsidiary as of a date
no more than ninety (90) days prior thereto (the "Subsidiary Balance Sheet"),
together with the related statement of operations, which shall present fairly
as of their date the financial condition of Subsidiary and its results of
operations for the period indicated.
4.5 Absence of Undisclosed Liabilities. Marquee did not have
at the date of the Marquee Balance Sheet, Marquee NY did not have at the date
of the Marquee NY Balance Sheet, and Subsidiary will not have at the date of
the Subsidiary Balance Sheet, any liabilities or
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obligations, secured or unsecured (whether accrued, absolute, contingent, or
otherwise), of a nature that would be reflected or reserved against in a
corporate balance sheet or disclosed in the notes thereto prepared in
accordance with generally accepted accounting principles that are not reflected
or reserved against in such balance sheets or disclosed in the notes thereto.
4.6 Absence of Certain Changes. There have not been since the
date of the Marquee Balance Sheet and the Marquee NY Balance Sheet, and at the
Closing Date there will not have been since the date of the Subsidiary Balance
Sheet, any changes of the following nature:
(1) Business, properties and financial
condition. Any material adverse change in Marquee's, Marquee NY's or
Subsidiary's properties, business, financial condition, or results of
operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Marquee, Marquee NY or Subsidiary; any granting of any stock option or right to
purchase shares of capital stock or any issuance of any security convertible
into shares of capital stock by Marquee, Marquee NY or Subsidiary (except as
contemplated by Section 4.6(4) hereof and as described on Schedule A (as
defined in Section 4.8(1) hereof)); any purchase, redemption, retirement, or
other acquisition of any shares of capital stock by Marquee, Marquee NY or
Subsidiary; other than Marquee's agreements regarding a private placement as
described in Marquee's Confidential Term Sheet dated July 30, 1996, and its
initial public offering, any agreement to do any of the foregoing; or any
declaration, setting aside, of payment of any dividend or other distribution in
respect of the capital stock of Marquee, Marquee NY or Subsidiary.
(3) Sales, leases, borrowings and so forth. Any
sale or lease of Marquee or Subsidiary's property or assets with an original
cost in excess of $10,000 for any single item or any mortgage or pledge of any
properties or assets of Marquee or Subsidiary, or any borrowing incurred,
assumed, or guaranteed by Marquee or Subsidiary.
(4) Employee benefit plans and certain salaries.
Except for Marquee's employment agreement, dated March 21, 1996, with Gutkowski
and Marquee's employment agreement, dated May 9, 1996, with Martin Ehrlich, any
employment contract in excess of $50,000 per year, bonus, stock option, profit
sharing, pension, retirement, incentive, medical, health, disability, other
employee benefit or similar arrangement or plan instituted, agreed to, or
amended (it being understood that Marquee may, prior to the Closing Date, (a)
issue stock, options or warrants to key employees of or advisors to Marquee
(other than Gutkowski, TSC or any of their affiliates) and (b) to the extent it
has not already done so obtain medical and dental insurance of the type
required by Section 6 of the employment agreements contemplated by Section 8.6
and 9.6 hereof); nor any contributions or other payments made (nor
contributions or other obligations incurred) with respect to existing
arrangements and plans of the aforementioned types, except in accordance with
past practices (and no such plans have any unfunded liability).
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<PAGE>
4.7 Litigation and so forth. There is no litigation,
proceeding, or governmental investigation pending or, to the knowledge of
Marquee, threatened against or relating to Marquee or Marquee NY or any of their
properties or businesses or the transactions contemplated by this Agreement;
nor, to the knowledge of Marquee, is there any reasonable basis for such actions
or for any claims; and neither Marquee nor Marquee NY is a party to or subject
to the provisions of any judicial decree or judgment or any order of any
governmental agency.
4.8 List of Properties, Contracts and So Forth. Marquee has
delivered to Athletes lists or summary descriptions with respect to Marquee and
Marquee NY, and on or prior to the Closing Date Marquee will deliver to
Athletes lists or summary descriptions with respect to Subsidiary (in each case
certified as correct to the best of their knowledge by authorized officers of
the relevant entity), each of which is or will be complete and correct in all
material respects as of the date set out therein, of the following:
(1) Certain leases and contracts. Each lease,
contract or other commitment of Marquee, Marquee NY or Subsidiary involving an
aggregate payment by any of them of more than $25,000 or to any of them of more
than $50,000 or extending beyond twelve (12) .months from the date of delivery
of such lists or summary descriptions (whether or not terminable at the option
of any party at an earlier date) other than leases, contracts, or commitments
furnished pursuant to other paragraphs of this Section 4.8 ("Schedule A").
(2) Certain salaried employees. The names and
annual salary rates as of the date of this Agreement of Marquee's, Marquee NY's
and Subsidiary's directors, officers, employees, and agents whose annual rate
of compensation at such date was $50,000 or more ("Schedule B").
(3) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar agreements to which Marquee, Marquee NY or Subsidiary is
a party, and all amendments or modifications of any thereof ("Schedule C"),
with a statement of any as to which there is any existing default by Marquee,
Marquee NY or Subsidiary.
(4) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Marquee, Marquee or Subsidiary and, with respect to each, the date of grant or
issue, the expiration date, the number and class of shares subject thereto, and
the purchase price ("Schedule D").
(5) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Marquee, Marquee NY or Subsidiary is a
party (whether as plaintiff, defendant or otherwise), including the damages or
relief sought therein, the name of counsel for Marquee, Marquee NY or
Subsidiary in charge of such matter, and its current status ("Schedule E").
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(6) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Athletes
pursuant to this Section 4.8) that Marquee, Marquee NY or Subsidiary would be
required to file or describe in a Registration Statement on Form S-1 filed
by Marquee or Subsidiary under the Securities Act of 1933, as amended
("Schedule F").
4.9 Tax Returns. Marquee and Marquee NY have, and prior to
the Closing Date Subsidiary will have, timely filed all tax returns required to
be filed by them and paid all taxes required to be paid for all fiscal periods
prior hereto (in the case of Marquee or Marquee NY) or prior to the Closing
Date (in the case of Subsidiary).
4.10 No Violation. Marquee's execution of this Agreement does
not and Subsidiary's execution of the Merger Agreement will not, and the
performance hereof and thereof will not, violate the provisions of Marquee's or
Subsidiary's Certificate of Incorporation, Bylaws or any indenture, agreement,
or other instrument to which Marquee is or Subsidiary will be a party, except
insofar as any such instrument may require consent by a lender, mortgagee,
lessor, or other party to such actions, whose consent Marquee or Subsidiary
agree to obtain before the Closing Date.
4.11 Authorization. The execution, delivery, and performance
of this Agreement have been duly authorized and approved by Marquee's board of
directors and by all of its shareholders and the Merger Agreement will be
approved by Subsidiary's board of directors and all of its shareholders; this
Agreement and the consummation of the transactions contemplated herein have
been duly and validly authorized by all necessary corporate action on the part
of Marquee; the Merger Agreement and the consummation of the transactions
contemplated therein will be duly and validly authorized by all necessary
corporate action on the part of Subsidiary; and this Agreement is, and, with
respect to Subsidiary, the Merger Agreement (upon execution and delivery as
provided herein) will be, binding upon and enforceable against Marquee or
Subsidiary, as the case may be, in accordance with their terms.
4.12 General. None of the representations or warranties made
by Marquee, Gutkowski or TSC in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 5 -- [INTENTIONALLY LEFT BLANK]
SECTION 6 -- CONDUCT OF ATHLETES PENDING THE CLOSING DATE
The Sellers and Athletes covenant and agree that between the
date of this Agreement and the Closing Date:
6.1 Certificate of Incorporation and Bylaws. Athletes
will not change its Certificate of Incorporation or Bylaws.
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6.2 Capitalization and so forth. Athletes will not make any
change in its authorized, issued, or outstanding capital stock; grant any stock
option or right to purchase shares of its capital stock; issue any security
convertible into shares of its capital stock; purchase, redeem, retire, or
otherwise acquire any shares of its capital stock; or agree to do any of the
foregoing; or declare, set aside, or pay any dividend or other distribution in
respect of its capital stock.
6.3 Business in Ordinary Course. Athletes will conduct its
business in its customary course and will (1) use its reasonable efforts to
preserve its business organization intact, to keep available to Marquee the
services of its present officers and employees, and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; (3) keep in force at
no less than their present limit all policies of insurance listed in Schedule
3; and (4) make no material change in the customary terms and conditions on
which it extends credit to customers; provided, however, that nothing in this
Section 6.3 shall prohibit compliance by Athletes with, or Athletes' borrowing
or repayment of funds pursuant to, any agreements or other commitments
disclosed by Athletes to Marquee on any Schedule furnished in accordance with
Section 3.8 hereof.
6.4 Employee Compensation. Athletes will pay Kaminsky a
salary at the rate of $300,000 per year and Oppenheim a salary at the rate of
$175,000 per year, plus any amounts distributable pursuant to Section 6.9
hereof. Other than the possible renewal of Michael Glantz's employment
agreement on terms reasonably acceptable to Marquee, Athletes will not
institute, agree to, or amend any employment contract requiring the payment by
Athletes of a salary or bonus in excess of $50,000 per year, or any bonus,
stock option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefit or similar arrangement or plan, except to
grant normal individual increases in compensation in accordance with
established agreements or procedures and except as may be necessary to comply
with Section 6.8 hereof.
6.5 Banking Arrangements; Powers of Attorney. Athletes
will not make any change in its banking and safe deposit arrangements and will
not grant any powers of attorney.
6.6 Accounting Practices. Except as required by
generally accepted accounting principles, Athletes will not make any changes in
its accounting methods or practices.
6.7 Merger. Athletes will not merge or consolidate with any
other corporation; sell or lease all or substantially all of its assets and
business; acquire all or substantially all of the stock of the business or
assets of any other person, corporation, or business organization; or agree to
do any of the foregoing.
6.8 Termination of Employee Benefit Plans. At Marquee's
option and on such date or dates (but in no event earlier than two (2) business
days prior to the Closing Date) and in such manner as Marquee shall direct,
Athletes will terminate some or all bonus, stock option, profit sharing,
pension, retirement, incentive, medical, health, disability and other employee
benefit plans
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or arrangements it maintains or sponsors or to which it is obligated to
contribute, including, without limitation, the Athletes and Artists Profit
Sharing Plan. Any such termination will be made in accordance with all
applicable laws, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as
amended.
6.9 Prosecution of Lawsuits. Athletes shall use reasonable
efforts to prosecute to a successful conclusion all of the lawsuits listed on
Schedule 13. Notwithstanding anything else herein contained, prior to the
Closing Date Kaminsky and Oppenheim may withdraw from Athletes, as a dividend
or salary or otherwise, an aggregate of up to $100,000 of the amounts recovered
by Athletes from the lawsuits listed on Schedule 13. In the event that Kaminsky
and Oppenheim have not withdrawn the sum of $100,000 from Athletes prior to the
Closing Date as provided above, then Kaminsky and Oppenheim shall be entitled
to withdraw from Athletes as salary the amounts recovered from said lawsuits
after the Closing Date, as received by Athletes, until Kaminsky and Oppenheim
have so withdrawn prior to and after Closing Date the aggregate sum of
$100,000.
