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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-21711
THE MARQUEE GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUES AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 13-3878295
(STATE OF OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
888 SEVENTH AVENUE, NEW YORK, NY 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIPCODE)
212-728-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
AT NOVEMBER 12, 1997, THERE WERE 17,912,676 SHARES OUTSTANDING OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT. YES [ ] NO [X]
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THE MARQUEE GROUP, INC.
TABLE OF CONTENTS
PAGE NO.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997
(unaudited) and December 31, 1996 3 .................................................................. 3
Condensed Consolidated Statements of Operations for the Three
and 4 Nine Months Ended September 30, 1997 and 1996
(unaudited) .......................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months 6 Ended September 30, 1997 and 1996 (unaudited) ............................................... 5
Condensed Consolidated Statements of Stockholders' Equity for
the Nine Months Ended September 30, 1997 (unaudited) ................................................. 6
Notes to Condensed Consolidated Financial Statements ................................................... 7
Item 2. Management's Discussion and Analysis or Plan of Operation .............................................. 10
Part II Other Information
Item 2. Changes in Securities .................................................................................. 20
Item 6. Exhibits and Reports on Form 8-K ....................................................................... 21
2
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ITEM 1. FINANCIAL STATEMENTS
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 DECEMBER 31,
Actual Pro Forma 1996
------------- ------------- --------------
(UNAUDITED-Note 1) (Note)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 903,826 $ 14,140,992 $ 7,230,526
Accounts receivable, net 4,512,836 9,174,464 1,295,894
Due from related parties 138,699
Due from Celebrity Golf Championship, Inc. 250,000 250,000 169,100
Prepaid expenses and other current assets 519,522 1,061,293 250,363
------------ ------------ ------------
Total current assets 6,186,184 24,626,749 9,084,582
Property and equipment, net 1,367,794 2,118,355 218,604
Receivables - non current 301,587 2,260,242
Deposits and other costs related to pending acquisitions 2,200,082
Excess of purchase price over net assets acquired 20,041,310
Other assets 625,771 683,210 57,612
------------ ------------ ------------
$ 10,681,418 $ 49,729,866 $ 9,360,798
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,460,719 $ 6,675,723 $ 1,134,692
Distribution payable to certain stockholders 382,311 382,311 382,311
Loan payable to officer/stockholder 121,615 121,615
Acquisition indebtedness - current portion 332,500 493,500 332,500
Escrow payable 852,219
Deferred revenues 545,000 597,870
------------ ------------ ------------
Total current liabilities 3,842,145 9,123,238 1,849,503
Note payable 10,500,000
Loan payable to office/stockholders 121,615
Acquisition indebtedness - stockholders 1,224,330 2,290,330 1,637,500
Deferred taxes 447,750 447,750 343,000
Other deferred credits 776,437
Common stock subject to put option 3,125,000
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued
Common stock, $.01 par value; 25,000,000 shares
authorized, 8,769,162 (actual) and 17,912,676
(pro forma)shares issued and outstanding 87,692 173,676 87,692
Additional paid-in capital (1,522,161) 37,701,773 7,795,199
Deferred compensation (63,334)
Accumulated deficit (3,898,338) (3,898,338) (2,410,377)
------------ ------------ ------------
(5,332,807) 33,977,111 5,409,180
------------ ------------ ------------
$ 10,681,418 $ 49,739,866 $ 9,360,798
============ ============ ============
</TABLE>
Note: The condensed consolidated balance sheet at December 31,
1996 has been derived from the audited financial statements at
that date but does not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 5,817,226 $ 664,836 $ 11,991,313 $ 1,465,731
Operating expenses 3,716,466 572,221 7,664,029 1,239,017
General and administrative expenses 1,499,742 518,573 4,501,990 1,226,173
Deferred compensation 80,769 31,667 165,365 31,667
Depreciation and amortization 71,718 90,554
------------ ------------ ------------ ------------
Income/(loss) from operations 448,531 (457,625) (430,625) (1,031,126)
Interest expense, net 222,063 85,680 223,881 85,680
Financing expense-Note 2 756,455 756,455
------------ ------------ ------------ ------------
Income/(loss) before income taxes (529,987) (543,305) (1,410,961) (1,116,806)
Income taxes 77,000 77,000
------------ ------------ ------------ ------------
Net income/(loss) $ (606,987) $ (543,305) $ (1,487,961) $ (1,116,806)
============ ============ ============ ============
Net income(loss) per share $ (0.08) $ (0.26) $ (0.20) $ (0.54)
============ ============ ============ ============
Weighted average common shares outstanding 7,494,162 2,066,662 7,494,162 2,066,662
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
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NET CASH USED IN OPERATING ACTIVITIES $ (2,183,405) $ (1,243,200)
INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements, net
of landlord contribution (1,239,744) (14,330)
Employee loan (424,200)
Deposits and other costs related to acquisitions (2,200,082)
Increase in other assets (568,159) (25,925)
------------ ------------
Net cash used in investing activities (4,432,185) (40,255)
FINANCING ACTIVITIES
Proceeds from Bridge Financing 10,500,000
Costs related to IPO (131,128) (256,778)
Costs related to Tender Offer (9,579,982)
Payment of acquisition indebtedness (500,000)
Proceeds of private placement 1,362,397
Proceeds from loans payable to related parties 766,718
Repayments of loans payable to related parties (200,000)
------------ ------------
Net cash provided by financing activities 288,890 1,672,337
NET DECREASE/INCREASE IN CASH (6,326,700) 388,882
CASH AT BEGINNING OF PERIOD 7,230,526 19,980
------------ ------------
CASH AT END OF PERIOD $ 903,826 $ 408,862
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Exchange of loans payble to related parties for Debentures $ 445,103
============
Issuance of options to purchase 105,000 shares of common stock in connection
with Bridge Financing for the Tender Offer $ 393,750
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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ADDITIONAL TOTAL
NUMBER OF COMMON PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL COMPENSATION DEFICIT EQUITY
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 8,769,162 $ 87,692 $ 7,795,199 $ (63,334) $(2,410,377) $ 5,409,180
IPO offering costs (131,128) (131,128)
Costs related to Tender Offer for (9,579,982) (9,579,982)
outstanding Warrants
Issuance of options to purchase
105,000 shares of common
stock 393,750 393,750
Amortization of deferred
compensation 63,334 63,334
Net loss for period (1,487,961) (1,487,961)
--------- ----------- ----------- ----------- ----------- -----------
Balance - September 30, 1997 8,769,162 $ 87,692 ($1,522,161) $ -- ($3,898,338) ($5,332,807)
========= =========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for an interim period
are not necessarily indicative of the results that may be expected for a full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in The Marquee Group, Inc. (the "Company")
annual report on Form 10-KSB for the year ended December 31, 1996.
The Company, which began operations in 1996, was incorporated in the
State of Delaware on July 11, 1995 for the purpose of providing integrated
event management, television production, marketing, talent representation and
consulting services in the sports, news and entertainment industries.
In furtherance of its business strategy, on December 12, 1996, the
Company acquired by merger, concurrently with the closing of its initial public
offering ("IPO"), 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. The
acquisitions of SMTI and A&A are referred to as the "1996 Acquisitions".
Accordingly, the accompanying condensed consolidated financial statements
include the accounts of the Company and from December 12, 1996 the 1996
Acquisitions. All significant intercompany transactions and accounts have been
eliminated.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1997 gives effect to (i) the ProServ Acquisition and the QBQ
Acquisition and (ii) the Secondary Offering (all as defined below) as if they
had occurred as of September 30, 1997.
NOTE 2 - TENDER OFFER FOR OUTSTANDING WARRANTS
On July 23, 1997, the Company commenced a tender off (the "Tender
Offer") to purchase up to all of the 4,519,162 then-outstanding warrants of the
Company (the "Warrants"). On September 11, 1997, the Company purchased
3,991,659 Warrants pursuant to the Tender Offer at a cash purchase price of
$2.40 per Warrant. In order to consummate its purchase of the Warrants, the
Company borrowed $10.5 million pursuant to a loan agreement (the "Bridge
Facility"). The Company repaid such borrowing with a portion of the net
proceeds of its public offering mentioned in Note 3 below. In connection with
the Bridge Facility, the Company paid the lender fees and expenses of $362,000
and issued to the lender immediately exercisable options to acquire an aggregate
of 105,000 shares of common stock, at an exercise price of $2.25, subject to
adjustment in certain circumstances. The options will expire in 2007.
