<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997
REGISTRATION NO. 333-31879
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE MARQUEE GROUP, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7941 13-3878295
(State or Other Jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
Incorporation or Organization) Code Number) Identification No.)
</TABLE>
888 SEVENTH AVENUE, 37TH FLOOR
NEW YORK, NEW YORK 10019
(212) 728-2000
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
ROBERT M. GUTKOWSKI, PRESIDENT
888 SEVENTH AVENUE, 37TH FLOOR
NEW YORK, NEW YORK 10019
(212) 728-2000
(Name, Address and Telephone Number of Agent for Service)
Copies to:
<TABLE>
<CAPTION>
<S> <C>
AMAR BUDARAPU, ESQ. HOWARD L. SHECTER, ESQ.
BAKER & MCKENZIE MORGAN, LEWIS & BOCKIUS LLP
805 THIRD AVENUE 101 PARK AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10178
(212) 751-5700 (212) 309-6000
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 SEPTEMBER 15, 1997
PROSPECTUS
[THE MARQUEE GROUP, INC. LOGO]
7,500,000 Shares
THE MARQUEE GROUP, INC.
Common Stock
- -----------------------------------------------------------------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by The Marquee Group,
Inc. (the "Company").
The Common Stock is listed on the American Stock Exchange (the "AMEX") under
the symbol "MRT." On September 12, 1997, the last reported sales price of the
Common Stock on the AMEX was $6.75 per share. See "Price Range of Common
Stock."
The consummation of this Offering is conditioned upon the concurrent closing
of the ProServ Acquisition (as defined herein).
SEE "RISK FACTORS" ON PAGES 10 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------- ------------ ----------------- ------------------
<S> <C> <C> <C>
Per Share ..... $ $ $
- -------------- ------------ ----------------- ------------------
Total(3)....... $ $ $
- -------------- ------------ ----------------- ------------------
</TABLE>
- -----------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company has granted the several Underwriters a 30-day
over-allotment option to purchase up to 1,125,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If
all such additional shares are purchased by the Underwriters, the total
Price to Public will be $ , the total Underwriting Discounts and
Commissions will be $ and the total Proceeds to Company will be
$ . See "Underwriting."
- -----------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and acceptance by the Underwriters, prior sale and
withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares to the Underwriters is expected to be made at the
office of Prudential Securities Incorporated, One New York Plaza, New York,
New York, on or about , 1997.
PRUDENTIAL SECURITIES INCORPORATED COWEN & COMPANY
, 1997
<PAGE>
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THE MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes no exercise of (i) outstanding options and warrants to
purchase an aggregate of 1,750,003 shares of Common Stock and (ii) the
Underwriters' over-allotment option. See "Capitalization." Unless the context
otherwise requires, the "Company" refers to The Marquee Group, Inc. and its
subsidiaries. The consummation of this Offering is conditioned upon the
concurrent closing of the ProServ Acquisition. Investors should consider
carefully the information set forth under "Risk Factors."
THE COMPANY
The Company provides integrated event management, television production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries. The Company's event management,
television production and marketing services involve managing sporting
events, producing sports television programs and marketing professional and
collegiate athletic leagues and organizations. The Company also arranges and
negotiates sports and entertainment-related television rights, advertising,
corporate sponsorships and naming rights (or "entitlements") for its clients.
The talent representation services provided by the Company include
negotiating employment agreements and creating and evaluating various
business opportunities for sports, news and entertainment personalities. The
Company also provides a variety of consulting services to clients either
engaged in, or seeking exposure in, sports and entertainment-related
industries.