6.10 Delivery of Certain Documents. Within sixty (60) days of
the date hereof, Athletes will deliver to Marquee a balance sheet of Athletes
as of December 31, 1995, together with the related statement of operations,
which shall present fairly the financial condition of Athletes and its results
of operations for the period indicated and which shall be audited by
independent certified public accountants. Within fourteen (14) days of the date
hereof, Athletes will deliver a list or summary description (certified as
correct to the best of their knowledge by authorized officers of Athletes),
which shall be complete and accurate in all material respects as of the date
thereof, of each existing lease, contract, or other commitment of Athletes
extending beyond twelve (12) months, from the date hereof (whether or not
terminable at the option of any party thereto at an earlier date) other than
leases, contracts or commitments furnished pursuant to Section 3.8 hereof.
SECTION 6A -- CONDUCT OF MARQUEE PENDING THE CLOSING DATE
Gutkowski, TSC and Marquee covenant and agree that between
the date of this Agreement and the Closing Date:
6A.1 Capitalization and so forth. Marquee will not purchase,
redeem, retire, or otherwise acquire any shares of its capital stock; issue to
Gutkowski or TSC or any of their affiliates any shares of its capital stock or
any option or right to purchase shares of its capital stock; or agree to do any
of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
6A.2 Business in Ordinary Course. Marquee will conduct its
business in its customary course (it being understood that, notwithstanding
anything else herein contained, Marquee may discharge the liabilities listed on
the Marquee NY Balance Sheet) and will (1) use its reasonable efforts to
preserve its business organization intact and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; and
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(3) make no material change in the customary terms and conditions on which it
extends credit to customers; provided, however, that nothing in this Section
6A.2 shall prohibit compliance by Marquee with, or Marquee's borrowing or
repayment of funds pursuant to, any agreements or other commitments disclosed
by Marquee to Athletes on any Schedule furnished in accordance with Section 4.8
hereof.
6A.3 Employee Compensation. Marquee will pay Gutkowski a
salary at the rate of $325,000 per year. Marquee will not amend or agree to
amend any employment contract, or any proposed employment contract, with
Gutkowski, Michael Trager ("Trager") or Michael Letis ("Letis").
6A.4 Banking Arrangements; Powers of Attorney. Marquee
will not make any change in its banking and safe deposit arrangements and will
not grant any powers of attorney.
6A.5 Accounting Practices. Except as required by
generally accepted accounting principles, Marquee will not make any changes in
its accounting methods or practices.
6A.6 Merger. Except as contemplated by this Agreement,
Marquee will not merge or consolidate with any other corporation; sell or lease
all or substantially all of its assets and business; acquire all or
substantially all of the stock of the business or assets of any other person,
corporation, or business organization; or agree to do any of the foregoing.
SECTION 7 -- ACCESS
From the date hereof to the Closing Date, Marquee and
Athletes shall provide each other with such information and permit each other's
officers and representatives such access to its properties and books and
records as the other may from time to time reasonably request. If the
transactions contemplated by this Agreement and the Merger Agreement are not
consummated, all documents furnished in connection with this Agreement shall be
returned to the party furnishing the same, and all information so received
shall be treated as confidential.
SECTION 8 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF MARQUEE
The obligation of Marquee to consummate the Merger and to
cause Subsidiary to consummate the Merger shall be subject to the fulfillment
on or before the Closing Date of each of the following conditions, unless
waived in writing by Marquee:
8.1 Representations and Warranties. The representations and
warranties of Athletes and the Sellers set forth in Section 3 hereof shall be
true and correct at the Closing Date as if made at and as of that date, except
as affected by the transactions contemplated hereby.
8.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of Athletes.
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8.3 Covenants. Athletes and the Sellers shall have performed
all covenants and agreements set forth in Sections 6 and 7 hereof to be
performed by them on or before the Closing Date.
8.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 (the "Financing") by December 31, 1996.
8.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
8.6 Employment Agreements. On the Closing Date, Kaminsky and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Oppenheim and Marquee shall execute an
employment agreement in the form attached hereto as Exhibit D.
8.7 Legal Opinion. On or before the Closing Date, Marquee and
Subsidiary shall have received an opinion of Baker & McKenzie that the Merger
should be considered a tax-free exchange to the extent of the receipt of
Marquee stock under Section 351 of the Code.
8.8 Certificate. On the Closing Date, Athletes and the
Sellers shall deliver a certificate to Marquee and Subsidiary, in form and
substance reasonably acceptable to Marquee and Subsidiary, to the effect that
all of the representations and warranties of Athletes and the Sellers set forth
in Section 3 hereof are true and correct at the Closing Date as if made at and
as of that date, except as affected by the transactions contemplated hereby,
and that all of the covenants and agreements of Athletes and the Sellers set
forth in Section 6 hereof have been performed.
SECTION 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF ATHLETES
The obligation of Athletes to consummate the Merger shall be
subject to the fulfillment on or before the Closing Date of each of the
following conditions, unless waived in writing by Athletes:
9.1 Representations and Warranties. The representations and
warranties of Gutkowski, TSC and Marquee set forth in Section 4 hereof shall be
true and correct at the Closing Date as if made at and as of that date, except
as affected by the transactions contemplated hereby.
9.2 Shareholder Approval. This Agreement shall have
been unanimously adopted by the shareholders of Marquee and Subsidiary.
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9.3 Covenants. Marquee, Gutkowski, and TSC shall have
performed all covenants and agreements set forth in Sections 4, 6A and 7 hereof
to be performed by them on or before the Closing Date.
9.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 by December 31, 1996.
9.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
9.6 Employment Agreements. On the Closing Date, Kaminsky and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Oppenheim and Marquee shall execute an
employment agreement in the form attached hereto as Exhibit D.
9.7 Legal Opinion. On or before the Closing Date, Athletes
shall have received an opinion of Baker & McKenzie, in form and substance
reasonably acceptable to Athletes, that the Merger should be considered a
tax-free exchange to the extent of the receipt of stock of Marquee under
Section 351 of the Code.
9.8 Certificate. On the Closing Date, Marquee, Gutkowski and
TSC shall deliver a certificate to Athletes and the Sellers, in form and
substance reasonably acceptable to Athletes and the Sellers, to the effect that
all of the representations and warranties of Marquee, Gutkowski and TSC set
forth in Section 4 hereof are true and correct at the Closing Date as if made
at and as of that date, except as affected by the transactions contemplated
hereby, and that all of the covenants and agreements of Marquee, Gutkowski and
TSC set forth in Sections 4 and 6A hereof have been performed.
SECTION 10 -- CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
10.1 Closing Date. The closing date of the transactions
contemplated by this Agreement (the "Closing Date") shall be the date of
consummation of the Financing.
10.2 Effective Date. On the Closing Date, an executed
counterpart of the Merger Agreement shall be filed with the Secretary of State
of the State of New York and the Merger shall become effective upon the
completion of such filing. The date of completion of such filing shall be the
"Effective Date."
10.3 Payment of Purchase Price. On the Closing Date,
Marquee shall pay to the Sellers an aggregate amount equal to $2,500,000 and on
each April 1 following the Closing Date,
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until and including April 1, 2001, Marquee shall pay $150,000 to Kaminsky and
$50,000 to Oppenheim.
SECTION 11 -- TERMINATION
11.1 Circumstances of Termination. This Agreement may be
terminated (notwithstanding approval by the shareholders of any party hereto):
(1) By the mutual consent in writing of the boards of
directors of Marquee and Athletes.
(2) By the board of directors of Marquee if any condition
provided in Section 8 hereof has not been satisfied or waived on or before the
Closing Date.
(3) By the board of directors of Athletes if any condition
provided in Section 9 hereof has not been satisfied or waived on or before the
Closing Date.
(4) By the board of directors of either Marquee or Athletes
if the Closing Date has not occurred by December 31, 1996, unless the closing
of the transactions contemplated hereby shall not have occurred by such date
due to the action or failure to act of such party.
(5) By the board of directors of either Marquee or Athletes
if that certain Acquisition Agreement, dated March 21, 1996, by and among
Marquee, SMTI, Trager, Letis, Gutkowski and TSC is terminated or the merger
contemplated thereby does not occur simultaneously with the Merger.
11.2 Effect of Termination. In the event of a termination of
this Agreement pursuant to Section 11.1 hereof, each party shall pay the costs
and expenses incurred by it in connection with this Agreement and, except only
as provided in the following sentence with respect to Athletes and Marquee, no
party (or any of its officers, directors or shareholders) shall be liable to
any other party for any costs, expenses, damage or loss of anticipated profits
resulting from such termination. In the event that the transactions
contemplated herein fail to be consummated as a result of a wilful breach by
Athletes or Marquee of this Agreement or the Merger Agreement, or the gross
negligence of Athletes or Marquee in performing their obligations hereunder or
thereunder, nothing herein contained shall be deemed to limit the rights and
remedies at law or equity available to Athletes or Marquee against each other
on account of such wilful breach or gross negligence.
11.3 Allocation of Business and Net Income Following
Termination. In the event that this Agreement is terminated in accordance with
the terms hereof, Marquee and Athletes agree (i) that any business of Athletes
or SMTI generated by such entity between the date hereof and the date of
termination of this Agreement and performed by such entity shall become the
client of and remain with the entity that generated such business, (ii) that
the parties hereto shall negotiate in good faith the disposition and treatment
of any business (and the related client) of SMTI or Athletes
17
<PAGE>
generated by Marquee, TSC, Gutkowski, Athletes (in the case of SMTI business)
or SMTI (in the case of Athletes business) between the date hereof and the date
of termination of this Agreement and performed by SMTI or Athletes and with
respect to which a timely Designation, as defined below, was delivered by
Marquee, TSC, Gutkowski, Athletes (in the case of SMTI business) or SMTI (in
the case of Athletes business), and (iii) that any business of Marquee
generated by Athletes, SMTI, Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement and performed by Marquee shall
become the client of and remain with Marquee, and that the net income from any
business described in this clause (iii) shall be allocated as follows:
(a) fifty percent of the net income of Marquee derived from
business generated by either Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement shall be retained by or paid to
Marquee, with the balance to be paid equally and on at least a quarterly basis
to Athletes and SMTI;
(b) fifty percent of the net income of Marquee derived from
business generated by Athletes between the date hereof and the date of
termination of this Agreement and with respect to which a timely Designation
was delivered by Athletes shall be retained by or paid to Athletes on at least
a quarterly basis, with the balance to be paid equally and on at least a
quarterly basis to Marquee and SMTI; and
(c) fifty percent of the net income of Marquee derived from
business generated by SMTI between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by SMTI shall be retained by or paid to SMTI on at least a quarterly basis,
with the balance to be paid equally and on at least a quarterly basis to
Marquee and Athletes.
For purposes of this Section 11.3, business shall be deemed to be business of
the entity (Marquee, Athletes or SMTI) that entered into a contract with the
third party client in connection with such business. Business shall be presumed
to be generated by the entity that entered into the contract with the third
party client unless another of such entities or Gutkowski or TSC notifies in
writing (a "Designation") the others within fifteen (15) days of the date such
contract was entered into that it is disputing such presumption. Such
Designation disputing such presumption shall be deemed accepted by such other
entities unless it is disputed by any such other entities within fifteen (15)
days thereafter, at which point the parties shall arrange a meeting to resolve
the dispute.