7
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - SUBSEQUENT EVENTS
Consummation of Public Offering
On October 14, 1997 and November 12, 1997, the Company consummated its
secondary public offering (the "Secondary Offering") of 8.5 million shares
(including the Underwriters' overallotment) of the Company's common stock at
$5.00 per share. The net proceeds to the Company after deducting the
underwriting discount and commissions and other expenses of the Offering
was approximately $39 million.
Acquisition of ProServ
On October 14, 1997, the Company consummated its acquisition of all
of the outstanding stock of ProServ, Inc. and ProServ Television, Inc.
(collectively, "ProServ"), an established provider of international sports
event management, television production, marketing, talent representation and
consulting. The aggregate purchase price for ProServ was approximately $10.8
million in cash and 250,000 shares of the Company's common stock. The Company
also repaid approximately $2.4 million of the outstanding indebtedness of
ProServ. The Company used a portion of the proceeds of the Secondary Offering
to finance the acquisition and the repayment of the debt. Under certain
circumstances, the Company may be required to repurchase up to all of the
250,000 shares for an aggregate purchase price of up to $1.9 million.
Acquisition of QBQ
On October 14, 1997, the Company acquired substantially all of the
assets of QBQ Entertainment, Inc. ("QBQ"), a company that books tours and
appearances for a variety of entertainers. The aggregate purchase price for QBQ
was approximately $3.1 million in cash, $1.6 million payable in annual
installments payable over eight years and 393,514 shares of common stock,
including 78,702 shares held in escrow and subject to forfeiture if certain
financial performance tests are not met. Under certain circumstances, the
Company may be required to repurchase up to 295,135 shares for an aggregate
purchase price of up to $1.1 million.
NOTE 4 -- RELATED PARTY TRANSACTIONS
In August 1996, the Company entered into a six-year consulting
agreement with Sillerman Communications Management Corporation ("SCMC"), a
company controlled by Robert F.X. Sillerman, the Chairman of the Company. The
consulting agreement provides for the payment by the Company of a monthly
fee of $30,000, commencing in September 1997, for regular periodic financial
consulting services. In March 1997, SCMC assigned its rights, obligations and
duties under the consulting agreement to The Sillerman Companies ("TSC"), a
company also controlled by the Chairman of the Company. In connection with the
Secondary Offering, TSC has agreed to waive its right to future monthly
payments under the consulting agreement. The modification to the agreement
not to pay these fees was done with the consent of the Company's independent
members of the Board and cannot be further modified without their approval.
If TSC performs advisory services in the nature of investment banking
services, it is entitled to a fee (a "Special Advisory Fee") for such
services. In February 1997, the Company advanced to SCMC the sum of $400,000
as an advance against future Special Advisory Fees. In connection with the
1997 Acquisitions and the Tender Offer, TSC received Special Advisory Fees of
$525,000 including $75,000 for reimbursement of expenses (of which
$400,000 was offset against the amount previously advanced to TSC). In
connection with the Tender Offer, TSC received an immediately exercisable
option to purchase 200,000 shares of Common Stock at $7.00 per share.
In August 1997, in consideration for Mr. Sillerman providing a
personal guarantee for $500,000 to secure a portion of the letter of credit
issued in connection with the acquisition of ProServ, the Company granted him
an immediately exercisable, five year option to purchase 10,000 shares of
common stock at $5.00 per share and paid $75,000 for expenses.
8
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 -- LOSS PER COMMON SHARE
Net loss per share is based upon net loss divided by the weighted
average number of shares of common stock outstanding during the year. Shares of
common stock placed in escrow upon completion of the IPO, which are common
stock equivalents, have been excluded from the calculation of earnings per
share. The conversion of securities convertible into common stock and the
exercise of stock options were not assumed in the calculation of loss per
common share because the effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128"). FAS 128 establishes standards for computing and presenting earnings per
share ("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share". FAS 128
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Early adoption is not permitted and the
statement requires restatement of all prior-period EPS data presented after the
effective date. The Company will adopt FAS 128 effective with its 1997 year
end. Management does not believe the implementation of FAS 128 will have a
material effect on the Company's EPS calculations.
9
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ITEM 2--MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was formed in July 1995 for the purpose of providing
integrated event management, television production, marketing, talent
representation and consulting services in the sports, news and other
entertainment industries. From the time of its formation until its initial
public offering ("IPO") and the acquisitions of SMTI and A&A (collectively
the "1996 Acquisitions"), in December 1996, the Company was engaged in
developing its sports television production, marketing and consulting
business. In October 1997, the Company acquired ProServ Inc. and ProServ
Television, Inc. (collectively the "ProServ Acquisition") and QBQ
Entertainment, Inc (the QBQ Acquisition") (collectively the "1997
Acquisitions"). The Company also completed its secondary public offering
of 8,500,000 shares of its common stock at $5.00 per share in October and
November 1997 (the "Secondary Offering").
For all periods presented, the supplemental discussion and analysis of
the results of operations on a pro forma basis for (i) the Company and the 1996
Acquisitions include the activities of the Company, SMTI and A&A and (ii) the
Company, the 1996 Acquisitions and the 1997 Acquisitions include the Company,
SMTI, A&A, ProServ and QBQ, as if they had always been members of the same
operating group, respectively. The following discussion also contains certain
forward-looking statements that involve risks and uncertainties. The Company's
future results of operations could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to, uncertainties related to the Company's business and growth
strategies, difficulties in achieving cost savings and revenue enhancements
and difficulties in integrating the acquired companies. The Company undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
The primary sources of the Company's revenues are fees from providing
event management, television production, sports marketing and consulting
services and commissions from representation of sports, news and entertainment
personalities. Revenues from event management services are recognized when the
events are held. Revenues from production services are recognized when the
programs are available for broadcast. Marketing revenues are recognized for
guaranteed amounts when contractual obligations are met (subsequent royalties
are recorded when received). Commissions from the Company's talent
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. Commissions on profit or gross receipt
participations are recorded upon the determination of such amounts.
10
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The Company's revenues may vary from quarter to quarter, due to the
timing of certain significant events and the resulting recognition of revenues
from such events. Historically, the fourth quarter produced the highest
percentage of revenues for the year, principally from the Company's management
and marketing of The Breeders' Cup Championship and from representation
agreements with professional hockey players, which results in revenue to the
Company upon the commencement of the National Hockey League season. As a result
of the Company's recent entry into the business of representing professional
football players and the 1997 Acquisitions, it is anticipated that the
Company's revenues and expenses will increase significantly, and the Company
expects that these increased revenues and expenses will be recorded
substantially in the third as well as the fourth quarter. A significant portion
of the Company's revenues to date has been derived from a small number of
events and clients. On a pro forma basis, giving effect to the 1996
Acquisitions as if they had occurred on January 1, 1996, the Company's
agreement with respect to The Breeders' Cup Championship would have accounted
for approximately 30% of the Company's revenues for the year ended December 31,
1996. On a pro forma basis, giving effect to the 1996 Acquisitions and the 1997
Acquisitions as if they had occurred on January 1, 1996, The Breeders' Cup
Championship would have accounted for approximately 15% of the Company's
revenues for the year ended December 31, 1996.
The Company's most significant costs and expenses are salaries and
production expenditures. Historically, general and administrative expenses were
impacted by the levels of compensation and related benefits that the
stockholders of SMTI, A&A, ProServ and QBQ received from their respective
businesses during the periods when the companies were privately owned. ProServ
has undergone an internal restructuring focused on reducing its operating
expenses and eliminating business activities that do not provide adequate
financial returns. The pro forma adjustments for the 1996 Acquisitions and the
1997 Acquisitions reflect contractually required reductions in personnel,
officers' salaries and employee benefits, but do not reflect the effects of the
restructuring since they are not directly attributable to the ProServ
Acquisition.
The Company has recorded and will continue to record substantial
compensation charges to operations in connection with the issuance of
securities to certain officers, directors and consultants, including upon the
release of shares of the Company's common stock subject to escrow agreements
entered into in connection with the Company's IPO and the QBQ Acquisition. In
the event that these shares are released from escrow, the Company may
recognize, during the period in which the thresholds for release are probable
of being met, a substantial non-cash compensation charge, which will not be
deductible for income tax purposes and which will have the effect of
significantly increasing the Company's losses or reducing or eliminating
earnings, if any, at such time. In addition, the Company will record charges
to operations over the next two years aggregating $675,000 related to the
Company's potential obligation to repurchase the shares of common stock issued
in connection with the ProServ Acquisition. Further, in connection with the
issuance of common stock, in 1996, to a non-founding officer in partial
consideration of such officer entering into an employment agreement with the
Company, the Company recognized a
11
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non-cash compensation charge of approximately $119,000 over the 15-month
vesting period which ended in the third quarter 1997. In connection with a
loan made to another officer in April 1997, pursuant to an employment
agreement, the Company will recognize a compensation charge of $546,000 over
the next five years. In connection with the 1996 Acquisitions, the Company will
also incur charges to operations aggregating $530,000 over the five-year period
which commenced in December 1996 related to the imputed interest on the
indebtedness to the former stockholders of SMTI and A&A. In connection with
the QBQ Acquisition, the Company will incur additional charges to operations
aggregating $388,000 over eight years related to the imputed interest on the
indebtedness to the former stockholder of QBQ.