In recent years, significant developments in mass media, including the
growth of satellite communications and cable television, have resulted in
expanded national and international exposure of sports, news and
entertainment events and programming. For example, according to Gould Media,
a research and publishing company for the sports industry, the number of
national or regional television networks offering sports programming in the
United States has grown from three in 1977 to 43 in 1997. In addition,
according to IEG's Complete Guide to Sponsorship, annual North American
sponsorship spending has grown from $1.0 billion (of which the Company
believes $900 million was related to sports) in 1986 to $5.4 billion (of
which $3.5 billion was related to sports) in 1996. These amounts represent
compounded annual growth rates of 18.4% for sponsorship spending and 14.5%
for sports sponsorship spending. The increased exposure of sporting and
entertainment events and of high profile personalities has expanded the need
for the types of services provided by the Company and has given rise to
significant additional revenue sources, such as corporate sponsorships and
entitlements to events and venues. The Company intends to continue to seek
opportunities from these markets through its existing contacts and resources.
The Company was organized in July 1995 by Robert M. Gutkowski and Robert
F.X. Sillerman. Mr. Gutkowski is the Company's President and Chief Executive
Officer and has over 20 years of experience in the television, sports and
entertainment industries. He served as President of Madison Square Garden
Corporation (which included overall responsibility for MSG Cable Network)
from November 1991 until September 1994. Mr. Sillerman is the Chairman of the
Company, and his principal occupation is Executive Chairman of the Board of
Directors of SFX Broadcasting, Inc. ("SFX"), a publicly-traded company which
owns and operates radio stations and concert promotion businesses.
From the time of its organization until its initial public offering in
December 1996 (the "IPO"), the Company developed its sports television
production, marketing and consulting business. Simultaneously with the IPO,
the Company acquired Sports Marketing and Television International, Inc.
("SMTI"), a leading provider of television production and marketing services
in the sports and other entertainment industries since 1984, and Athletes &
Artists, Inc. ("A&A"), a sports and news talent representation firm founded
in 1977, which has a client list that includes premier athletes, sports and
news broadcasters and media executives. Since the IPO, the Company has
continued to grow by hiring individuals whose businesses and expertise
complement those of the Company and by providing services to an increasing
3
<PAGE>
number of clients. Through both acquisitions and internal growth, the Company
has developed or substantially expanded its event management, television
production, marketing, talent representation and consulting capabilities. In
addition, upon completion of this Offering, the Company will continue to
expand its capabilities through the consummation of the ProServ Acquisition
and the QBQ Acquisition (as defined herein).
In order to capitalize on the opportunities available in the sports, news
and other entertainment industries, the Company has developed an operating
and acquisition strategy consisting of the following major elements:
OPERATING STRATEGY
Enhance Revenues by Offering Integrated Services. The Company intends to
continue to enhance its revenues from its event management, television
production, marketing, talent representation and consulting businesses by
offering integrated sports and entertainment-related services. The Company
will continue to cross-promote its various services by offering additional
complementary services within its lines of business to new and existing
clients. Where possible, the Company intends to create and/or seek ownership
interests in sports and entertainment-related events in order to maximize its
earnings potential from such events.
Increase Breadth of Services. The Company intends to continue to expand
its current lines of business to provide a more comprehensive array of
services to its clients. As the needs of companies utilizing advertising and
marketing services become increasingly sophisticated, the Company believes
that its clients will require a broader range of the types of services it
provides. The Company will utilize its breadth of services, its financial
resources, its heightened visibility and its management's experience and
reputation to provide it with expanded opportunities. For example, the
Company's financial resources may enable it to create or purchase ownership
interests in sporting events and to develop in-house television production
capabilities. In addition, the Company intends to continue to expand its
consulting business in order to utilize management's substantial expertise in
various aspects of sports and entertainment event management, television
production and marketing.
Increase International Market Penetration. The Company intends to continue
to pursue expansion opportunities in international markets, primarily
focusing on the European and Pacific Rim markets. The Company believes that
the sports, news and other entertainment industries in these markets are less
developed than in the United States and therefore present significant
opportunities to provide the types of services offered by the Company.