SECTION 12 -- GENERAL PROVISIONS
12.1 Further Assurances and Co-Operation. At any time, and
from time to time, after the Effective Date, each party will execute such
additional instruments and take such action as may be reasonably requested by
the other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this Agreement.
At any time, and from time to time, during the period commencing on the date
hereof and ending on the third (3rd) anniversary of the Effective Date,
Athletes agrees to use its best efforts to cause its independent
18
<PAGE>
certified public accountants to audit Athletes' financial statements in
accordance with generally accepted auditing standards and to furnish such
financial statements to Marquee in proper form to be included in a Registration
Statement filed under the Securities Act of 1933, as amended, and to furnish
all necessary reports and consents as may be required to be included in such
Registration Statement or offering memorandum.
12.2 Indemnity. (a) The Sellers hereby jointly and severally
agree to indemnify and hold each of Marquee and Subsidiary harmless from any
and all losses, claims and damages which Marquee and Subsidiary may suffer or
incur and which arise out of the breach by Athletes or the Sellers of any
representation, warranty, covenant or agreement set forth in Section 3 or 6
hereof, including, but not limited to, Section 6.8 hereof. The amount of
Kaminsky's indemnity hereunder shall be limited to $500,000 and the amount of
Oppenheim's indemnity hereunder shall be limited to $250,000.
(b) Gutkowski and TSC hereby jointly and severally agree to
indemnify and hold each of the Sellers and Athletes harmless from any and all
losses, claims and damages (including, but not limited to, reasonable
attorneys' fees) which the Sellers or Athletes may suffer or incur and which
arise out of the breach by Gutkowski, TSC or Marquee of any representation,
warranty, covenant or agreement set forth in Sections 4 or 6A hereof. The
amount of each of Gutkowski's and TSC's indemnity hereunder shall be limited to
$250,000.
12.3 Survival of Representations and Warranties. The parties
hereto agree that all representations and warranties made in this Agreement or
in any Schedule delivered pursuant to this Agreement shall survive the Closing
Date for a period of six (6) months and that any actions in respect of breaches
thereof, including any action under Section 12.2 hereof, must be commenced
within such period.
12.4 Waiver. Any failure on the part of either party hereto
to comply with any of its obligations, agreements, or conditions hereunder may
be waived in writing by the party to whom such compliance is owed.
12.5 Brokers. Each party represents to the other parties that
no broker or finder has acted for it in connection with this Agreement and
agrees to indemnify and hold harmless the other parties against any fee, loss,
or expense arising out of claims by brokers or finders employed or alleged to
have been employed by it.
12.6 Notices. All notices hereunder shall be in writing and
shall be delivered in person or given by registered or certified mail, postage
prepaid, and sent to the parties at the respective addresses above set forth.
Any party may designate any other address to which notice shall be given by
giving notice to the others of such change of address in the manner herein
provided.
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<PAGE>
12.7 Entire Agreement. This Agreement and the Letter
Agreement constitute the entire agreement between the parties and supersede and
cancel any other agreement, representation, or communication, whether oral or
written, between the parties hereto relating to the transactions contemplated
herein or the subject matter hereof, including, but not limited to, that
previously executed Amended and Restated Acquisition Agreement, dated as of
March 21, 1996, among the parties hereto. In the event there is any
inconsistency between the terms of this Agreement and the terms of the Letter
Agreement, the terms of this Agreement shall govern.
12.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.9 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New
York.
12.10 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by any party of its rights under this
Agreement without the written consent of the other parties shall be void.
12.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.12 Amendment. This Agreement may only be amended by a
written instrument which is executed by the parties hereto and Trager and
Letis.
[The rest of this page has intentionally been left blank.]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
THE MARQUEE GROUP INC.
By:__________________________________
Name:
Title:
ATHLETES AND ARTISTS, INC.
By:__________________________________
Name:
Title:
Arthur Kaminsky and Louis J. Oppenheim
hereby agree to the provisions of
Sections 3, 6, 8 and 12 hereof
- -----------------------------
ARTHUR KAMINSKY
- -----------------------------
LOUIS J. OPPENHEIM
The undersigned hereby agree to the amendment and restatement of the foregoing
agreement.
- -----------------------------
MICHAEL TRAGER
- -----------------------------
MICHAEL LETIS
21
<PAGE>
Robert Gutkowski and The Sillerman
Companies, Inc. hereby agree to the
provisions of Sections 4, 6A, 9 and 12 hereof
- ------------------------------
ROBERT GUTKOWSKI
THE SILLERMAN COMPANIES, INC.
By:__________________________________
Name:
Title:
22
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), dated
as of the ____ of _________, 1996, pursuant to Article 9 of the Business
Corporation Law of the State of New York, by and between Athletes Acquisition
Corp., a New York corporation ("Subsidiary"), and Athletes and Artists, Inc., a
New York corporation ("Athletes") (the two parties being sometimes collectively
referred to as the "Constituent Corporations").
WHEREAS, Subsidiary is a corporation duly organized and
existing under the laws of the State of New York, with authorized capital stock
of [ ] shares of Common Stock, par value $[ ] per share, all of which
immediately prior to the Effective Date, as defined in Section 1.7 hereof, will
be issued and outstanding and held by The Marquee Group, Inc., a Delaware
corporation ("Marquee");
WHEREAS, Athletes is a corporation duly organized and
existing under the laws of the State of New York, with authorized capital stock
of 20,000 shares of Common Stock, par value $1.00 per share, of which 15 shares
are issued and outstanding; and
WHEREAS, the boards of directors and stockholders of Athletes
and Subsidiary have adopted resolutions declaring advisable the proposed merger
(the "Merger") of Subsidiary with and into Marquee upon the terms and
conditions hereinafter set forth, in a transaction which is intended to qualify
as a tax-free exchange to the extent of the receipt of stock of Marquee under
Section 351 of the United States Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Constituent Corporations agree to effect
the Merger provided for in this Merger Agreement on the terms and conditions
set forth herein.
SECTION 1. GENERAL
1.1 The Merger. On the Effective Date, Subsidiary shall
be merged with and into Athletes, with Athletes being the surviving
corporation (the "Surviving Corporation"). The Surviving Corporation shall
retain the name of "Athletes and Artists, Inc."
1.2 Capitalization. The number of authorized shares of the
capital stock of the Surviving Corporation shall be 1,000 shares of Common
Stock, par value $.01 per share.
1.3 Certificate of Incorporation and Bylaws. At the
Effective Date, the Certificate of Incorporation of Athletes shall be and
remain the Certificate of Incorporation of the Surviving Corporation, except
that such Certificate of Incorporation shall automatically be amended to the
extent provided in Section 1.2, and until further amended shall be and remain
the Certificate of Incorporation of the Surviving Corporation. At the Effective
Date, the Bylaws of
<PAGE>
Athletes shall be and remain the Bylaws of the Surviving Corporation until
altered, amended, or repealed.
1.4 Directors and Officers. On the Effective Date, the
directors of the Surviving Corporation shall be the persons elected by the
stockholder of the Surviving Corporation on such date, and they shall hold
office until their successors have been elected and have qualified in
accordance with law and the Bylaws of the Surviving Corporation. On the
Effective Date, the officers of the Surviving Corporation shall be the persons
appointed by the board of directors of the Surviving Corporation on such date,
and they shall hold office until their successors have been appointed and have
qualified in accordance with law and the Bylaws of the Surviving Corporation.
1.5 Property and Liabilities of Constituent Corporations. On
the Effective Date, the separate existence of Subsidiary shall cease and
Subsidiary shall be merged into the Surviving Corporation. The Surviving
Corporation shall, from and after the Effective Date, possess all the rights,
privileges, powers, and franchises of whatsoever nature and description, public
and private, and be subject to all the restrictions, disabilities and duties of
each of the Constituent Corporations; and all rights, privileges, powers, and
franchises of each of the Constituent Corporations, and all property, real,
personal, and mixed, and debts due to either of the Constituent Corporations on
whatever account as well for stock subscriptions as all other things in action
or belonging to each of the Constituent Corporations shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the several and
respective Constituent Corporations, and the title to any real estate vested by
deed or otherwise in any of the Constituent Corporations shall not revert or be
in any way impaired by reason of such Merger. All rights of creditors and all
liens upon the property of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities, and
duties had been incurred or contracted by it. Any claim existing or action or
proceeding, whether civil, criminal, or administrative, pending by or against
either Constituent Corporation may be prosecuted to judgment or decree as if
such Merger had not taken place, or the Surviving Corporation may be
substituted in such action or proceeding.
1.6 Further Assurances. Both Athletes and Subsidiary agree
that at any time, or from time to time, as and when requested by the Surviving
Corporation, or by its successors and assigns, it will execute and deliver, or
cause to be executed and delivered in its name by its last acting officers, or
by the corresponding officers of the Surviving Corporation, all such
conveyances, assignments, transfers, deeds, or other instruments, and will take
or cause to be taken such further or other action as the Surviving Corporation,
its successors or assigns may deem necessary or desirable in order to evidence
the transfer, vesting, or devolution of any property, right, privilege, or
franchise or to vest or perfect in or confirm to the Surviving Corporation, its
successors and assigns, title to and possession of all the property, rights,
2
<PAGE>
privileges, powers, immunities, franchises, and interests referred to in this
Section 1 and otherwise to carry out the intent and purposes hereof.
1.7 Effective Date. This Merger Agreement shall become
effective at the close of business on the day (the "Effective Date") on which
the filing of a fully-executed copy of this Merger Agreement with the office of
the Secretary of State of the State of New York is completed.
SECTION 2. CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Stock of Subsidiary. Each share of capital stock of
Subsidiary issued and outstanding immediately prior to the Effective Date shall
thereupon be converted into and become one share of Common Stock of the
Surviving Corporation. Each such share of Common Stock issued pursuant to this
Section 2.1 shall be fully-paid and nonassessable.
2.2 Stock of Athletes. Each share of Common Stock of Athletes
issued and outstanding immediately prior to the Effective Date (excluding
shares held by Athletes as treasury stock, which shares shall be canceled and
extinguished on the Effective Date) shall upon the Effective Date, by virtue of
the Merger and without any action on the part of the holder thereof, be
exchanged for and converted into and become (1) [ ] shares of fully paid and
nonassessable Common Stock of Marquee, par value $.01 per share ("Marquee
Common Stock"), (2) $166,666.67 and (3) such additional payments as are set
forth in that certain Acquisition Agreement dated as of March 21, 1996 by and
between Marquee, Athletes, Arthur Kaminsky, Louis J. Oppenheim, Robert
Gutkowski and The Sillerman Companies, Inc. The Common Stock of Athletes so
exchanged and converted is herein sometimes referred to as "Converted Athletes
Stock."