RESULTS OF OPERATIONS
The Company's consolidated financial statements are not directly comparable
from period to period because the Company commenced operating activities in
January 1996 and the 1996 Acquisitions did not occur until December 1996.
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
For the three months ended September 30, 1997, the Company generated
revenues of approximately $5.8 million versus $665,000 for the three months
ended September 30, 1996. The increase in revenues of approximately $5.2
million was principally related to the inclusion of the operations of the 1996
Acquisitions and increased revenues generated through the Company's production
of programming for ESPN, Outdoor Life Network, Professional Bowling Association
("PBA") and Lifetime Network. Additionally, the Company provided consulting
services for Americast, a partnership of certain telephone companies, to assist
in the creation of local sports networks for cable TV. The partners in
Americast disbanded their programming development department and terminated the
Company's contract as of September 27, 1997. On a pro forma basis giving effect
to the 1996 Acquisitions, as if they had occurred as of January 1, 1996, the
Company's revenues in the 1997 quarter increased approximately $2.6 million
from the prior year period as a result in increased revenues in all of the
Company's business lines.
The Company's revenues on a pro forma basis giving effect to the 1996
and the 1997 Acquisitions, as if they had occurred on January 1, 1996, would
have been as follows:
Three Months Ended
September 30,
1996 1997
---- ----
Event Management $ 5,104,000 $ 5,345,000
Television Production 2,294,000 1,830,000
Marketing 150,000 554,000
Talent Representation 2,182,000 3,250,000
Consulting Services 638,000 898,000
----------- -----------
$10,368,000 $11,877,000
=========== ===========
12
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The increase in revenues of $1.5 million, or 14.6%, in the
1997 quarter, is principally attributable to increases in representation fees
for athletes and media personalities in 1997 resulting from new clients and
increased client earnings. This increase was partially offset by a reduction
in ProServ's revenues as a result of the expiration of a contract for the
international distribution of the US Tennis Open (while maintaining domestic
cable rights) and the elimination of other productions which did not provide
sufficient economic returns.
The Company's operating expenses of approximately $3.7 million for the
1997 quarter consisted principally of television production costs related to
projects delivered, event management costs associated with The Breeders' Cup
Championship, and talent representation compensation. Operating expenses
increased approximately $856,000 in the 1997 period, as compared to 1996, on a
pro forma basis for the 1996 Acquisitions due to the added production expenses
associated with the PBA, Lifetime Special and other television projects
delivered. Pro forma for the 1996 Acquisitions and the 1997 Acquisitions,
operating expenses in the 1997 quarter increased approximately $504,000 or 7.1
% to $7.6 million, principally as a result of the matters discussed above
partially offset by reductions in operating costs for ProServ as a result of
its restructuring program begun in 1996 which included the elimination of
certain events and productions which did not provide sufficient economic
benefits. Pro forma cost savings of $129,000 related to contractually required
reductions in personnel costs were included in both periods.
General and administrative expenses were approximately $1.5 million
for the three months ended September 30, 1997 as compared to $519,000 for the
prior year period. The increase of $1.0 million was the result of the inclusion
of costs associated with the operations of the 1996 Acquisitions after their
acquisition and increased staffing and occupancy costs required to support the
substantial increase in the corporate infrastructure required for the Company's
expanded business operations. General and administrative expenses in the
quarter increased approximately $1.0 million compared to the 1996 quarter, on a
pro forma basis giving effect to the 1996 Acquisitions. This increase, which is
expected to continue in subsequent quarters, is attributable to salary and
occupancy related costs, which the Company has added to support the increase in
its existing business operations and the 1997 Acquisitions. On a pro forma
basis giving effect to the 1996 Acquisitions and the 1997 Acquisitions, general
and administrative expenses were $2.6 million and $1.9 million in the 1997 and
1996 quarters, respectively. ProServ's restructuring program contributed
approximately $300,000 in savings in the current quarter, which were offset by
the planned increases in the Company's general and administrative expenses
mentioned above. Pro forma cost savings of $281,000 related to contractually
required reductions in personnel, officers' salaries and benefits and other
costs applicable to ProServ and QBQ were included in both periods.
13
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The Company's income from operations for the three months ended
September 30, 1997 was approximately $449,000 compared to an operating loss of
approximately $458,000 for the same period in 1996. On a pro forma basis,
giving effect to the 1996 Acquisitions as if they had occurred on January 1,
1996, the Company had operating income of $449,000 compared to an operating
loss of $138,000 for the 1996 quarter. The increase in operating income is
principally a result of increased revenues. In addition, the 1997 operating
income is net of non-cash charges of $152,000 versus $32,000 and $49,000 for
the 1996 period, as reported and pro forma, respectively. With the inclusion of
the operations of ProServ and QBQ, on a pro forma basis, the 1997 quarter
showed income from operations of $1.2 million versus operating income of
$970,000 for the prior year quarter as a result of the increase in the
Company's operating income offset by decreases in the operating results of
ProServ and QBQ for the comparative periods. The operating results for each
period include charges for the amortization of the excess of the purchase price
over the net assets acquired in the 1997 Acquisitions of $255,000.
The Company's net loss for the third quarter 1997 was approximately
$607,000 compared to approximately $543,000 for the 1996 quarter and a net loss
of $39,000 for the 1996 quarter on a pro forma basis giving effect to the 1996
Acquisitions as if they had occurred on January 1, 1996. On a pro forma basis
giving effect to the 1996 Acquisitions and 1997 Acquisitions, the net income
for the three months ended September 30, 1997 would have been $135,000 as
compared to a net income of $1.1 million for the prior year quarter. The 1997
third quarter actual and pro forma net loss includes a one-time financing
charge of approximately $864,000, including interest, related to the Bridge
Financing for the Company's Tender Offer, as defined herein, for its
outstanding warrants. On a pro forma basis giving effect to the 1996
Acquisitions and the 1997 Acquisitions, the net income applicable to common
stockholders for the 1997-quarter was $60,000 as compared to a net income to
common stockholders of $995,000 for the 1996 three months. The pro forma net
income applicable to common stockholders for the 1997-quarter is after the
one-time financing charge mentioned above and for all periods includes a
charge of $75,500 related to the accretion of the Company's potential
obligation under the put option on the common stock issued in connection with
the ProServ Acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
For the nine months ended September 30, 1997, the Company generated
revenues of approximately $12.0 million compared to $1.5 million for the period
ended September 30, 1996. The increase in revenues of approximately $10.5
million is principally related to the inclusion of the operations of the 1996
Acquisitions and increased revenues
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generated through the Company's television production and programming
activities for ESPN, Outdoor Life Network and Lifetime Network. Additionally,
the Company provided consulting services to Americast, under a contract that
was terminated in September 1997, as a result of the Americast partnership
decision to disband its programming department. On a pro forma basis, giving
effect to the 1996 Acquisitions as if they had occurred as January 1, 1996, the
Company's revenues were $9.5 million for the period ended September 30, 1996.
Increases in programming and production revenues, consulting revenues and
talent representation fees were partially offset by lower event management
revenues. The decrease in event management revenues was the result of a sponsor
not renewing its participation in the Major League Baseball All-Star Balloting
Program for 1997.
The Company's revenues for the nine months ended September 30, 1997
and 1996, respectively, on a pro forma basis, giving effect to the 1996
Acquisitions and the 1997 Acquisitions as if they had occurred on January 1,
1996, would have consisted of the following:
Nine Months Ended
September 30,
1996 1997
---- ----
Event Management $10,901,000 $ 9,514,000
Television Production 3,782,000 4,890,000
Marketing 204,000 1,004,000
Talent Representation 5,785,000 7,352,000
Consulting Services 1,682,000 2,743,000
----------- -----------
$22,354,000 $25,503,000
=========== ===========
The increase in pro forma revenues of $3.1 million, or 14.1%, for the nine
months ended September 30, 1997 as compared to the comparable period for 1996,
is attributable to the matters discussed above as well as the increased
revenues from QBQ's concert bookings and ProServ's event management revenues
from the AT&T Challenge Cup (an ATP tennis tournament). Pro forma revenues
include revenues from the Canon Shoot-Out for both periods; however, the
sponsorship agreement for this event is scheduled to expire in December 1997,
and there can be no assurance that the Company will be able to continue its
participation in this event.