ACQUISITION STRATEGY
The Company intends to continue to expand through the acquisition of
companies and events and through attracting individuals with relevant
expertise, both within its existing lines of business and within
complementary lines of business. According to the 1997 Sports Business
Directory published by E.J. Krause & Associates, Inc., there are presently
over 700 companies in North America that provide sports marketing and/or
talent representation services. The Company believes that the highly
fragmented nature of its industry offers many attractive acquisition
opportunities, and the Company intends to rely on the experience of its
management team to continue to identify acquisition candidates whose
businesses will complement the Company's existing operations and whose
operations may be constrained by lack of capital. The Company believes that
it is one of the few publicly-traded companies within its industry, and, as a
result, the Company will have certain advantages over many of its smaller
competitors in negotiating and consummating acquisitions.
PENDING ACQUISITIONS
ProServ Acquisition. The Company has recently entered into agreements (the
"ProServ Acquisition Agreements") to acquire (the "ProServ Acquisition")
ProServ, Inc. and ProServ Television, Inc.
4
<PAGE>
(collectively, "ProServ"). ProServ is an established provider of
international sports event management, television production, marketing,
talent representation and consulting services. ProServ was founded in 1969 by
the then-Captain of the U.S. Davis Cup team, Donald Dell, who also co-founded
the Association of Tennis Professionals ("ATP") and pioneered the commercial
development of tennis as a major international sport. Upon the consummation
of the transactions contemplated by the ProServ Acquisition Agreements, Mr.
Dell will continue to serve as the chairman and chief executive officer of
ProServ and will become a director of the Company. ProServ provides many of
the same services that the Company currently provides and, as a result, the
Company anticipates increased revenues through the sharing of business
development opportunities, contacts and expertise. In addition, although the
Company's primary operations have been in the United States, the Company
believes ProServ's existing international operations will facilitate the
Company's goal of becoming a major competitor in the burgeoning business of
international sports, particularly in European and Pacific Rim markets.
ProServ has undergone an internal restructuring focused on eliminating
business activities that do not provide adequate financial returns and
reducing its operating expenses. See "Management's Discussion and Analysis of
Financial Condition." The aggregate purchase price of the ProServ Acquisition
consists of approximately $10.8 million in cash and 250,000 shares of Common
Stock. See "Agreements Related to the Pending Acquisitions--ProServ
Acquisition."
QBQ Acquisition. The Company has also entered into an agreement pursuant
to which Marquee Music, Inc. ("Marquee Music"), a wholly-owned subsidiary of
the Company, will acquire the assets of QBQ Entertainment, Inc. ("QBQ"), a
company that books tours and appearances for a variety of entertainers (the
"QBQ Acquisition" and, together with the ProServ Acquisition, the "Pending
Acquisitions"). Since its founding in 1986, QBQ has developed relationships
with, and has provided booking and touring representation services to, a
variety of musicians, entertainers and groups, including Billy Joel,
Metallica, Lynyrd Skynyrd, Luther Vandross, Rodney Dangerfield and Bruce
Hornsby. The Company believes that the music business offers commercial
opportunities similar to the sports business, such as corporate sponsorships
and entitlements. Mr. Gutkowski has significant expertise in the music
concert business, having served as President of Madison Square Garden
Corporation, a premier indoor concert venue, and has been actively involved
in various aspects of the music concert business, including production of
televised concerts. Upon the consummation of the QBQ Acquisition, Dennis
Arfa, the founder and chief executive officer of QBQ, will serve as the chief
executive officer of Marquee Music. The aggregate purchase price for the QBQ
Acquisition consists of approximately $3.1 million in cash, $1.6 million
payable in annual installments over eight years and up to $2.5 million
payable in shares of Common Stock, of which shares relating to $500,000 are
subject to an escrow agreement. See "Agreements Related to the Pending
Acquisitions--QBQ Acquisition."
The timing and consummation of the Pending Acquisitions are subject to a
number of conditions, certain of which are beyond the Company's control, and
there can be no assurance that the Pending Acquisitions will be consummated.