2.3 Exchange of Stock Certificates. As promptly as
practicable after the Effective Date, each holder of an outstanding certificate
or certificates theretofore representing shares of Converted Athletes Stock
shall surrender the same to an agent or agents designated by the Surviving
Corporation, and shall thereupon be entitled to receive in exchange therefor
certificates representing the number of shares of Marquee Common Stock and the
amount of cash as determined in accordance with Section 2.2. Dividends payable
after the Effective Date to holders of record in respect of shares of Marquee
Common Stock into which certificates for shares of Converted Athletes Stock
shall be exchangeable shall not be paid to holders of such certificates until
their certificates are surrendered for exchange as aforesaid.
2.4 Fractional Shares. No fractional shares of Marquee Common
Stock and no scrip or certificates therefor will be issued in connection with
the Merger, and no holder of fractional shares will be entitled to voting,
dividend, or any other rights as a stockholder with respect to such fractional
interest.
3
<PAGE>
SECTION 3. MISCELLANEOUS
3.1 Counterparts. This Merger Agreement may be executed in
any number of counterparts or may be, where the same are not required,
certified or otherwise delivered without the testimonium clause and signature;
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one Merger Agreement.
3.2 Acquisition Agreement. The obligations of Athletes
and Subsidiary to effect the Merger shall be subject to all of the terms and
conditions of the Acquisition Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Merger Agreement as of the date set forth above.
ATHLETES ACQUISITION CORP.
By:__________________________________
Name:
Title:
ATHLETES AND ARTISTS, INC.
By:__________________________________
Name:
Title:
4
AMENDED AND RESTATED ACQUISITION AGREEMENT
AMENDED AND RESTATED ACQUISITION AGREEMENT, dated as of the
21st day of March, 1996, by and among The Marquee Group Inc., a Delaware
corporation, having an office at 150 East 58th Street, New York, New York 10155
("Marquee"); Sports Marketing & Television International, Inc., a Connecticut
corporation, having an office at 410 Greenwich Avenue, Greenwich, Connecticut
06830 ("SMTI"); Michael Trager ("Trager") and Michael Letis ("Letis"),
individuals having an address at 410 Greenwich Avenue, Greenwich, Connecticut
06830 (Trager and Letis are collectively referred to herein as the "Sellers"
and individually as a "Seller"); Robert Gutkowski ("Gutkowski"), an individual
having an address at 152 West 57th Street, New York, New York 10019; and The
Sillerman Companies, Inc. ("TSC"), a corporation having an address at 150 East
58th Street, New York, New York 10155.
WHEREAS, Marquee and SMTI have entered into a letter
agreement dated December 7, 1995 (the "Letter Agreement"), whereby Marquee has
agreed to acquire SMTI, and SMTI has agreed to be acquired by Marquee, on the
terms and conditions hereinafter set forth;
WHEREAS, the boards of directors and stockholders of Marquee
and SMTI each have adopted resolutions declaring advisable the acquisition of
SMTI by Marquee on the terms and conditions hereinafter set forth, whereby the
outstanding Common Stock of SMTI will be converted into Common Stock of Marquee
and cash in a transaction which, when considered with other related
transactions occurring on or about the same time, is intended to qualify as an
exchange to the extent of the receipt of stock of Marquee under Section 351 of
the United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties hereto have previously entered into an
Acquisition Agreement, dated as of March 21, 1996, and such parties deem it to
be in their respective best interests to amend and restate such agreement and,
to that end, hereby amend and restate such agreement.
NOW, THEREFORE, the parties to this Agreement agree as
follows:
SECTION 1 -- MERGER
1.1 Agreement to Merger. Subject to the terms and conditions
herein set forth, SMTI and Marquee agree to effect a merger (the "Merger") of a
wholly-owned subsidiary of Marquee to be formed for the purpose of effecting
the Merger (the "Subsidiary") with and into SMTI, with SMTI as the surviving
corporation, in accordance with the Agreement and Plan of Merger attached
hereto as Exhibit A (the "Merger Agreement").
1.2 Purchase Price. The aggregate purchase price for all of
the issued and outstanding shares of capital stock of SMTI shall be $8,000,000,
which shall be payable in accordance with the provisions set forth in Section
10.3 hereof, and that number of shares of the Common Stock, par value $.01 per
share (the "Common Stock") of Marquee as is equal to
<PAGE>
four-thirteenths (4/13) of the total number of shares of Common Stock of
Marquee held by (i) the shareholders of SMTI, (ii) the shareholders of Athletes
(as defined in Section 4.3 hereof), (iii) Gutkowski and (iv) TSC in the
aggregate (collectively, the "Management Stock") immediately after the Closing
Date (as defined in Section 10.1 hereof). If necessary, on or prior to the
Closing Date, Marquee will make whatever adjustments in its issued and
outstanding shares of Common Stock as are required so that, immediately after
the Closing Date, the shareholders of SMTI will own, in the aggregate, that
number of shares of Common Stock of Marquee equal to four-thirteenths (4/13) of
the total number of shares of Management Stock.
1.3 Marquee Common Stock. Marquee will make available to
Subsidiary a sufficient number of shares of Common Stock of Marquee and a
sufficient amount of cash in order to effect the Merger pursuant to the Merger
Agreement.
1.4 Per Share Purchase Price. The number of shares of Common
Stock of Marquee to be received for each issued and outstanding share of
capital stock of SMTI, as set forth in Section 2.2 of the Merger Agreement,
shall be calculated on or prior to the Closing Date.
SECTION 2 -- CONVERSION OF STOCK OF SMTI
2.1 Conversion of Shares. The manner of converting the shares
of SMTI into shares of Common Stock of Marquee and cash shall be as set forth
in Section 2 of the Merger Agreement.
2.2 Issuance of Cash to Certain Individuals. On the Closing
Date, Marquee will distribute to designees of Trager and Letis an aggregate of
$325,000 and the amount paid to Trager and Letis will be reduced by such
amount. Such amount will be considered part of the purchase price for the
issued and outstanding shares of capital stock of SMTI.
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND SMTI
The Sellers and SMTI jointly and severally represent and
warrant to Marquee that:
3.1 Organization and Good Standing. SMTI is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Connecticut and has corporate power to own its property and to carry
on its business as it is now being conducted. SMTI is qualified to do business
in the State of New York. Copies of SMTI's Certificate of Incorporation and
Bylaws (certified to be correct by the Secretary of SMTI) have been delivered
to Marquee and are complete and correct as at the date hereof. SMTI's minute
books contain a complete and accurate record of all meetings and other
corporate action of its shareholders and board of directors.
3.2 Capitalization. SMTI's authorized capital stock
consists of 5,000 shares of Common Stock, no par value per share, 4,000 of
which are issued and outstanding. No shares are held in SMTI's treasury. All of
the outstanding shares of Common Stock of SMTI are validly issued, fully paid,
and nonassessable. There are no outstanding options, agreements, contracts,
calls,
2
<PAGE>
or commitments of any character which would require the issuance by SMTI of any
capital stock. All of the issued and outstanding Common Stock of SMTI are owned
by Trager and Letis, free and clear of any liens, claims or charges of any
nature. Their ownership of shares of Common Stock of SMTI is as set forth
below:
<TABLE>
<CAPTION>
Name No. of Shares
- ---- -------------
<S> <C>
Michael Trager 2,000
Michael Letis 2,000
</TABLE>
3.3 Subsidiaries. SMTI has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association or
other business entity.
3.4 Financial Statements. SMTI has delivered to Marquee
copies of the following financial statements, all of which have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods indicated:
(1) 1995 Financial Statements. Balance sheet of
SMTI as of December 31, 1995 (the "SMTI Balance Sheet"), together with the
related statement of operations, which present fairly as of their date the
financial condition of SMTI and its results of operations for the period
indicated.
(2) 1993 and 1994 Financial Statements. Balance
sheet of SMTI as of December 31, 1993 and 1994, together with the related
statements of operations, which present fairly as of their date the financial
condition of SMTI and its results of operations for the periods indicated.
3.5 Absence of Undisclosed Liabilities. SMTI did not have at
the date of the SMTI Balance Sheet any liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent, or otherwise), of a nature
that would be reflected or reserved against in a corporate balance sheet or
disclosed in the notes thereto prepared in accordance with generally accepted
accounting principles that are not reflected or reserved against in the SMTI
Balance Sheet or disclosed in the notes thereto.
3.6 Absence of Certain Changes. There have not been
since the date of the SMTI Balance Sheet any changes of the following nature:
(1) Business, properties and financial
condition. Any material adverse change in SMTI's properties, business,
financial condition, or results of operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
SMTI; any granting of any stock option or right to purchase shares of capital
stock or any issuance of any security convertible into shares of capital stock
of SMTI; any purchase, redemption, retirement, or other acquisition of any
shares of capital
3
<PAGE>
stock by SMTI; any agreement to do any of the foregoing; or any declaration,
setting aside, or payment of any dividend or other distribution in respect of
the capital stock of SMTI.
(3) Sales, leases, borrowings and so forth. Any
sale or lease of SMTI's property or assets with an original cost in excess of
$10,000 for any single item or any mortgage or pledge of any properties or
assets of SMTI, or any borrowing incurred, assumed, or guaranteed by SMTI.
(4) Employee benefit plans and certain salaries.
Any employment contract in excess of $50,000 per year, bonus, stock option,
profit sharing, pension, retirement, incentive, medical, health, disability,
other employee benefit or similar arrangement or plan instituted, agreed to, or
amended, nor any contributions or other payments made (nor contribution or
other obligations incurred) with respect to existing arrangements and plans of
the aforementioned types, except in accordance with past practices (and no such
plans have any unfunded liability).
3.7 Litigation and so forth. Except as set forth in Schedule
13 described in Section 3.8(13) hereof, there is no litigation, proceeding, or
governmental investigation pending or, to the knowledge of SMTI, threatened
against or relating to SMTI, its properties or business or the transactions
contemplated by this Agreement; nor, to the knowledge of SMTI, is there any
reasonable basis for any such actions or for any claims; and SMTI is not a
party to or subject to the provisions of any judicial decree or judgment or any
order of any governmental agency.
3.8 Lists of properties, contracts and so forth. SMTI has
delivered to Marquee lists or summary descriptions (certified as correct to the
best of their knowledge by authorized officers of SMTI), each of which is
complete and accurate in all material respects as of the date hereof, of the
following:
(1) Real property. All real property owned of
record or beneficially or leased by SMTI ("Schedule 1"), accompanied by copies
of the deeds, title insurance policies, and leases relating thereto.
(2) Other property. Inventories and tangible
fixed assets, as shown on SMTI's books, showing, with respect to inventories,
the amounts of raw materials, work-in-process, and finished goods, and with
respect to fixed assets, the total of each of the following categories:
leasehold improvements, machinery and equipment, furniture and fixtures, and
automotive equipment ("Schedule 2").
(3) Insurance policies. All policies of
insurance with respect to SMTI's properties, buildings, machinery, equipment,
furniture, fixtures, operations, and the lives of its directors, officers, and
employees ("Schedule 3").
(4) Certain leases and contracts. Each existing
lease, contract, or other commitment of SMTI involving an aggregate payment by
SMTI of more than $25,000 or to SMTI of more than $50,000 or extending beyond
twelve (12) months from the date hereof (whether or not
4
<PAGE>
terminable at the option of any party thereto at an earlier date) other than
leases, contracts, or commitments furnished pursuant to other paragraphs of
this Section 3.8 ("Schedule 4").