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The Company's operating expenses of $7.6 million for the 1997 period
increased $6.4 million from $1.2 million in the 1996 comparable period
principally as a result of the inclusion of the operations of the 1996
Acquisitions subsequent to their acquisition. Operating expenses increased
approximately $1.9 million, or 33%, in 1997 as compared to 1996 on a pro forma
basis for the 1996 Acquisitions principally due to the increased television
production and programming activity in 1997, partially offset by the
discontinuance of the one-time event management engagement. On a pro forma
basis giving effect to the 1996 Acquisitions and the 1997 Acquisitions,
operating expenses increased $945,000, or 6.2%, principally as a result of the
matters discussed previously with further offsets by the reductions in
ProServ's operating expenses as a result of its restructuring program begun in
1996. Pro forma cost savings of $386,000 related to contractually required
reductions in personnel costs were included in both periods.
General and administrative expenses were approximately $4.5 million
for the period ended September 30, 1997 as compared to $1.2 million for the
prior year period and $3.7 million for the 1996 period pro forma for the 1996
Acquisitions. The increase was principally the result of the increased staffing
and occupancy costs required in support of the increase in the corporate
infrastructure required for the Company's expanded business operations. On a
pro forma basis giving effect to the 1996 Acquisitions and the 1997
Acquisitions, general and administrative expenses increased $371,000 in the
1997 period from approximately $6.9 million in the prior year. ProServ's
general and administrative expenses decreased by approximately $938,000 in 1997
as a result of its restructuring program, which was offset by the increases in
the expenditures for the infrastructure to support the Company's expanded
operations. Pro forma cost savings of $805,000 related to contractually
required reductions in personnel, officers' salaries and benefits and other
costs applicable to ProServ and QBQ were included in both periods.
The Company's operating loss for the nine months ended September 30,
1997 was approximately $431,000 compared to approximately $1.0 million for the
same period in 1996. On a pro forma basis, giving effect to the 1996
Acquisitions as if they had occurred on January 1, 1996, the Company had an
operating loss of $431,000 compared to $72,000 for the same period in 1996. The
changes in the operating loss as reported and pro forma relate to the inclusion
of the operations of the 1996 Acquisitions after their acquisition offset by
the increases in the Company's infrastructure to support its expanded
operations. In addition, the 1997 operating loss includes non-cash charges of
$257,000 versus $32,000 and $113,000 for the 1996 period, as reported and pro
forma, respectively. Giving effect to the inclusion of the operations of
ProServ and QBQ on a pro forma basis, the Company had operating income of
approximately $796,000 in 1997 compared to an operating loss of $865,000 in the
prior year nine-month period. The operating results for each period include
charges for the amortization of the excess of the purchase price over the net
assets acquired in the 1997 Acquisitions of $765,000.
The Company's net loss for the nine months ended September 30, 1997
was approximately $1.5 million compared to a net loss of $1.1 million and
$117,000, as
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reported and pro forma for the 1996 Acquisitions, respectively, for the prior
year period. The 1997 net loss includes a one-time financing charge of
approximately $864,000, including interest, related to the Bridge Financing for
the Company's Tender Offer for its outstanding warrants. The 1997 net loss
includes a tax provision of $77,000 versus a tax benefit of $113,000 for the
1996 pro forma results. On a pro forma basis giving effect to the 1996
Acquisitions and the 1997 Acquisitions, the net loss applicable to common
stockholders was approximately $464,000 and $1.1 million for the nine months
ended September 30, 1997 and 1996, respectively. The pro forma net loss
applicable to common stockholders for both periods include a charge of $227,000
related to the accretion of the Company's potential obligation under the put
option on the common stock issued in connection with the ProServ Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been net
proceeds of approximately $1.4 million from a private placement of debentures,
which was completed in August 1996, advances by stockholders aggregating
$767,000 and net proceeds of approximately $15.6 million from its IPO, which
was completed in December 1996. At September 30, 1997, the Company had working
capital of approximately $2.4 million. In October and November 1997, the
Company completed the Secondary Offering and received net proceeds of $39.1
million. Of the net proceeds for the Secondary Offering, approximately $17.4
was paid in connection with the 1997 Acquisitions and approximately $10.6
million was used to repay the borrowings under the Bridge Facility, as
further described below. Working capital as of September 30, 1997, on a pro
forma basis giving effect to the 1997 Acquisitions and the Secondary Offering
would have been approximately $15.7 million.
The Company purchased ProServ for an aggregate purchase price of $10.8
million in cash and the issuance of 250,000 shares of Common Stock and repaid
approximately $2.4 million of the outstanding indebtedness of ProServ. The
shares issued in connection with the purchase of ProServ are subject to certain
put and call options. The holder of the put option, at any time within the 60
day period following the second anniversary of the consummation of the ProServ
Acquisition, may elect to transfer to the Company up to all of the remaining
common stock held by the option holder at a price per share of $7.70 (up to
approximately $1.9 million in the aggregate). In
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addition, at any time between the 61st and 90th day following the second
anniversary of the consummation of the ProServ Acquisition, the Company may
purchase 50% of the common stock held by option holder at a price per share of
$7.70 (up to $962,500 in the aggregate).
The Company also purchased certain assets of QBQ for an aggregate
purchase price of approximately $6.7 million, of which $2.0 million was paid by
the issuance of 314,812 shares of common stock, $1.0 million will be payable in
equal annual installments over eight years, subject to acceleration in certain
circumstances and $615,000 will be payable in annual installments over five
years. In addition, the Company deposited 78,702 shares of common stock with a
value of approximately $500,000 into an escrow account, to be released to QBQ
in the event that certain financial performance goals are achieved with respect
to the acquired assets in any of the first four full fiscal years following the
consummation of the QBQ Acquisition. In connection with the QBQ Acquisition,
the Company loaned $1.5 million to the sole shareholder of QBQ, on a
non-recourse basis, secured by the common stock issued in the QBQ Acquisition.
The acquisition agreement also provides that, at any time within the 30-day
period following the first to occur of (i) the second anniversary of the
consummation of the QBQ Acquisition or (ii) an Acceleration Event (as defined),
QBQ may, at its option, elect to transfer to the Company up to 75% of the
shares it received in connection with the QBQ Acquisition for an aggregate
purchase price of up to $1.5 million. In addition, at any time within the
30-day period following the first to occur of the second anniversary of the
closing of the QBQ Acquisition or a Pledge Event (as defined), the Company may,
at its option, elect to purchase 50% of such shares from QBQ for an aggregate
of $1.5 million. In addition, if the QBQ Escrow Shares are released from escrow
at any time within the first 30 days after the second anniversary of the
consummation of the QBQ Acquisition or an Acceleration Event, (i) QBQ may, at
its option, elect to transfer up to 75% of the QBQ Escrow Shares to the Company
for an aggregate purchase price of up to $375,000 and (ii) the Company may, at
its option, elect to purchase up to 50% of the QBQ Escrow Shares for an
aggregate purchase price of up to $750,000.
On July 23, 1997, the Company commenced a tender offer to purchase all
of the 4,519,162 outstanding warrants at a cash purchase price of $2.40 per
warrant ("Tender Offer"). On August 26, 1997, the Company entered into a loan
agreement (the "Bridge Facility") with The Huff Alternative Income Fund, L.P.
("Huff"), pursuant to which Huff agreed to loan to the Company up to $11.5
million in order to allow the Company to purchase warrants in the Tender Offer
and to pay related fees and expenses. On September 11, 1997, the Company
borrowed $10.6 million pursuant to the Bridge Facility and purchased 3,991,659
warrants pursuant to the Tender Offer. On October 14, 1997 the Company repaid
the amount borrowed from the proceeds of the Secondary Offering. In connection
with the Bridge Facility, the Company paid Huff fees and expenses of $362,000
and issued to Huff immediately exercisable options to acquire an aggregate of
105,000 shares of common stock, at an exercise price per share of $2.25,
subject to adjustment in certain circumstances. The Huff Options will expire in
2007. The Company also paid $108,000 to Huff for interest for the period the
loan was outstanding.