However, the consummation of this Offering is conditioned upon the concurrent
closing of the ProServ Acquisition. Although this Offering is not conditioned
upon the closing of the QBQ Acquisition, the Company anticipates closing the
QBQ Acquisition promptly following the consummation of this Offering. See
"Agreements Related to the Pending Acquisitions." While the Company has not
entered into agreements relating to any acquisitions other than the Pending
Acquisitions, it intends to continue to expand its operations through
additional acquisitions of companies and events and through attracting
individuals with relevant expertise. The Company anticipates that a portion
of the proceeds of this Offering will be used for such acquisitions. See "Use
of Proceeds."
5
<PAGE>
SERVICES PROVIDED BY THE COMPANY
The Company believes that, upon the consummation of the Pending
Acquisitions, it will be one of the leading integrated providers of
comprehensive event management, television production, marketing, talent
representation and consulting services within the sports, news and
entertainment industries. The following are brief descriptions of the
Company's lines of business:
Event Management, Television Production and Marketing Services. The
Company's event management, television production and marketing services
involve managing sporting events, producing sports television programs and
marketing professional and collegiate athletic leagues and organizations. The
Company also arranges and negotiates sports and entertainment-related
television rights, advertising, corporate sponsorships and entitlements for
its clients. The Company's current projects include producing and/or
marketing The Breeders' Cup Championship, the Isuzu Celebrity Golf
Championship, the U.S. Open Figure Skating Championship and all ESPN and
ESPN2 boxing telecasts. Upon consummation of the ProServ Acquisition, the
Company will derive revenues from providing event management, television
production and marketing services to 14 professional tennis events annually
(including the sale of U.S. cable television rights to the U.S. Open Tennis
Championship and U.S. broadcast and cable television rights to the French
Open Tennis Championship and the management and production of the AT&T
Challenge Cup, an ATP tour event). The Company will also derive revenues from
the sale of the international television rights to substantially all NCAA
Championship events (including the Final Four and the College World Series).
Talent Representation. The Company negotiates employment agreements and
creates and evaluates various business opportunities for sports, news and
entertainment personalities. The Company's roster of clients includes more
than 50 current and former professional athletes in a variety of sports
(including Brian Leetch, Ben Coates and Irving Fryar), 80 broadcasters
(including Forrest Sawyer, Al Michaels, Christiane Amanpour, Dan Dierdorf and
Chris Berman), authors and media executives. Upon consummation of the ProServ
Acquisition, the Company will represent over 100 additional national and
international athletes in a variety of sports, including Stefan Edberg,
Gabriela Sabatini, Mark Chmura, Per-Ulrik Johansson and Greg LeMond.
Upon consummation of the QBQ Acquisition, the Company will expand its
services into the music and entertainment business. QBQ has relationships
with, and has booked tours for, such clients as Billy Joel, Metallica, Lynyrd
Skynyrd, Rodney Dangerfield and Bruce Hornsby. Many of the clients
represented by QBQ have an extended history with QBQ, touring periodically
over a number of years.
Consulting. The Company currently provides specialized consulting services
to 11 clients either engaged in, or seeking exposure in, sports and
entertainment-related industries. For example, the Company consults with
Major League Baseball Properties, Inc. on its negotiations with corporate
sponsors and advises Princeton Video Image, Inc. (a company which developed a
computer system that makes it possible to insert advertising into a live
television program without interrupting the televised action) on how to
market its technology to sports teams, events and sponsors. Upon consummation
of the ProServ Acquisition, the Company will also provide consulting services
to, among others, Staples, Inc., Schering-Plough Corporation and Hershey
Foods Corporation.
The Company was incorporated in Delaware in July 1995. The Company's
executive offices are located at 888 Seventh Avenue, 37th Floor, New York,
New York 10019, and its telephone number is (212) 728-2000.
TENDER OFFER
On July 23, 1997, the Company commenced a tender offer (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. Accordingly, as of September 12, 1997, 527,503 Warrants
remained outstanding, of which 253,496 were beneficially owned by directors
and officers of the Company. In order to consummate its purchase of the
Warrants, the Company borrowed $10.5 million pursuant to a loan agreement
(the "Bridge Facility") with The Huff Alternative Income Fund, L.P. ("Huff").