(5) Certain salaried employees. The names and
annual salary rates as of the SMTI Balance Sheet date of SMTI's directors,
officers, employees, and agents whose annual rate of compensation at such date
was $50,000 or more ("Schedule 5").
(6) Labor contracts. Each existing labor
contract to which SMTI is a party ("Schedule 6").
(7) Intellectual property. All of SMTI's
patents, trademarks, trade names, service marks, service names, copyrights, and
registrations and applications therefor; and all patent, trademark, trade name,
service mark, service name, or copyright licenses, assignments, or royalty
agreements to which SMTI is a party ("Schedule 7").
(8) Profit sharing plans and so forth. All
employment contracts, bonus, stock option, profit sharing, pension, retirement,
incentive, medical, health, disability or other employee benefit plans or
arrangements of SMTI ("Schedule 8").
(9) Banks. The name of each bank in which SMTI
has an account or safe deposit box, and the names of all persons authorized to
draw thereon or having access thereto ("Schedule 9").
(10) Powers of attorney. The names of all
persons, if any, holding powers of attorney from SMTI ("Schedule 10").
(11) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar instruments to which SMTI is a party, and all amendments
or modifications of any thereof ("Schedule 11"), with a statement of any as to
which there is any existing default by SMTI.
(12) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
SMTI and, with respect to each, the date of grant or issue, the expiration
date, the number and class of shares subject thereto, and the purchase price
("Schedule 12").
(13) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which SMTI is a party (whether as plaintiff,
defendant, or otherwise), including the damages or relief sought therein, the
name of counsel for SMTI in charge of such matter, and its current status
("Schedule 13").
(14) Material assets. A list of every material
asset used by SMTI in the conduct of its business that is not either owned by
SMTI or leased by or licensed to it under an agreement listed on Schedules 1
through 13 ("Schedule 14").
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(15) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Marquee
pursuant to this Section 3.8) that SMTI would be required to file or describe
in a Registration Statement on Form S-1 filed by SMTI under the Securities Act
of 1933 Act, as amended ("Schedule 15").
3.9 Title. With respect to the property listed in Schedules 1
and 2, SMTI has good and marketable title to the real property stated to be
owned by it, has good title to the leasehold interests in real property stated
to be held by it, and good title to all of the tangible property stated to be
owned by it, in each case free and clear of all liens and encumbrances, except
for (1) liens and encumbrances disclosed in Schedules 1 and 2; (2) the lien of
current taxes not yet due and payable; and (3) such liens by operation of law
and such imperfections of title, and other liens and encumbrances, if any, as
are not substantial in character, amount, or extent and do not interfere with
the present or future use by SMTI of the properties subject thereto or affected
thereby.
SMTI has received no notice of violation of any applicable
zoning regulation, ordinance, or other law, order, regulation, or requirement
relating to its operations or its properties and, so far as is known to SMTI
(1) there is no such violation of a material nature and (2) all buildings and
structures used by SMTI substantially conform with all applicable ordinances,
codes, and regulations.
Except as stated in Schedule 7, SMTI (1) has clear record
title to the patents, trademarks, trade names, service marks, service names,
and copyrights, and registrations and applications therefor, and copyright
registrations listed in Schedule 7 as owned by it; (2) has not entered into any
agreements, contracts, or licenses that would impair free and unencumbered use
by Marquee of the patents, trademarks, trade names, service marks, service
names, or copyrights enumerated in Schedule 7; (3) does not know of any
asserted infringement by it of any patent, trademark, trade name, service mark,
service name, or copyright of another; and (4) does not believe that it is
infringing a patent, trademark, trade name, service mark, service name, or
copyright of another.
3.10 Tax Returns. Except for liabilities with respect to
taxes and interest thereon, to which reference is made in notes to the SMTI
Balance Sheet, the provision for taxes therein is sufficient for the payment of
all accrued and unpaid federal, state, county, and local taxes of SMTI
(including any penalties or interest payable in respect of such taxes), whether
or not disputed, for the period ended December 31, 1995, and for all fiscal
years prior thereto.
3.11 No Violation. The execution of this Agreement and the
Merger Agreement does not, and performance hereof and thereof will not, violate
the provisions of SMTI's Certificate of Incorporation, Bylaws, or any
indenture, agreement, or other instrument to which SMTI is a party, except
insofar as any such instrument may require consent by a lender, mortgagee,
lessor, or other party to such actions, whose consent SMTI agrees to obtain
before the Closing Date.
3.12 Authorization. The execution, delivery, and performance
of this Agreement and the Merger Agreement have been duly authorized and
approved by SMTI's board of directors
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and by all of SMTI's shareholders; this Agreement and the Merger Agreement and
the consummation of the transactions contemplated herein and therein have been
duly and validly authorized by all necessary corporate action on the part of
SMTI; and this Agreement is, and (upon execution and delivery as provided
herein) the Merger Agreement will be, binding upon and enforceable against SMTI
in accordance with their respective terms.
3.13 General. None of the representations or warranties made
by the Sellers or SMTI in this Agreement are false or misleading with respect
to any material fact or omit to state any material fact necessary in order to
make the statements therein contained not misleading.
SECTION 4 -- REPRESENTATIONS, WARRANTIES, COVENANTS, AND AGREEMENTS OF
GUTKOWSKI, TSC AND MARQUEE
Gutkowski, TSC, and Marquee jointly and severally represent
and warrant to, and covenant and agree with, SMTI and the Sellers that:
4.1 Organization and Good Standing. Marquee is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power to own its property and to carry on
its business as it is now being conducted. At the Closing Date Subsidiary will
be a corporation duly organized, validly existing and in good standing under
the laws of the State of Connecticut and have corporate power to own its
property and to carry on its business as it is then being conducted. Copies of
Marquee's Certificate of Incorporation and Bylaws (certified to be correct by
an officer of Marquee) have been delivered to SMTI and are complete and correct
as of the date hereof. Marquee's minute books contain a complete and accurate
record of all meetings and other corporate action of its shareholders and board
of directors. On or prior to the Closing Date Marquee will deliver to SMTI
copies of Subsidiary's Certificate of Incorporation and Bylaws (certified to be
correct by the Secretary of Subsidiary), which shall be complete and correct as
of the date of such delivery. On the Closing Date Subsidiary's minute books
will contain a complete and accurate record of all meetings and other corporate
action of its shareholders and board of directors.
4.2 Capitalization. Marquee's authorized capital stock
consists of 1,000 shares of Common Stock, par value $.01 per share, all of
which are issued and outstanding. No shares are held in Marquee's treasury. All
of the outstanding shares of Common Stock of Marquee are validly issued, fully
paid, and nonassessable. All of the shares of capital stock of Subsidiary to be
issued will be validly issued, fully paid and nonassessable. Other than
Marquee's pending agreements regarding a private placement as described in
Marquee's Confidential Term Sheet dated July 30, 1996, and its initial public
offering, there are no outstanding options, agreements, contracts, calls, or
commitments of any character which would require the issuance by Marquee or
Subsidiary of any capital stock (it being understood that Marquee may, prior to
the Closing Date, issue stock, options or warrants to key employees of or
advisors to Marquee (other than Gutkowski, TSC or any of their affiliates)).
All of the issued and outstanding Common Stock of Marquee is owned by
Gutkowski, TSC and Martin Ehrlich. Their ownership of shares of Common Stock of
Marquee is as set forth below:
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<TABLE>
<CAPTION>
Name No. of Shares
---- -------------
<S> <C>
Robert Gutkowski 333
The Sillerman Companies, Inc. 666
Martin Ehrlich 1
</TABLE>
All of Subsidiary's outstanding shares of Common Stock will be owned by
Marquee.
4.3 Subsidiaries. Marquee has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association, or
other business entity (it being understood that prior to the Closing Date
Marquee (a) will form and own two wholly-owned subsidiaries, Subsidiary and a
wholly-owned subsidiary to be formed for the purpose of effecting the
acquisition of Athletes and Artists, Inc., a New York corporation ("A&A"), by
Marquee by the merger of A&A with and into such subsidiary, and (b) may acquire
all of the outstanding capital stock of The Marquee Group, a Sports, News and
Entertainment Company, Inc., a New York corporation ("Marquee NY") for a
purchase price not to exceed $1,000). Subsidiary will not have any
subsidiaries, nor will it have an ownership interest in any partnership,
corporation, association, or other business entity. Marquee NY does not have
any subsidiaries, nor does it have an ownership interest in any partnership,
corporation, association, or other business entity.
4.4 Financial Statements. Marquee has delivered to SMTI a
copy of an unaudited operating income statement of Marquee as of December 31,
1995 (the "Marquee Balance Sheet") and an unaudited operating income statement
of Marquee NY as of December 31, 1995 (the "Marquee NY Balance Sheet"),
together with the related balance sheets, which present fairly as of their date
the financial condition of Marquee and Marquee NY and their results of
operations for the periods indicated. On or prior to the Closing Date Marquee
will deliver to SMTI a copy of a balance sheet of Subsidiary as of a date no
more than ninety (90) days prior thereto (the "Subsidiary Balance Sheet"),
together with the related statement of operations, which shall present fairly
as of their date the financial condition of Subsidiary and its results of
operations for the period indicated.
4.5 Absence of Undisclosed Liabilities. Marquee did not have
at the date of the Marquee Balance Sheet, Marquee NY did not have at the date
of the Marquee NY Balance Sheet, and Subsidiary will not have at the date of
the Subsidiary Balance Sheet, any liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent or otherwise), of a nature
that would be reflected or reserved against in a corporate balance sheet or
disclosed in the notes thereto prepared in accordance with generally accepted
accounting principles that are not reflected or reserved against in such
balance sheets or disclosed in the notes thereto.
4.6 Absence of Certain Changes. There have not been since the
date of the Marquee Balance Sheet and the Marquee NY Balance Sheet, and at the
Closing Date there will not have been since the date of the Subsidiary Balance
Sheet, any changes of the following nature:
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(1) Business, properties and financial
condition. Any material adverse change in Marquee's, Marquee NY's or
Subsidiary's properties, business, financial condition, or results of
operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Marquee, Marquee NY or Subsidiary; any granting of any stock option or right to
purchase shares of capital stock or any issuance of any security convertible
into shares of capital stock by Marquee, Marquee NY or Subsidiary (except as
contemplated by Section 4.6(4) hereof and as described on Schedule A (as
defined in Section 4.8(1) hereof)); any purchase, redemption, retirement, or
other acquisition of any shares of capital stock by Marquee, Marquee NY or
Subsidiary; other than Marquee's pending agreements regarding a private
placement as described in Marquee's Confidential Term Sheet dated July 30,
1996, and its initial public offering, any agreement to do any of the
foregoing; or any declaration, setting aside, of payment of any dividend or
other distribution in respect of the capital stock of Marquee, Marquee NY or
Subsidiary.