In connection with the 1996 Acquisitions, the Company agreed to pay
$2.5 million to the former stockholders of SMTI and A&A in five equal annual
installments which began on April 1, 1997. In addition, the agreement relating
to the acquisition of SMTI provided that SMTI is to distribute to its former
stockholders, by means of a dividend, an amount equal to 40% of the
accumulated adjustments account of SMTI. It is contemplated that the
distribution will approximate $382,000 and will be paid in December 1997.
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While the Company has not entered into agreements relating to any
acquisitions, it intends to continue to expand its operations through further
acquisitions of companies, events and employees. In the event the Company
identifies attractive acquisition candidates, the Company intends to use funds
from working capital to finance such acquisitions.
Although the Company's strategy involves continued expansion through
acquisitions, there can be no assurance that the Company will be able to
identify and acquire additional suitable businesses or obtain the financing
necessary to complete such acquisitions. After the utilization of the net
proceeds from the Secondary Offering, acquisitions may involve debt financing
(which would require payments of principal and interest on such indebtedness
and would adversely impact the Company's cash flows) and/or the issuance of
equity securities (which may be dilutiive to the ownership interests of the
Company's then existing stockholders). 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 losses or reducing or eliminating earnings, if any. In addition, if
the Company is required to repurchase shares issued in connection with the 1997
Acquisitions, there can be no assurance that the Company will have funds
available for such repurchases.
In October 1996, the Company entered into a lease for new facilities,
which requires initial annual rent of $537,000 commencing November 1997,
subject to certain increases. The Company intends to incur capital expenditures
of approximately $1.5 million (net of landlord contribution) to furnish its new
office space, complete leasehold improvements and install a computer network.
As of September 30, 1997, the Company has expended approximately $1.2 million
in connection with its new headquarters and took occupancy in early July 1997.
Management believes that the Company's working capital and cash flow
generated from operations are sufficient to meet the Company's working capital
requirements for the foreseeable future.
19
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PART II OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES.
(a)-(b) not applicable.
(c) In October 1997, the Company issued 250,000 shares of Common Stock to
Donald Dell in connection with the Company's acquisition of ProServ, Inc.
In October 1997, the Company issued 393,514 shares of Common Stock to
Dennis Arfa, including 78,702 shares held in escrow and subject to forfeiture
under certain circumstances, in connection with the Company's acquisition of
substantially all the assets of QBQ Entertainment, Inc.
In August 1997, the Company granted to The Huff Alternative Income
Fund, L.P. ("Huff") an immediately exercisable option to purchase 100,000
shares of the Common Stock. In September 1997, the Company granted to Huff an
additional immediately exercisable option to purchase 5,000 shares of Common
Stock. The exercise price for these options is $2.25 per share and the options
expire 10 years from the date of grant. These options were granted in partial
consideration for Huff's agreement to provide the financing used to purchase
the Company's warrants in the Tender Offer.
In August 1997, the Company granted to Mr. Sillerman an immediately
exercisable option to purchase 10,000 shares of Common Stock at a price per
share of $5.00. The option expires in August 1997. The option was granted in
partial consideration for Mr. Sillerman's personal guarantee of $500,000 as
collateral for a certain letter of credit obtained by the Company.
In September 1997, the Company granted to The Sillerman Companies,
Inc. an option to purchase 200,000 shares of Common Stock at a price per share
of $7.00. The option expires in September 2002. This option was granted in
consideration for certain consulting services provided by TSC in connection
with the Tender Offer.
All of the above transactions were private transactions not involving
a public offering and were exempt from the registration provisions of the
Securities Act of 1933 pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Securities Act.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the
Commission on September 3, 1996).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the
Commission on October 25, 1996).
10.1 Purchase and Sale Agreement dated as of June 25, 1997, by and among
ProServ, Inc., ProServ Television, Inc., Donald L. Dell and The
Marquee Group, Inc. (incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form SB-2 (Reg. No. 333-31879),
filed with the Commission on July 23, 1997).
10.2 Amendment to Purchase and Sale Agreement, dated August 19, 1997, by
and among ProServ, Inc., ProServ Television, Inc., Donald L. Dell and
The Marquee Group, Inc. (incorporated by reference to Exhibit 10.19A
to Amendment No. 1 to the Company's Registration Statement on Form
SB-2 (Reg. No. 333-31879), filed with the Commission on September
15, 1997).
10.3 Stock Purchase Agreement, dated July 2, 1997 (incorporated by
reference to Exhibit 10.21 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Reg. No. 333-31879), filed with
the Commission on September 15, 1997).
10.4 Agreement, dated as of July 18, 1997, by and between William Allard
and The Marquee Group, Inc. (incorporated by reference to Exhibit
10.22 to Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (Reg. No. 333-31879), filed with the Commission on
September 15, 1997).
10.5 Amendment to Agreement, dated as of September 9, 1997, by and between
William Allard and The Marquee Group, Inc. (incorporated by reference
to Exhibit 10.22A to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Reg. No. 333-31879), filed with the
Commission on September 15, 1997).
10.6 Agreement, dated September 12, 1997, between Jeff Knapple and The
Marquee Group, Inc. (incorporated by reference to Exhibit 10.23 to
Amendment No. 1 to the Company's Registration Statement on Form SB-2
(Reg. No. 333-31879), filed with the Commission on September 15, 1997).
10.7 Agreement, dated September 12, 1997, between Ivan Blumberg and The
Marquee Group, Inc. (incorporated by reference to Exhibit 10.23 to
Amendment No.1 to the Company's Registration Statement on Form SB-2
(Reg. No. 333-31879), filed with
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the Company on September 15, 1997).
10.8 Asset Purchase and Sale Agreement, dated as of July 21, 1997, by and
among QBQ Entertainment, Inc., Marquee Music, Inc., Dennis Arfa and
The Marquee Group, Inc. (incorporated by reference to Exhibit 10.20 to
the Company's Registration Statement on Form SB-2 (Reg. No.
333-31879), filed with the Commission on July 23, 1997).
10.9 Bridge Financing Agreement, dated as of August 26, 1997, by and among
The Marquee Group, Inc., the Subsidiary Guarantors and The Huff
Alternative Income Fund, L.P. (incorporated by reference to Exhibit
99.(a)(4) to Schedule 13E-3/A filed with the Commission on August 26,
1997).
10.10 Option Agreement, dated August 26, 1997, between The Marquee Group,
Inc. and The Huff Alternative Income Fund, L.P. (incorporated by
reference to Exhibit 99.(a)(4) to Schedule 13E-3/A filed with the
Commission on August 26, 1997).
10.11 Marketing Agreement, dated as of October 1, 1997, by and between
Sports Marketing & Television International, Inc. and Breeders' Cup
Limited. The Company has applied to the Commission for
confidentiality treatment with respect to portions of this agreement.
10.12 Employment Agreement, dated October 14, 1997, between The Marquee
Group, Inc. and Donald Dell (incorporated by reference to Exhibit
10.2 to the Form 8-K (File No. 0-21711) filed with the Commission on
October 29, 1997).
10.13 Employment Agreement, dated July 18, 1997, between The Marquee Group,
Inc. and William Allard (incorporated by reference to Exhibit 10.3 to
the Form 8-K (File No. 0-21711) filed with the Commission on October
29, 1997).
10.14 Employment Agreement, dated October 14, 1997, between The Marquee
Group, Inc. and Dennis Arfa (incorporated by reference to Exhibit
10.4 to the Form 8-K (File No. 0-21711) filed with the Commission
on October 29, 1997).
27. Financial Data Schedule.
(b) Reports on Form 8-K
On July 24, 1997, the Company filed a Form 8-K under Item 5 (Other
Events) thereof, disclosing (i) the execution of agreements to acquire
of ProServ, Inc., and ProServ Television, Inc. (ii) the execution of an
agreement to acquire substantially all the assets of QBQ Entertainment, Inc.,
(iii) the commencement of the Company's tender offer to purchase all of the
Company's outstanding Warrants and (iv) the filing of a Registration Statement
relating to the Company's offering of its common stock.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
THE MARQUEE GROUP, INC.