The Company intends to repay such borrowing with a portion of the net
proceeds of this Offering. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
6
<PAGE>
THE OFFERING
Common Stock Offered Hereby ... 7,500,000 shares
Common Stock to be Outstanding
after this Offering .......... 16,269,162 shares(1)
Common Stock to be Outstanding
after this Offering
and the Pending Acquisitions . 16,889,532 shares(1)(2)
Use of Proceeds ............... To fund the cash portion of the purchase
price of the Pending Acquisitions and
payment of certain indebtedness of ProServ,
to repay borrowings under the Bridge
Facility and for working capital and other
general corporate purposes, including future
acquisitions. See "Use of Proceeds."
AMEX Symbol ................... MRT
- ------------
(1) Excludes up to (i) 527,503 shares issuable upon the exercise of
outstanding Warrants at an exercise price of $7.50 per share, (ii)
670,000 shares issuable upon exercise of the IPO underwriters' unit
purchase options (the "IPO Unit Options"), including shares issuable
upon exercise of the Warrants contained therein, (iii) 800,000 shares
reserved for issuance under the Company's 1996 and 1997 Stock Option
Plans, under which options to purchase 237,500 shares are outstanding,
(iv) 200,000 shares issuable upon exercise of an option (the "TSC
Option") granted to The Sillerman Companies, Inc. ("TSC") for
consulting services provided in connection with the Tender Offer, (v)
105,000 shares issuable upon exercise of options issued to Huff in
connection with the Bridge Facility (the "Huff Options"), (vi) 10,000
shares issuable upon exercise of an option issued to Mr. Sillerman in
connection with the ProServ Acquisition and (vii) 1,125,000 shares
issuable upon exercise of the Underwriters' over-allotment option. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources,"
"Management--Stock Option Plans," "Certain Relationships and Related
Transactions--Consulting Agreement" and "--ProServ Acquisition" and
"Description of Securities."
(2) Includes (i) 1,275,000 shares of Common Stock placed in escrow by
certain officers, directors and consultants of the Company in
connection with the IPO (the "IPO Escrow Shares") and (ii) 74,074
shares of Common Stock that the Company has agreed to deposit in escrow
in connection with the QBQ Acquisition (the "QBQ Escrow Shares"). The
IPO Escrow Shares and the QBQ Escrow Shares are subject to cancellation
and will be contributed to the capital of the Company under certain
circumstances. In the event such shares are released from escrow, the
Company may record, for financial reporting purposes, a substantial
non-cash compensation charge to operations. Assumes a price of $6.75
per share of Common Stock for purposes of determining the number of
shares to be issued in connection with the QBQ Acquisition. See
"Agreements Related to the Pending Acquisitions--QBQ Acquisition" and
"Principal Stockholders--Escrow Shares."