(3) Sales, leases, borrowings and so forth. Any
sale or lease of Marquee, Marquee NY's or Subsidiary's property or assets with
an original cost in excess of $10,000 for any single item or any mortgage or
pledge of any properties or assets of Marquee or Subsidiary, or any borrowing
incurred, assumed, or guaranteed by Marquee or Subsidiary.
(4) Employee benefit plans and certain salaries.
Except for Marquee's employment agreement, dated March 21, 1996, with Gutkowski
and Marquee's employment agreement, dated May 9, 1996, with Martin Ehrlich, any
employment contract in excess of $50,000 per year, bonus, stock option, profit
sharing, pension, retirement, incentive, medical, health, disability, other
employee benefit or similar arrangement or plan instituted, agreed to, or
amended (it being understood that Marquee may, prior to the Closing Date, (a)
issue stock, options or warrants to key employees of or advisors to Marquee
(other than Gutkowski, TSC or any of their affiliates) and (b) to the extent it
has not already done so, obtain medical and dental insurance of the type
required by Section 6 of the employment agreements contemplated by Sections 8.6
and 9.6 hereof); nor any contributions or other payments made (nor
contributions or other obligations incurred) with respect to existing
arrangements and plans of the aforementioned types, except in accordance with
past practices (and no such plans have any unfunded liability).
4.7 Litigation and so forth. There is no litigation,
proceeding, or governmental investigation pending or, to the knowledge of
Marquee, threatened against or relating to Marquee or Marquee NY or any of
their properties or businesses or the transactions contemplated by this
Agreement; nor, to the knowledge of Marquee, is there any reasonable basis for
such actions or for any claims; and neither Marquee nor Marquee NY is a party
to or subject to the provisions of any judicial decree or judgment or any order
of any governmental agency.
4.8 List of Properties, Contracts and So Forth. Marquee
has delivered to SMTI lists or summary descriptions with respect to Marquee and
Marquee NY, and on or prior to the Closing Date Marquee will deliver to SMTI
lists or summary descriptions with respect to Subsidiary
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(in each case certified as correct to the best of their knowledge by authorized
officers of the related entity), each of which is or will be complete and
correct in all material respects as of the date set out therein, of the
following:
(1) Certain leases and contracts. Each lease,
contract or other commitment of Marquee, Marquee NY or Subsidiary involving an
aggregate payment by any of them of more than $25,000 or to any of them of more
than $50,000 or extending beyond twelve months (12) from the date hereof
(whether or not terminable at the option of any party at an earlier date) other
than leases, contracts, or commitments furnished pursuant to other paragraphs
of this Section 4.8 ("Schedule A").
(2) Certain salaried employees. The names and
annual salary rates as of the date of this Agreement of Marquee's, Marquee NY's
and Subsidiary's directors, officers, employees, and agents whose annual rate
of compensation at such date was $50,000 or more ("Schedule B").
(3) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar agreements to which Marquee, Marquee NY or Subsidiary is
a party, and all amendments or modifications of any thereof ("Schedule C"),
with a statement of any as to which there is any existing default by Marquee,
Marquee NY or Subsidiary.
(4) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Marquee, Marquee NY or Subsidiary and, with respect to each, the date of grant
or issue, the expiration date, the number and class of shares subject thereto,
and the purchase price ("Schedule D").
(5) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Marquee, Marquee NY or Subsidiary is a
party (whether as plaintiff, defendant or otherwise), including the damages or
relief sought therein, the name of counsel for Marquee, Marquee NY or
Subsidiary in charge of such matter, and its current status ("Schedule E").
(6) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to SMTI
pursuant to this Section 4.8) that Marquee, Marquee NY or Subsidiary would be
required to file or describe in a Registration Statement on Form S-1 filed by
Marquee, Marquee NY or Subsidiary under the Securities Act of 1933, as amended
("Schedule F").
4.9 Tax Returns. Marquee and Marquee NY have, and prior to
the Closing Date Subsidiary will have, timely filed all tax returns required to
be filed by them and paid all taxes required to be paid for all fiscal periods
prior hereto (in the case of Marquee and Marquee NY) or prior to the Closing
Date (in the case of Subsidiary).
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4.10 No Violation. Marquee's execution of this Agreement does
not and Subsidiary's execution of the Merger Agreement will not, and the
performance hereof and thereof will not, violate the provisions of Marquee's or
Subsidiary's Certificate of Incorporation, Bylaws or any indenture, agreement,
or other instrument to which Marquee is or Subsidiary will be a party, except
insofar as any such instrument may require consent by a lender, mortgagee,
lessor, or other party to such actions, whose consent Marquee or Subsidiary
agree to obtain before the Closing Date.
4.11 Authorization. The execution, delivery, and performance
of this Agreement have been duly authorized and approved by Marquee's board of
directors and by all of its shareholders and the Merger Agreement will be
approved by Subsidiary's board of directors and shareholders; this Agreement
and the consummation of the transactions contemplated herein have been duly and
validly authorized by all necessary corporate action on the part of Marquee;
the Merger Agreement and the consummation of the transactions contemplated
therein will be duly and validly authorized by all necessary corporate action
on the part of Subsidiary; and this Agreement is, and, with respect to
Subsidiary, the Merger Agreement (upon execution and delivery as provided
herein) will be, binding upon and enforceable against Marquee or Subsidiary, as
the case may be, in accordance with their terms.
4.12 General. None of the representations or warranties made
by Marquee, Gutkowski or TSC in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 5 -- S CORPORATION MATTERS
Immediately prior to the Closing Date, SMTI will declare a
dividend to its shareholders equal to forty percent (40%) of the increase in
its accumulated adjustments account, as defined in Section 1368(e) of the Code,
for the period from the date hereof until the Closing Date, which dividend
shall be paid not later than the last day of SMTI's post-termination period, as
defined in Section 1377(b) of the Code.
SECTION 6 -- CONDUCT OF SMTI PENDING THE CLOSING DATE
The Sellers and SMTI covenant and agree that between the date
of this Agreement and the Closing Date:
6.1 Certificate of Incorporation and Bylaws. SMTI will
not change its Certificate of Incorporation or Bylaws.
6.2 Capitalization and so forth. SMTI will not make any
change in its authorized, issued, or outstanding capital stock; grant any stock
option or right to purchase shares of its capital stock; issue any security
convertible into shares of its capital stock; purchase, redeem, retire, or
otherwise acquire any shares of its capital stock; or agree to do any of the
foregoing; or declare, set aside, or pay any dividend or other distribution in
respect of its capital stock.
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6.3 Business in Ordinary Course. SMTI will conduct its
business in its customary course and will (1) use its reasonable efforts to
preserve its business organization intact, to keep available to Marquee the
services of its present officers and employees, and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; (3) keep in force at
no less than their present limit all policies of insurance listed in Schedule
3; and (4) make no material change in the customary terms and conditions on
which it extends credit to customers; provided, however, that nothing in this
Section 6.3 shall prohibit compliance by SMTI with, or SMTI's borrowing or
repayment of funds pursuant to, any agreements or other commitments disclosed
by SMTI to Marquee on any Schedule furnished in accordance with Section 3.8
hereof.
6.4 Employee Compensation. SMTI will pay Trager a salary at
the rate of $300,000 per year and Letis a salary at the rate of $300,000 per
year. SMTI will not institute, agree to, or amend any employment contract
requiring the payment by SMTI of a salary or bonus in excess of $50,000 per
year, or any bonus, stock option, profit sharing, pension, retirement,
incentive, medical, health, disability, other employee benefit or similar
arrangement or plan, except to grant normal individual increases in
compensation in accordance with established agreements or procedures and except
as may be necessary to comply with Section 6.8 hereof.
6.5 Banking Arrangements; Powers of Attorney. SMTI will
not make any change in its banking and safe deposit arrangements and will not
grant any powers of attorney.
6.6 Accounting Practices. Except as required by
generally accepted accounting principles, SMTI will not make any changes in its
accounting methods or practices.
6.7 Merger. SMTI will not merge or consolidate with any other
corporation; sell or lease all or substantially all of its assets and business;
acquire all or substantially all of the stock of the business or assets of any
other person, corporation, or business organization; or agree to do any of the
foregoing.
6.8 Termination of Employee Benefit Plans. At Marquee's
option and on such date or dates (but in no event earlier than two (2) business
days prior to the Closing Date) and in such manner as Marquee shall direct,
SMTI will terminate some or all bonus, stock option, profit sharing, pension,
retirement, incentive, medical, health, disability and other employee benefit
plans or arrangements it maintains or sponsors or to which it is obligated to
contribute, including, without limitation, the Sports Marketing and Television,
Inc. Target Plan. Any such termination will be made in accordance with all
applicable laws, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as
amended.
6.9 Delivery of Financial Statements. Within sixty (60) days
of the date hereof, SMTI will deliver to Marquee a balance sheet of SMTI as of
December 31, 1995, together with the related statement of operations, which
shall present fairly the financial condition of SMTI and its
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<PAGE>
results of operations for the period indicated and which shall be audited by
independent certified public accountants.
SECTION 6A -- CONDUCT OF MARQUEE PENDING THE CLOSING DATE
Gutkowski, TSC and Marquee covenant and agree that between
the date of this Agreement and the Closing Date:
6A.1 Capitalization and so forth. Marquee will not purchase,
redeem, retire, or otherwise acquire any shares of its capital stock; issue to
Gutkowski or TSC or any of their affiliates any shares of its capital stock or
any option or right to purchase shares of its capital stock; or agree to do any
of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
6A.2 Business in Ordinary Course. Marquee will conduct its
business in its customary course (it being understood that, notwithstanding
anything else herein contained, Marquee may discharge the liabilities listed on
the Marquee NY Balance Sheet) and will (1) use its reasonable efforts to
preserve its business organization intact and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; and (3) make no
material change in the customary terms and conditions on which it extends
credit to customers; provided, however, that nothing in this Section 6A.2 shall
prohibit compliance by Marquee with, or Marquee's borrowing or repayment of
funds pursuant to, any agreements or other commitments disclosed by Marquee to
SMTI on any Schedule furnished in accordance with Section 4.8 hereof.
6A.3 Employee Compensation. Marquee will pay Gutkowski a
salary at the rate of $325,000 per year. Marquee will not amend or agree to
amend any employment contract, or any proposed employment contract, with
Gutkowski, Arthur Kaminsky ("Kaminsky") or Louis Oppenheim ("Oppenheim").
6A.4 Banking Arrangements; Powers of Attorney. Marquee
will not make any change in its banking and safe deposit arrangements and will
not grant any powers of attorney.
6A.5 Accounting Practices. Except as required by
generally accepted accounting principles, Marquee will not make any changes in
its accounting methods or practices.
6A.6 Merger. Except as contemplated by this Agreement,
Marquee will not merge or consolidate with any other corporation; sell or lease
all or substantially all of its assets and business; acquire all or
substantially all of the stock of the business or assets of any other person,
corporation, or business organization; or agree to do any of the foregoing.
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SECTION 7 -- ACCESS
From the date hereof to the Closing Date, Marquee and SMTI
shall provide each other with such information and permit each other's officers
and representatives such access to its properties and books and records as the
other may from time to time reasonably request. If the transactions contemplated
by this Agreement and the Merger Agreement are not consummated, all documents
furnished in connection with this Agreement shall be returned to the party
furnishing the same, and all information so received shall be treated as
confidential.