/S/ JAN E. CHASON
JAN E. CHASON
NOVEMBER 14 , 1997 CHIEF FINANCIAL OFFICER AND TREASURER
23
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MARKETING AGREEMENT
THIS AGREEMENT, made and entered into as of this 1 day of October,
1997, by and between SPORTS MARKETING & TELEVISION INTERNATIONAL, INC., a
Delaware corporation (hereinafter "SMTI"), and BREEDERS' CUP LIMITED, a New
York not-for-profit corporation (hereinafter "BCL");
W I T N E S S E T H:
THAT, WHEREAS, BCL conducts a program which promotes the thoroughbred
horse racing industry and familiarizes the international public with such
industry; and
WHEREAS, in connection with such program BCL sponsors an annual series
of thoroughbred horse races known as the "Breeders' Cup Championship"
(hereinafter "Championship"), provides purses and awards in connection with
thoroughbred horse races, sponsors a series of races known as the Breeders' Cup
National Stakes Program (hereinafter "National Stakes Races"), co-sponsors a
schedule of races with the New York Racing Association known as Breeders' Cup
Preview Day (hereinafter "Preview Day") and BCL owns and controls all rights in
and to the names, logos, symbols, mascots and designs of BCL and the
Championship (which names, logos, symbols, mascots and designs of BCL and the
Championship and other BCL sponsored races are hereinafter referred to as the
"Properties"); and
WHEREAS, BCL is desirous of retaining the services of SMTI to provide
general marketing consultation, broadcast and sponsorship rights, sales,
advertising production and media placement, publicity and public relations,
television and video production, production of promotional materials,
merchandising and licensing of BCL in connection with the
<PAGE>
Championship, the National Stakes Races, the Preview Day Races and other BCL
sponsored races, awards and programs and the Properties; and
WHEREAS, SMTI is desirous of providing services to BCL in connection
with the aforementioned marketing consultation, broadcast and sponsorship
rights, advertising, public relations, television production, promotion
materials and licensing of BCL, the Championship, the National Stakes Races,
the Preview Day Races and other BCL sponsored races, awards and programs and
the Properties.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
I. ENGAGEMENT.
BCL hereby engages and retains SMTI to provide the following
services and SMTI agrees to provide such services to BCL:
1.1. CONSULTING SERVICES. SMTI shall render to BCL
conceptual, strategic and tactical expertise in terms of marketing and
broadcasting BCL programs and events. SMTI agrees to provide BCL access to
SMTI's business contacts and relationships. The general consulting services to
be performed by SMTI shall include, but not necessarily be limited to, the
following matters and activities of BCL: overall policy and planning, BCL
program structure and implementation of events; promotional regulations;
commercial exploitation; track selection, contract negotiation and fulfillment;
consumer trends and perceptions; industry relations and financial analysis and
planning.
1.2. MARKETING SERVICES. SMTI shall provide services and
represent BCL in the general area of marketing other than as contained in this
Article I below, including, but not
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limited to, the following: creative development; analysis and planning;
presentations; simulcasting and remote wagering; host track negotiations;
publicity and public relations; national promotions; track promotions, and
event management. A more specific description of the foregoing marketing
services is attached hereto and designated Exhibit A.
1.3. ADVERTISING SERVICES. SMTI shall produce, and execute
media placement of, all advertising (except for certain trade and industry
advertising which BCL may deem advisable) for or in connection with BCL, the
Championship or the Properties, including, but not limited to, consumer print
ads; trade print ads; radio and television commercials. A more specific
description of the foregoing advertising services is attached hereto and
designated Exhibit B.
1.4. BROADCASTING SERVICES. SMTI shall provide services and
represent BCL's interests in all broadcasting areas, including, but not limited
to, media negotiations and media service. A more specific description of the
foregoing broadcasting services is attached hereto and designated Exhibit C.
1.5. PRODUCTION SERVICES. SMTI shall provide production
services, as may be requested by BCL from time to time, necessary to supply
quality material for BCL programs and events, including, but not limited to,
the following: securing competitive production bids; selection of qualified
third-party vendors and suppliers; establishment and control of budgets;
supervision of the production process; generation of timely and accurate
billing; insuring completion and shipment of the finished product. The
foregoing production services may be performed in the areas set forth on
Exhibit D, attached hereto.
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1.6. SALES SERVICES. SMTI shall represent BCL in the sale of
commercial rights related to the properties and shall perform the following
duties:
(a) BROADCAST RIGHTS. SMTI shall negotiate,
consummate and service all sales of rights to all broadcasting
entities including home video and videocassette sales, both domestic
and foreign;
(b) SPONSORSHIP SALES. SMTI shall negotiate,
consummate and service all sales of rights to all commercial entities,
both domestic and foreign; provided, however, that BCL retains the
right to make sales of sponsorship rights, in which event SMTI shall
remain responsible to BCL for sales assistance and the servicing of
such sales other than those sales made pursuant to paragraph 3.4(c)
herein;
(c) LICENSING SALES. SMTI shall negotiate,
consummate and service grants of licensing rights and privileges to
third-party licensees, racetracks and their respective sources of
supply on a year to year basis at the prior consent of BCL; provided,
however, that BCL retains the right to make any and all third party
sales of licensing rights and privileges; and
(d) VIDEO FOOTAGE SALES. SMTI shall negotiate,
consummate and service sales of video footage owned by BCL to all
interested third parties on a year to year basis at the prior consent
of BCL.
1.7. VIDEO PRODUCTION. SMTI shall provide production services
as may be requested by BCL from time to time necessary to supply quality video
tape and film materials to, or in association with, BCL programs, presentations
and events, including, but not limited to, the following: utilizing SMTI
personnel to produce, direct, edit and script; securing competitive bids
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from third-party production companies and/or third party production studios;
selection of qualified third-party personnel, companies and studios,
establishment and control of budgets, generation of timely and accurate
billing; insuring completion and shipment of finished product. The foregoing
production services may be performed in the areas set forth in Exhibit D
attached hereto.
1.8. TELEVISION PRODUCTION. SMTI shall provide production
services as may be requested by BCL from time to time for Breeders' Cup
television events which are not produced directly by the broadcasting entities
described in paragraph 1.6(a), except that SMTI shall have the exclusive right
to produce the Preview Day telecasts through the year 1999 in conjunction with
BCL/NBC and BCL/NYRA agreements dated July 30, 1993 and March 31, 1994,
respectively.
1.9. SMTI shall cause Michael Letis (hereinafter "Letis") and
Michael Trager (hereinafter "Trager") to be responsible for the management of,
and to devote substantial attention to, the engagement and the performance of
the services set forth hereinabove in this Article I.
1.10. BCL agrees to cooperate with SMTI in the sale of
sponsorships and licenses to third parties and accordingly shall not
unreasonably withhold the approval of such sales proposals presented by SMTI
during the term hereof, provided, however, that BCL may withhold approval of
any proposed sale of sponsorship or sponsorship agreement which gives name
entitlement to the sponsor.
- 5 -
<PAGE>
II. TERM.
2.1. Unless sooner terminated as hereinafter provided, the
term of this Agreement shall commence on January 1, 1998 and end on December
31, 1999. In the event NBC renews its agreement with BCL dated July 30, 1993,
for two years as provided for under such agreement, then this Agreement shall
be automatically renewed for an additional two (2) year term which coincides
with the term of the agreement between BCL and NBC.
2.2. BCL or SMTI may terminate this Agreement at any time
during the term hereof in the event of a material default in the performance of
this Agreement, including a failure to perform in good faith hereunder, by
giving written notice of such default to the party in default. In the event the
party in default does not cure said default within thirty (30) days after
receipt of notice thereof, termination of this Agreement shall be effective
upon expiration of said thirty (30) day period except as provided in Article
XI. Any termination notice in the event of material default shall state the
specific reasons for termination. Termination of this Agreement pursuant to the
provisions hereof shall not release either party from any obligations existing
prior to the effective date of termination.
III. FEES.
3.1. BASE FEE. In consideration for the performance of all
services to be performed pursuant to paragraphs 1.1 and 1.2 hereunder, BCL
shall pay SMTI a monthly base fee of $[ ]*, payable on or before the 1st day of
each month during the term hereof.
- 6 -
<PAGE>
*[CONFIDENTIAL TREATMENT REQUESTED]
3.2. PRODUCTION PAYMENTS AND COMMISSIONS. In addition to the
base fee, for the performance of the production services as set forth in
paragraph 1.5 hereunder, BCL shall pay SMTI an amount equal to the actual costs
incurred by SMTI in, the performance of such services. and in the production of
said materials, excluding general overhead costs, plus [ ]*% of such costs in
the form of a commission to SMTI.
In addition to the base fee, for the performance of the video
production services set forth in paragraph 1.7 hereunder, BCL shall pay SMTI
for the utilization of its own personnel at prevailing market prices for any
specific production service (other than services performed in the production of
BCL television commercials) actually performed by said personnel in the form of
a production fee in accordance with estimates approved by BCL and billed by
SMTI invoice to BCL. In addition to such production fees, BCL shall pay SMT1 an
amount equal to the actual costs incurred by SMTI in the performance of such
production services, other than those actually performed by SMTI personnel,
excluding general overhead costs, plus [ ]*% of such costs in the form of a
commission to SMTI.