RISK FACTORS
Investors should consider the material risk factors involved in connection
with an investment in the Common Stock offered hereby and the impact to
investors from various events that could adversely affect the Company's
business. See "Risk Factors."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(amounts in thousands, except share data)
The Summary Consolidated Financial Data of the Company as of June 30, 1997
and for the six months ended June 30, 1997 and 1996 have been derived from
the unaudited financial statements and notes thereto of the Company appearing
elsewhere in this Prospectus. The pro forma summary data as of June 30, 1997,
for the six months ended June 30, 1997 and for the year ended December 31,
1996 are derived from the unaudited pro forma condensed combined financial
statements which, in the opinion of the Company, reflect all adjustments
necessary for a fair presentation of the transactions for which such pro
forma financial information is given. Operating results for interim periods
are not necessarily indicative of the results that may be achieved for the
entire fiscal year. The Company had no operations during the period from July
11, 1995 (inception) through December 31, 1995. The following data should be
read in conjunction with the notes thereto, the audited and unaudited
financial statements and notes contained elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See "Unaudited Pro Forma Condensed Combined Financial
Statements."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------- --------------------------------------
PRO FORMA
FOR THE PRO FORMA
RECENT FOR THE PRO FORMA
PRO FORMA ACQUISITIONS, OFFERING FOR THE
FOR THE OFFERING, AND RECENT AS RECENT
RECENT AND PROSERV AND PENDING AS REPORTED REPORTED ACQUISITIONS(1)
AS REPORTED ACQUISITIONS(1) ACQUISITION(2) ACQUISITIONS(3)(4) 1996 1997 1996
----------- --------------- --------------- ------------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ............ $2,869 $15,185 $28,573 $29,932 $801 $6,174 $6,265
Operating expenses .... 2,564 9,486 19,102 19,376 667 2,901 3,598
General and
administrative
expenses............ 2,199 5,843 9,697 10,405 708 4,048 2,538
EBITDA(12) ........... $(1,894) $(144) $(226) $151 $(574) $(775) $129
Restructuring costs ... -- -- 565 565 -- -- --
Depreciation and
amortization ........ 61 108 1,075 1,463 -- 104 16
Operating income (loss) (1,955) (252) (1,866) (1,877) (574) (879) 113
Net income (loss)...... (2,411) (914) (2,528) (2,535) (574) (881) 31
Net loss applicable to
common stockholders .. $(2,411) $(914) $(2,643) $(2,650) $(574) $(881) $31
Net loss per share
applicable to common
stockholders ........ $(1.03) $(0.12) $(0.17) $(0.17) $(0.28) $(0.12) $*
Weighted average number
of shares of common
stock outstanding(7) . 2,346,717 7,494,162 15,244,162 15,540,458 2,066,662 7,494,162 7,494,162
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE FOR THE
OFFERING OFFERING
AND PROSERV AND PENDING
ACQUISITION(5) ACQUISITIONS(4)(6)
1997 1997
------------ -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues .............. $ 12,612 $ 13,625
Operating expenses .... 7,383 7,510
General and
administrative
expenses.............. 5,408 5,759
EBITDA(12) ............ $ (179) $ 356
Restructuring costs ... -- --
Depreciation and
amortization ......... 592 780
Operating loss ........ (771) (424)
Net loss............... (773) (382)
Net loss applicable to
common stockholders .. $ (831) $ (440)
Net loss per share
applicable to common
stockholders ......... $ (0.05) $ (0.03)
Weighted average number
of shares of common
stock outstanding(7)... 15,244,162 15,540,458
</TABLE>
- ------------
* less than $.01
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 AT JUNE 30, 1997
------------------- --------------------------------------
PRO FORMA
FOR THE BRIDGE
FACILITY,
TENDER OFFER,
OFFERING, AND
AS REPORTED AS REPORTED PENDING ACQUISITIONS(9)
------------------- ------------- -----------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................................. $7,231 $ 688 $ 21,385
Current assets ......................... 9,085 4,117 29,432
Total assets .......................... 9,361 8,704 56,176
Current liabilities .................... 1,850 2,700 8,084
Long-term debt ......................... 1,759 1,138 2,204
Common Stock subject to put options in
connection with Pending Acquisitions(10) . -- -- 3,563
Stockholders' equity .................... 5,409 4,445 41,096(11)
</TABLE>
8
<PAGE>
- ------------
(1) Gives effect to the IPO and acquisition of SMTI and A&A (the "Recent
Acquisitions"). The Company acquired SMTI and A&A on December 12, 1996
and included the results of their operations only from the acquisition
date in its consolidated results of operations for the year ended
December 31, 1996. Therefore, for pro forma purposes, the results of
operations of SMTI and A&A for the period prior to the acquisition date
are combined with the Company.
(2) Gives effect to (i) the IPO and the Recent Acquisitions, (ii) the
completion of this Offering at an assumed public offering price of
$6.75 per share and (iii) the ProServ Acquisition, as if they had
occurred on January 1, 1996.