SECTION 8 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF MARQUEE
The obligation of Marquee to consummate the Merger and to
cause Subsidiary to consummate the Merger shall be subject to the fulfillment
on or before the Closing Date of each of the following conditions, unless
waived in writing by Marquee:
8.1 Representations and Warranties. The representations and
warranties of SMTI and the Sellers set forth in Section 3 hereof shall be true
and correct at the Closing Date as if made at and as of that date, except as
affected by the transactions contemplated hereby.
8.2 Shareholder Approval. This Agreement shall have
been unanimously adopted by the shareholders of SMTI.
8.3 Covenants. SMTI and the Sellers shall have performed all
covenants and agreements set forth in Sections 6 and 7 hereof to be performed
by them on or before the Closing Date.
8.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 (the "Financing") by December 31, 1996.
8.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
8.6 Employment Agreements. On the Closing Date, Trager and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Letis and Marquee shall execute an employment
agreement in the form attached hereto as Exhibit D.
8.7 Legal Opinion. On or before the Closing Date, Marquee and
Subsidiary shall have received an opinion of Baker & McKenzie that the Merger
should be considered a tax-free exchange to the extent of the receipt of stock
of Marquee under Section 351 of the Code.
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8.8 Certificate. On the Closing Date, SMTI and the Sellers
shall deliver a certificate to Marquee and Subsidiary, in form and substance
reasonably acceptable to Marquee and Subsidiary, to the effect that all of the
representations and warranties of SMTI and the Sellers set forth in Section 3
hereof are true and correct at the Closing Date as if made at and as of that
date, except as affected by the transactions contemplated hereby, and that all
of the covenants and agreements of SMTI and the Sellers set forth in Section 6
hereof have been performed.
SECTION 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF SMTI
The obligation of SMTI to consummate the Merger shall be
subject to the fulfillment on or before the Closing Date of each of the
following conditions, unless waived in writing by SMTI:
9.1 Representations and Warranties. The representations and
warranties of Gutkowski, TSC and Marquee set forth in Section 4 hereof shall be
true and correct at the Closing Date as if made at and as of that date, except
as affected by the transactions contemplated hereby.
9.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of Marquee and Subsidiary.
9.3 Covenants. Marquee, Gutkowski, and TSC shall have
performed all covenants and agreements set forth in Sections 4, 6A and 7 hereof
to be performed by them on or before the Closing Date.
9.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 by December 31, 1996.
9.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
9.6 Employment Agreements. On the Closing Date, Trager and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Letis and Marquee shall execute an employment
agreement in the form attached hereto as Exhibit D.
9.7 Legal Opinion. On or before the Closing Date, SMTI shall
have received an opinion of Baker & McKenzie, in form and substance reasonably
acceptable to SMTI, that the Merger should be considered a tax-free exchange to
the extent of the receipt of stock of Marquee under Section 351 of the Code.
9.8 Certificate. On the Closing Date, Marquee, Gutkowski and
TSC shall deliver a certificate to SMTI and the Sellers, in form and substance
reasonably acceptable to SMTI and the
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Sellers, that all of the representations and warranties of Marquee, Gutkowski
and TSC set forth in Section 4 hereof are true and correct at the Closing Date
as if made at and as of that date, except as affected by the transactions
contemplated hereby, and that all of the covenants and agreements of Marquee,
Gutkowski and TSC set forth in Sections 4 and 6A hereof have been performed.
SECTION 10 -- CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
10.1 Closing Date. The closing date of the transactions
contemplated by this Agreement (the "Closing Date") shall be the date of
consummation of the Financing.
10.2 Effective Date. On the Closing Date, an executed
counterpart of the Merger Agreement shall be filed with the Secretary of State
of the State of Connecticut and the Merger shall become effective upon the
completion of such filing. The date of completion of such filing shall be the
"Effective Date."
10.3 Payment of Purchase Price. On the Closing Date, Marquee
shall pay to the Sellers an aggregate amount equal to $6,500,000 and on each
April 1 following the Closing Date, until and including April 1, 2001, Marquee
shall pay $150,000 to each of Letis and Trager.
SECTION 11 -- TERMINATION
11.1 Circumstances of Termination. This Agreement may be
terminated (notwithstanding approval by the shareholders of any party hereto):
(1) By the mutual consent in writing of the boards of
directors of Marquee and SMTI.
(2) By the board of directors of Marquee if any condition
provided in Section 8 hereof has not been satisfied or waived on or before the
Closing Date.
(3) By the board of directors of SMTI if any condition
provided in Section 9 hereof has not been satisfied or waived on or before the
Closing Date.
(4) By the board of directors of either Marquee or SMTI if
the Closing Date has not occurred by December 31, 1996, unless the closing of
the transactions contemplated hereby shall not have occurred by such date due
to the action or failure to act of such party.
(5) By the board of directors of either Marquee or SMTI if
that certain Acquisition Agreement, dated March 21, 1996, by and among Marquee,
A&A, Kaminsky, Oppenheim, Gutkowski and TSC is terminated or the merger
contemplated thereby does not occur simultaneously with the Merger.
11.2 Effect of Termination. In the event of a termination of
this Agreement pursuant to Section 11.1 hereof, each party shall pay the costs
and expenses incurred by it in
16
<PAGE>
connection with this Agreement and, except only as provided in the following
sentence, no party (or any of its officers, directors or shareholders) shall be
liable to any other party for any costs, expenses, damage or loss of
anticipated profits resulting from such termination. In the event that the
transactions contemplated herein fail to be consummated as a result of a wilful
breach by SMTI or Marquee of this Agreement or the Merger Agreement, or the
gross negligence of SMTI or Marquee in performing their obligations hereunder
or thereunder, nothing herein contained shall be deemed to limit the rights and
remedies at law or equity available to SMTI or Marquee against each other on
account of such wilful breach or gross negligence.
11.3 Allocation of Business and Net Income Following
Termination. In the event that this Agreement is terminated in accordance with
the terms hereof, Marquee and SMTI agree (i) that any business of SMTI or A&A
generated by such entity between the date hereof and the date of termination of
this Agreement and performed by such entity shall become the client of and
remain with the entity that generated such business, (ii) that the parties
hereto shall negotiate in good faith the disposition and treatment of any
business (and the related client) of SMTI or A&A generated by Marquee, TSC,
Gutkowski, A&A (in the case of SMTI business) or SMTI (in the case of A&A
business) between the date hereof and the date of termination of this Agreement
and performed by SMTI or A&A and with respect to which a timely Designation, as
defined below, was delivered by Marquee, TSC, Gutkowski, A&A (in the case of
SMTI business) or SMTI (in the case of A&A business), and (iii) that any
business of Marquee generated by SMTI, A&A, Marquee, TSC or Gutkowski between
the date hereof and the date of termination of this Agreement and performed by
Marquee shall become the client of and remain with Marquee, and that the net
income from any business described in this clause (iii) shall be allocated as
follows:
(a) fifty percent of the net income of Marquee derived from
business generated by either Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement shall be retained by or paid to
Marquee, with the balance to be paid equally and on at least a quarterly basis
to A&A and SMTI;
(b) fifty percent of the net income of Marquee derived from
business generated by A&A between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by A&A shall be retained by or paid to A&A on at least a quarterly basis, with
the balance to be paid equally and on at least a quarterly basis to Marquee and
SMTI; and
(c) fifty percent of the net income of Marquee derived from
business generated by SMTI between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by SMTI shall be retained by or paid to SMTI on at least a quarterly basis,
with the balance to be paid equally and on at least a quarterly basis to
Marquee and A&A.
For purposes of this Section 11.3, business shall be deemed to be business of
the entity (Marquee, A&A or SMTI) that entered into a contract with the third
party client in connection with such business. Business shall be presumed to be
generated by the entity that entered into the contract with
17
<PAGE>
the third party client unless another of such entities or Gutkowski or TSC
notifies in writing (a "Designation") the others within fifteen (15) days of
the date such contract was entered into that it is disputing such presumption.
Such Designation disputing such presumption shall be deemed accepted by such
other entities unless it is disputed by any such other entities within fifteen
(15) days thereafter, at which point the parties shall arrange a meeting to
resolve the dispute.
SECTION 12 -- GENERAL PROVISIONS
12.1 Further Assurances and Co-Operation. At any time, and
from time to time, after the Effective Date, each party will execute such
additional instruments and take such action as may be reasonably requested by
the other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this Agreement.
At any time, and from time to time, the period commencing on the date hereof
and ending on the third (3rd) anniversary of the Effective Date, SMTI agrees to
use its best efforts to cause its independent certified public accountants to
audit SMTI's financial statements in accordance with generally accepted
auditing standards and to furnish such financial statements to Marquee in
proper form to be included in a Registration Statement filed under the
Securities Act of 1933, as amended, and to furnish all necessary reports and
consents as may be required to be included in such Registration Statement or
offering memorandum.
12.2 Indemnity. (a) The Sellers hereby jointly and severally
agree to indemnify and hold each of Marquee and Subsidiary harmless from any
and all losses, claims and damages which Marquee and Subsidiary may suffer or
incur and which arise out of the breach by SMTI or the Sellers of any
representation, warranty, covenant or agreement set forth in Section 3 or 6
hereof, including, but not limited to Section 6.8 hereof. The amount of each
Seller's indemnity hereunder shall be limited to $1,000,000.
(b) Gutkowski and TSC hereby jointly and severally agree to
indemnify and hold each of the Sellers and SMTI harmless from any and all
losses, claims and damages (including, but not limited to, reasonable
attorneys' fees) which the Sellers or SMTI may suffer or incur and which arise
out of the breach by Gutkowski, TSC or Marquee of any representation, warranty,
covenant or agreement set forth in Sections 4 or 6A hereof. The amount of each
of Gutkowski's and TSC's indemnity hereunder shall be limited to $250,000.
12.3 Survival of Representations and Warranties. The parties
hereto agree that all representations and warranties made in this Agreement or
in any Schedule delivered pursuant to this Agreement shall survive the Closing
Date for a period of six (6) months and that any action in respect of breaches
thereof, including any action under Section 12.2 hereof, must be commenced
within such period.
12.4 Waiver. Any failure on the part of either party hereto
to comply with any of its obligations, agreements, or conditions hereunder may
be waived in writing by the party to whom such compliance is owed.
18
<PAGE>
12.5 Brokers. Each party represents to the other parties that
no broker or finder has acted for it in connection with this Agreement and
agrees to indemnify and hold harmless the other parties against any fee, loss,
or expense arising out of claims by brokers or finders employed or alleged to
have been employed by it.
12.6 Notices. All notices hereunder shall be in writing and
shall be delivered in person or given by registered or certified mail, postage
prepaid, and sent to the parties at the respective addresses above set forth.
Any party may designate any other address to which notice shall be given by
giving notice to the others of such change of address in the manner herein
provided.
12.7 Entire Agreement. This Agreement and the Letter
Agreement constitute the entire agreement between the parties and supersede and
cancel any other agreement, representation, or communication, whether oral or
written, between the parties hereto relating to the transactions contemplated
herein or the subject matter hereof, including, but not limited to, that
previously executed Amended and Restated Acquisition Agreement, dated as of
March 21, 1996, among the parties hereto. In the event there is any
inconsistency between the terms of this Agreement and the terms of the Letter
Agreement, the terms of this Agreement shall govern.