In addition to the base fee, for the performance of the
television production services set forth in paragraph 1.8 hereunder, BCL shall
pay SMTI fee amounts in accordance with estimates pre-approved by BCL and
billed by SMTI invoice to BCL.
3.3. BROADCAST RIGHTS COMMISSIONS. In addition to the base
fee, for the performance of the broadcasting services set forth in paragraph
1.4 hereunder, BCL shall pay SMTI a commission equal to [ ]* percent of all
fees actually received by BCL from NBC pursuant to the Agreement dated July 30,
1993 for the broadcast rights covering the
- 7 -
<PAGE>
Championship (the "NBC Agreement") regardless of whether such fees are received
by BCL during the term of this Agreement or thereafter. In the event NBC
exercises its option to renew the NBC Agreement, then ECL shall pay SMTI a
commission equal to [ ]*% of all fees actually received by BCL from NBC up to
$[ ]* annually and [ ]*% of all fees in excess of $[ ]* annually during such
renewal term. In addition, BCL shall pay SMTI a commission equal to [ ]*
percent of all fees actually received by BCL for broadcast media rights (other
than those granted to NBC in the NBC Agreement) in respect of contracts or
arrangements consummated as a result of the efforts of SMTI pursuant to
paragraph 1.6(a) hereunder, provided such contracts or arrangements are fully
consummated during tile term hereof.
3.4. SPONSORSHIP AND LICENSE FEES.
(a) In addition to the base fee, in the event SMTI identifies
the sponsors or licensees and makes the sale of the sponsorship or license
rights, BCL shall pay SMTI a commission during the term hereof equal to [ ]*
percent of the gross amount annually of all advances, royalties, guarantees,
sponsorship fees, license fees or any and all other such fees or sums actually
received by BCL from sponsoring companies, official licensees and approved
racetrack suppliers in respect of sponsorship and license contracts or
arrangements consummated by SMT1 on behalf of BCL pursuant to paragraphs 1.6(b)
and 1.6(c) hereunder, provided such contracts or arrangements are in full force
and effect and not in default on the date of execution of this Agreement or
fully consummated during the term hereof.
(b) In the event BCL identifies and makes initial contact
with the sponsors or licensees and SMTI makes or assists BCL in the sale of the
sponsorship or license rights, then with respect to such sales, BCL shall pay
SMTI a commission during the term hereof equal to
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<PAGE>
[ ]* percent of the gross amount annually, up to [ ]*, of all advances,
royalties, guarantees, sponsorship fees, license fees or any and all other such
fees or sums actually received by BCL from sponsoring companies, official
licensees and approved racetrack suppliers in respect of sponsorship and
license contracts or arrangements; [ ]* percent of the gross amount annually,
from $[ ]* to $[ ]*, of all advances. royalties, guarantees, sponsorship fees,
license fees or any and all other such fees or sums actually received by BCL
from sponsoring companies, official licensees and approved racetrack suppliers
in respect of sponsorship and license contracts or arrangements; and [ ]*
percent of the gross amount annually, in excess of $[ ]*, of all advances,
royalties, guarantees, sponsorship fees, license fees or any and all other such
fees or sums actually received by BCL from sponsoring companies, official
licensees and approved racetrack suppliers in respect of sponsorship and
license contracts or arrangements.
(c) In the event BCL identifies the sponsors and makes the
sale of the sponsorship rights, then BCL shall pay SMTI a commission during the
term hereof equal to [ ]* percent of the gross amount annually (not to exceed
$[ ]* annually) of all advances, royalties, guarantees, sponsorship fees or any
and all other such fees or sums actually received by BCL from such sponsoring
companies in respect of sponsorship contracts or arrangements consummated by
BCL for which SMTI shall provide sponsorship services pursuant to paragraph
1.6(b) hereinabove and, in addition, SMT1 shall be reimbursed for reasonable
out of pocket expenses incurred in connection with such services.
3.5. ADVERTISING COMMISSIONS. In addition to the base fee,
SMTI shall retain a commission equal to [ ]*% of all annual gross advertising
placement billings up to a total amount of $[ ]* and [ ]* percent of all
billings amounts in excess of $[ ]* during the term hereof,
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<PAGE>
provided BCL has approved the production and placement of such media
advertising (television, radio and print) in advance. Advertising placed by
SMTI and paid by BCL, directly or indirectly, including, without limitation,
local advertising for the host track for each Breeders' Cup Championship, shall
be included in the totals in determining the applicable percentage commission
hereunder. This paragraph 3.5 shall not apply to the trade and industry
advertising described in paragraph 1.3.
3.6. OUT-OF-POCKET EXPENSES. BCL shall reimburse SMTI for
pre-approved travel, lodging, sustenance and reasonable entertainment expenses
in connection with general publicity and media relations, and on-location host
track contract negotiations and simulcasting or remote wagering development
within fifteen (15) days after receipt by BCL of a statement setting forth in
reasonable detail such expenses.
IV. STATUS OF SMTI.
It is expressly understood that SMTI shall act at all times
herein as an independent contractor, and nothing contained herein shall be
construed to create the relation between the parties of partners or joint
venturers, licensor and licensee, or employer and employee.
V. ASSIGNMENTS.
5.1. The parties hereto understand and agree that BCL is
entering this Agreement in reliance upon the personal expertise of, and
availability of the personal services of key employees of SMTI, including, but
not limited to, Letis and Trager. This Agreement shall not be assigned by SMTI
to any other person or company without prior written consent of BCL, which
consent shall not be unreasonably withheld by BCL.
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<PAGE>
5.2. In the event of the sale of SMT1 to any other person or
entity, or in the event of the merger or consolidation of SMTI with any other
corporation, then this Agreement may be assigned by SMTI to such successor
person or entity provided that, prior to such assignment, such successor person
or entity has effectively agreed for the benefit of BCL to assume all of the
obligations of SMTI under the terms of this Agreement, including the provisions
of paragraph 11.2(c) hereof.
5.3. This Agreement shall not be assigned by BCL without the
prior consent of SMTI, except that if BCL is merged or consolidated into a
successor corporation, then BCL may assign this Agreement to such successor
corporation provided that prior thereto said successor corporation has
effectively agreed for the benefit of SMTI to assume all of BCL's obligations
hereunder.
VI. SUBCONTRACTING.
SMTI may subcontract to third parties the performance of
services to be performed by SMT1 pursuant to this Agreement; provided, however,
only those services which, in the opinion of SMT1 and BCL, SMTI lacks the
technical expertise, personnel or facilities to perform are subject to this
right to subcontract. SMTI shall remain responsible for the performance of such
subcontracted services.
VII. CONFIDENTIALITY.
All knowledge and information which SMTI may acquire from
BCL, or from any of its employees or agents, or on the premises of BCL,
respecting the plans, methods, trade secrets and other private matters of BCL,
shall for all time and all purposes be regarded as strictly confidential and
held in trust solely for the benefit of BCL and shall not be directly or
indirectly
- 11 -
<PAGE>
indirectly disclosed by SMTI to any person other than those persons
specifically designated by BCL. It is understood that the employees, agents and
authorized personnel of SMTI may use such information in the ordinary course of
business pertaining to this Agreement and that SMTI shall use its best efforts
to preserve the confidentiality of such information at all times.
VIII. REPRESENTATIONS AND WARRANTIES.
8.1. BCL hereby represents and warrants that it is the sole
and absolute owner of the Properties, including all trademarks and copyrights
associated therewith. Furthermore, BCL represents and warrants that as of the
date of this Agreement the Properties do not infringe any contract, agreement,
copyright, trademark, literary, artistic or property right, or any right of
privacy or right of publicity of any third party, nor do such Properties
constitute slander or libel of any person, firm, corporation or association
whatsoever. BCL further represents and warrants that there is no litigation,
proceeding or claim of any nature pending or threatened against BCL which may
adversely affect the rights granted to SMTI hereunder.
8.2. SMTI represents and warrants that it shall in good faith
and with diligence conduct all activities described in Article I hereof. SMTI
further represents and warrants that there is no litigation, proceeding, or
claim pending or threatened against SMTI, its agents or employees, which may
adversely affect the duties imposed upon it hereunder.
IX. INDEMNIFICATION.
9.1. BCL shall indemnify and hold harmless SMTI from all
suits, claims, expenses, costs and liability (including reasonable legal fees
and expenses) arising directly or indirectly out of any misrepresentation or
breach of warranty made or given by BCL in this Agreement.
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<PAGE>
9.2. SMTI shall indemnify and hold harmless BCL from all
suits, claims, expenses, costs and liability (including reasonable legal fees
and expenses) arising directly or indirectly out of any misrepresentation or
breach of warranty made or given by SMTI in this agreement or out of SMTI's
failure to pay, when due, sums attributable to vendors, subcontractors or third
persons utilized to enable SMTI to perform its duties hereunder.
X. BOOKKEEPING AND ACCOUNTING.
10.1. All sums due BCL from third parties with regard to
license agreements, sponsorship agreements and media rights agreements unless
otherwise agreed to by BCL shall be remitted directly from such third parties
to BCL and BCL shall, within fifteen (15) days after its receipt thereof, remit
SMTI's commission thereon to SMTI.
10.2. BCL agrees to submit payment of all costs of media
placement and production of printed materials, films, video tapes, television
programs and such other items as may be produced by SMTI hereunder within
twenty-five (25) days after the receipt by BCL of a statement setting forth in
reasonable detail such costs.
10.3. SMTI and BCL agree to keep accurate books and records
covering all transactions relative to this Agreement. SMTI and BCL or their
respective duly authorized representatives shall have the right at all
reasonable hours of any business day upon reasonable notice to examine at the
other's place of business said books and records and other documents and
materials in the possession or under the control of each with respect to the
subject matter and provisions of this Agreement and shall have free and full
access thereto to examine and make extracts therefrom. SMTI and BCL shall keep
all said books and records available for at least two (2) years subsequent to
the expiration of this Agreement. A true copy of all audits with
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<PAGE>
respect to the subject matter of this Agreement made by SMTI or BCL or their
representatives shall be delivered to the other immediately upon completion.
Such right to examine is limited to SMTI's and BCL's business only as it
relates to this Agreement and neither shall have the right under any
circumstances to examine records relating to the other's business generally or
with respect to any other matters for purposes of comparison or otherwise.
XI. EVENTS OF DEFAULT.
11.1. The occurrence of any of the following events shall
constitute an event of default upon which BCL may, at its option, forthwith
terminate this Agreement effective the date notice of termination is mailed by
BCL to SMTI:
(a) The filing by or against SMTI in any forum or
jurisdiction of any petition, voluntary or involuntary (which petition
if involuntary is not dismissed or vacated within sixty (60) days),
for relief and accord in bankruptcy or for reorganization or
rearrangement under the bankruptcy laws, or an action for receivership
of any nature or for an assignment for the benefit of SMTI's
creditors.
(b) The dissolution for any reason where SMTI shall
not continue, without interruption, its business affairs.
11.2. The occurrence of any of the following events shall
constitute an event of default upon which BCL may, at its option, terminate
this Agreement effective thirty (30) days after SMTI receives notice of said
default and said default remains uncured pursuant to paragraph 2.2 hereof:
(a) The failure of SMTI to perform in any material
respect the engagement described in Article I hereof to the reasonable
satisfaction of BCL.
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<PAGE>
(b) The breach of any representation or warranty
made by SMTI hereunder.
(c) The termination of employment of Letis and/or
Trager with SMTI, whether caused by Letis and/or Trager or SMTI, or
for any reason. or the unavailability of Letis and/or Trager to
perform services necessary to enable SMTI to comply with the terms of
this Agreement, it being understood that an important inducement to
BCL to enter this Agreement is the availability of Letis and/or Trager
as employees of SMTI.
11.3. The occurrence of any of the following events shall
constitute an event of default upon which SMTI may, at its option, forthwith
terminate this Agreement effective the date notice of termination is mailed by
SMTI to BCL:
(a) The filing by or against BCL in any forum or
jurisdiction of any petition, voluntary or involuntary (which petition
if involuntary is not dismissed or vacated within sixty (60) days),
for relief and accord in bankruptcy or for a reorganization., or
rearrangement under the bankruptcy laws, or an action for receivership
of any nature or for an assignment for the benefit of BCL's creditors.
(b) The dissolution of BCL for any reason, where BCL
shall not continue, without interruption, its business affairs.
11.4. The occurrence of any of the following events shall
constitute an event of default upon which SMTI may, at its option, terminate
this Agreement effective thirty (30) days after BCL receives notice of said
default and said default remains uncured pursuant to paragraph 2.2 hereof:
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<PAGE>
(a) The failure of BCL to make payments of any sums
due hereunder on the date said payments are due;
(b) The granting by BCL to any person or company
other than SMTI the rights of advertising other than as provided in
paragraph 1.3, broadcast negotiation, broadcast sales, sponsorship
sales other than as provided in paragraph 1.6(b) hereinabove or any
other exclusive right granted by the terms of this Agreement to SMT1;
(c) The breach of any representation or warranty
made by BCL hereunder.
11.5. It is expressly understood and agreed between the
parties hereto that the rights and remedies provided hereunder are cumulative
and that the exercise of any right or remedy upon the occurrence of an event of
default shall not constitute a waiver of any other rights or remedies which may
be available hereunder or at law or in equity to either party hereto.
XII. AUTHORITY OF SMTI.
It is expressly understood by the parties hereto that SMTI
has no authority to cause BCL to become liable upon any contract without BCL's
prior written authorization, which may be general or specific, and any
agreement which may be negotiated by SMTI shall be submitted to BCL for
approval, modification or rejection. In addition, before being utilized,
published or distributed, all advertising, publicity and promotional materials
shall be approved by BCL.
XIII. RIGHTS UPON TERMINATION.
13.1. It is expressly understood that upon the termination or
expiration of this Agreement all rights and privileges granted by BCL to SMTI,
except for the Preview Day
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<PAGE>
television production rights pursuant to the agreement between BCL and the New
York Racing Association, Inc. dated March 30, 1994, in paragraph 1.8 shall
immediately revert back to BCL and BCL, thereafter, shall have no further
obligation to SMTI except for payment of sums which became due to SMTI prior to
termination or expiration of this Agreement including all commissions due to
SMTI pursuant to paragraphs 3.3 and 3.4 hereof in respect of agreements
consummated during the term of this Agreement.
13.2. It is further agreed that, notwithstanding the
provisions of paragraph 13.1 hereof, in the event of termination of this
Agreement pursuant to paragraphs 11.1 or 11.2 hereof with the exception that
such termination may result from the death or disability of Letis and/or
Trager, BCL shall have no obligation to pay commissions to SMTI pursuant to
paragraphs 3.3 or 3.4 hereof in respect of broadcast media rights fees,
sponsorship fees or license fees received by BCL if
(a) Such fees are received after the date of
termination, and
(b) BCL has been reasonably required to retain the
services of persons or firms other than SMTI (including BCL employees)
to perform BCL's obligations under such broadcast media rights
agreements, sponsorship agreements or license agreements.
XIV. NOTICES.
All notices, requests, statements and other communications
hereunder shall be in writing and shall be given by certified or registered
mail, return receipt requested, as follows:
If to SMTI: Sports Marketing & Television
International, Inc.
410 Greenwich Avenue
Greenwich, Connecticut 06830
Attn: Michael A. Letis
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<PAGE>
If to BCL: Breeders' Cup Limited
2525 Harrodsburg Road
P.O. Box 4230
Lexington, Kentucky 40544
Attn: D.G. Van Clief, Jr.
cc: Robert M. Watt, III, Esq.
Stoll, Keenon & Park, LLP
201 East Main Street, Suite 1000
Lexington, Kentucky 40507-1380
or at such other addresses as the parties may designate in writing in
accordance with this Article XIV.
XV. MISCELLANEOUS.
15.1. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Kentucky and the parties hereby
agree that this Agreement is made in Fayette County, Kentucky, and is to be
performed in Fayette County, Kentucky.
15.2. In the event any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidation, illegality or
unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
15.3. Each party executing this Agreement warrants and
represents that he or she is fully authorized and has the power to execute this
Agreement on behalf of such party.
15.4. This Agreement constitutes the entire understanding
between the parties hereto and shall not be modified or amended unless in
writing signed by such parties. The failure of either SMT1 or BCL to enforce,
or the delay of either SMTI or BCL in enforcing, any of the
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<PAGE>
said party's rights under this Agreement shall not be deemed a continuing
waiver and such party may, within such time as is provided by applicable law,
commence appropriate suits, actions or proceedings to enforce any or all such
rights.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPORTS MARKETING & TELEVISION
INTERNATIONAL, INC.
By: /s/ Michael A. Letis, President
-------------------------------------
Michael A. Letis, President
BREEDERS' CUP LIMITED
By: /s/ D.G. Van Clief, Jr., President
-------------------------------------
D.G. Van Clief, Jr., President
- 19 -
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