12.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.9 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Connecticut.
12.10 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by any party of its rights under this
Agreement without the written consent of the other parties shall be void.
12.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.12 Amendment. This Agreement may only be amended by a
written instrument which is executed by the parties hereto and Kaminsky and
Oppenheim.
[The rest of this page has intentionally been left blank.]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
THE MARQUEE GROUP INC.
By:__________________________________
Name: Robert M. Gutkowski
Title: President
SPORTS MARKETING & TELEVISION
INTERNATIONAL, INC.
By:__________________________________
Name: Michael Trager
Title:
Michael Trager and Michael Letis
hereby agree to the provisions of
Sections 3, 6, 8 and 12 hereof
- -----------------------------
MICHAEL TRAGER
- -----------------------------
MICHAEL LETIS
The undersigned hereby agree to the amendment and restatement of the foregoing
agreement.
- -----------------------------
ARTHUR C. KAMINSKY
- -----------------------------
LOUIS OPPENHEIM
20
<PAGE>
Robert Gutkowski and The Sillerman
Companies, Inc. hereby agree to the
provisions of Sections 4, 6A, 9 and 12 hereof
- -----------------------------
ROBERT GUTKOWSKI
THE SILLERMAN COMPANIES, INC.
By:___________________________
Name:
Title:
21
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), dated
as of the ____ of _________, 1996, pursuant to Part IX of the Stock Corporation
Act of the State of Connecticut, by and between SMTI Acquisition Corp., a
Delaware corporation ("Subsidiary"), and Sports Marketing & Television
International, Inc., a Connecticut corporation ("SMTI") (the two parties being
sometimes collectively referred to as the "Constituent Corporations").
WHEREAS, Subsidiary is a corporation duly organized and
existing under the laws of the State of Delaware with authorized capital stock
of [ ] shares of Common Stock, par value $[ ] per share, all of which
immediately prior to the Effective Date, as defined in Section 1.7 hereof, will
be issued and outstanding and held by The Marquee Group, Inc., a Delaware
corporation ("Marquee");
WHEREAS, SMTI is a corporation duly organized and existing
under the laws of the State of Connecticut, with authorized capital stock of
5,000 shares of Common Stock, par value $____ per share, of which 4,000 shares
are issued and outstanding; and
WHEREAS, the boards of directors and stockholders of SMTI and
Subsidiary have adopted resolutions declaring advisable the proposed merger
(the "Merger") of Subsidiary with and into SMTI upon the terms and conditions
hereinafter set forth, in a transaction which is intended to qualify as a
tax-free exchange to the extent of the receipt of stock of Marquee under
Section 351 of the United States Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Constituent Corporations agree to effect
the Merger provided for in this Merger Agreement on the terms and conditions
set forth herein.
SECTION 1. GENERAL
1.1 The Merger. On the Effective Date, Subsidiary shall
be merged with and into SMTI, with SMTI being the surviving corporation (the
"Surviving Corporation"). The Surviving Corporation shall retain name of
"Sports Marketing & Television International, Inc."
1.2 Capitalization. The number of authorized shares of the
capital stock of the Surviving Corporation shall be [ ] shares of Common Stock,
par value $[ ] per share.
1.3 Certificate of Incorporation and Bylaws. At the Effective
Date, the Certificate of Incorporation of SMTI shall be and remain the
Certificate of Incorporation of the Surviving Corporation, except that such
Certificate of Incorporation shall automatically be amended to the extent
provided in Section 1.2, and until further amended shall be and remain the
Certificate of Incorporation of the Surviving Corporation. At the Effective
Date, the Bylaws of
<PAGE>
SMTI shall be and remain the Bylaws of the Surviving Corporation until altered,
amended, or repealed.
1.4 Directors and Officers. On the Effective Date, the
directors of the Surviving Corporation shall be the persons elected by the
stockholder of the Surviving Corporation on such date, and they shall hold
office until their successors have been elected and have qualified in
accordance with law and the Bylaws of the Surviving Corporation. On the
Effective Date, the officers of the Surviving Corporation shall be the persons
appointed by the board of directors of the Surviving Corporation on such date,
and they shall hold office until their successors have been appointed and have
qualified in accordance with law and the Bylaws of the Surviving Corporation.
1.5 Property and Liabilities of Constituent Corporations. On
the Effective Date, the separate existence of Subsidiary shall cease and
Subsidiary shall be merged into the Surviving Corporation. The Surviving
Corporation shall, from and after the Effective Date, possess all the rights,
privileges, powers, and franchises of whatsoever nature and description, public
and private, and be subject to all the restrictions, disabilities and duties of
each of the Constituent Corporations; and all rights, privileges, powers, and
franchises of each of the Constituent Corporations, and all property, real,
personal, and mixed, and debts due to either of the Constituent Corporations on
whatever account as well for stock subscriptions as all other things in action
or belonging to each of the Constituent Corporations shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the several and
respective Constituent Corporations, and the title to any real estate vested by
deed or otherwise in any of the Constituent Corporations shall not revert or be
in any way impaired by reason of such Merger. All rights of creditors and all
liens upon the property of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities, and
duties had been incurred or contracted by it. Any claim existing or action or
proceeding, whether civil, criminal, or administrative, pending by or against
either Constituent Corporation may be prosecuted to judgment or decree as if
such Merger had not taken place, or the Surviving Corporation may be
substituted in such action or proceeding.
1.6 Further Assurances. Both SMTI and Subsidiary agree that
at any time, or from time to time, as and when requested by the Surviving
Corporation, or by its successors and assigns, it will execute and deliver, or
cause to be executed and delivered in its name by its last acting officers, or
by the corresponding officers of the Surviving Corporation, all such
conveyances, assignments, transfers, deeds, or other instruments, and will take
or cause to be taken such further or other action as the Surviving Corporation,
its successors or assigns may deem necessary or desirable in order to evidence
the transfer, vesting, or devolution of any property, right, privilege, or
franchise or to vest or perfect in or confirm to the Surviving Corporation, its
successors and assigns, title to and possession of all the property, rights,
2
<PAGE>
privileges, powers, immunities, franchises, and interests referred to in this
Section 1 and otherwise to carry out the intent and purposes hereof.
1.7 Effective Date. This Merger Agreement shall become
effective at the close of business on the day (the "Effective Date") on which
the filing of a fully-executed copy of this Merger Agreement with the office of
the Secretary of State of Connecticut is completed.
SECTION 2. CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Stock of Subsidiary. Each share of capital stock of
Subsidiary issued and outstanding immediately prior to the Effective Date shall
thereupon be converted into and become one share of Common Stock of the
Surviving Corporation. Each such share of Common Stock issued pursuant to this
Section 2.1 shall be fully-paid and non-assessable.
2.2 Stock of SMTI. Each share of Common Stock of SMTI issued
and outstanding immediately prior to the Effective Date (excluding shares held
by SMTI as treasury stock, which shares shall be canceled and extinguished on
the Effective Date) shall upon the Effective Date, by virtue of the Merger and
without any action on the part of the holder thereof, be exchanged for and
converted into and become (1) [ ] shares of fully paid and nonassessable Common
Stock of Marquee, par value $.01 per share ("Marquee Common Stock"), (2)
$1,543.75 and (3) such additional payments as are set forth in that certain
Acquisition Agreement dated as of March 21, 1996 by and between Marquee,
Athletes, Michael Trager, Michael Letis, Robert Gutkowski and The Sillerman
Companies, Inc.. The Common Stock of SMTI so exchanged and converted is herein
sometimes referred to as "Converted SMTI Stock." In addition, pursuant to that
certain Acquisition Agreement, dated as of March __, 1996, between The Marquee
Group Inc. ("Marquee"), SMTI, Michael Trager ("Trager"), Michael Letis
("Letis"), Robert Gutkowski and The Sillerman Companies, Inc., Marquee has
agreed to pay to designees of Trager and Letis the amount of $325,000. Such
additional cash is part of the purchase price for the shares of Common Stock of
SMTI.
2.3 Exchange of Stock Certificates. As promptly as
practicable after the Effective Date, each holder of an outstanding certificate
or certificates theretofore representing shares of Converted SMTI Stock shall
surrender the same to an agent or agents designated by the Surviving
Corporation, and shall thereupon be entitled to receive in exchange therefor
certificates representing the number of shares of Marquee Common Stock and the
amount of cash as determined in accordance with Section 2.2. Dividends payable
after the Effective Date to holders of record in respect of shares of Marquee
Common Stock into which certificates for shares of Converted SMTI Stock shall
be exchangeable shall not be paid to holders of such certificates until their
certificates are surrendered for exchange as aforesaid.
2.4 Fractional Shares. No fractional shares of Marquee Common
Stock and no scrip or certificates therefor will be issued in connection with
the Merger, and no holder of fractional shares will be entitled to voting,
dividend, or any other rights as a stockholder with respect to such fractional
interest.
3
<PAGE>
SECTION 3. MISCELLANEOUS
3.1 Counterparts. This Merger Agreement may be executed in
any number of counterparts or may be, where the same are not required,
certified or otherwise delivered without the testimonium clause and signature;
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one Merger Agreement.
3.2 Acquisition Agreement. The obligations of SMTI and
Subsidiary to effect the Merger shall be subject to all of the terms and
conditions of the Acquisition Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Merger Agreement as of the date set forth above.
SMTI ACQUISITION CORP.
By:_______________________________
Name:
Title:
SPORTS MARKETING & TELEVISION
INTERNATIONAL, INC.
By:_______________________________
Name:
Title:
4
List of Subsidiaries
- --------------------
1. A&A Acquisition Corp. (Delaware corporation)
2. SMTI Acquisition Corp. (Delaware corporation)
3. Athletes Acquisition Corp. (New York corporation)
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
November 27, 1996
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
November 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
balance sheet as of December 31, 1995 and the audited statement of operations
for the period from July 11, 1995 (Inception) to December 31, 1995, and from the
unaudited balance sheet as of September 30, 1996 and the unaudited statement of
operations for the nine months then ended of The Marquee Group, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 5-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> $19,980 $408,862
<SECURITIES> 0 0
<RECEIVABLES> 0 371,703
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,980 937,086
<PP&E> 0 14,330
<DEPRECIATION> 0 368
<TOTAL-ASSETS> 19,980 1,426,251
<CURRENT-LIABILITIES> 0 369,295
<BONDS> 0 2,000,000
0 0
0 0
<COMMON> 19,385 19,885
<OTHER-SE> 595 (1,084,544)
<TOTAL-LIABILITY-AND-EQUITY> 19,980 1,426,251
<SALES> 0 1,465,731
<TOTAL-REVENUES> 0 1,465,731
<CGS> 0 0
<TOTAL-COSTS> 0 2,496,857
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 85,680
<INCOME-PRETAX> 0 (1,116,806)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 (1,116,806)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 (1,116,806)
<EPS-PRIMARY> 0 (.54)
<EPS-DILUTED> 0 (.54)
</TABLE>