(3) Gives effect to (i) the IPO and the Recent Acquisitions, (ii) the
completion of this Offering at an assumed public offering price of
$6.75 per share and (iii) the Pending Acquisitions, as if they had
occurred on January 1, 1996.
(4) Excludes charges related to the Bridge Facility, including fees,
expenses and interest aggregating $936 (assuming that the Bridge
Facility is outstanding for 45 days) and fees and expenses of the
Tender Offer of $370.
(5) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.75 per share and (ii) the ProServ
Acquisition, as if they had occurred on January 1, 1996.
(6) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.75 per share and (ii) the Pending
Acquisitions, as if they had occurred on January 1, 1996.
(7) Gives effect to the IPO as if it occurred as of January 1, 1996 and
excludes 1,275,000 IPO Escrow Shares. The Pro Forma for the Recent
Acquisitions, Offering and Pending Acquisitions excludes 74,074 QBQ
Escrow Shares. Assumes a price of $6.75 per share of Common Stock for
purposes of determining the number of shares to be issued in the QBQ
Acquisition. See "Principal Stockholders--Escrow Shares" and Note 6 to
the Company's Financial Statements.
(8) The unaudited pro forma Balance Sheet Data gives effect to the
completion of this Offering at an assumed public offering price of
$6.75 per share of Common Stock and the application of the net proceeds
therefrom to complete the Pending Acquisitions and to repay borrowings
under the Bridge Facility. See "Risk Factors--Limited Operating
History; History of Losses; Future Charges to Operations," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(9) Adjusted to give effect to the application of proceeds of this Offering
to repay borrowings incurred under the Bridge Facility to purchase the
Warrants in the Tender Offer, including fees and expenses of $370, and
to repay fees, expenses and interest of the Bridge Facility aggregating
$936 (assuming that the Bridge Facility is outstanding for 45 days).
(10) Represents the Company's potential obligation to repurchase 527,777
shares of Common Stock to be issued in connection with the Pending
Acquisitions, of which 55,555 shares are QBQ Escrow Shares. These
shares are not included in stockholders' equity. Assumes a price of
$6.75 per share of Common Stock for purposes of determining the number
of shares to be issued in the QBQ Acquisition. See "Agreements Related
to the Pending Acquisitions."
(11) Includes $625 relating to the issuance of shares of Common Stock in
connection with the QBQ Acquisition.
(12) EBITDA is defined as revenues less operating expenses and general and
administrative expenses, excluding depreciation, amortization,
interest, taxes and restructuring costs. EBITDA is not recognized under
GAAP. Investors should not consider EBITDA to be an alternative to
operating income as determined in accordance with GAAP, an alternative
to cash flows from operating activities (as a measure of liquidity) or
an indicator of the Company's performance under GAAP.
9
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Those statements appear in a
number of places in this Prospectus and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) the Company's business and
growth strategies; (ii) trends affecting the Company's financial condition or
results of operations; (iii) the use of proceeds of this Offering and (iv)
potential cost savings and revenue enhancements in connection with
acquisitions by the Company. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors. The accompanying information contained in this Prospectus including,
without limitation, the information set forth under the headings "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," identifies important factors that
could cause such differences.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; FUTURE CHARGES TO
OPERATIONS. Although the Company was formed in July 1995, it did not commence
operations until January 1996 and did not complete the Recent Acquisitions
until December 11, 1996. For the period from July 11, 1995 (inception)
through December 31, 1995, the Company had no revenues or expenses. For the
year ended December 31, 1996 and for the six months ended June 30, 1997, the
Company had net losses of $2.4 million and $881,000, respectively. On a pro
forma basis, giving effect to the IPO, the Recent Acquisitions, this Offering
and the Pending Acquisitions as if they had occurred on January 1, 1996, the
Company would have had a net loss applicable to common stockholders of $2.6
million for the year ended December 31, 1996. On a pro forma basis, giving
effect to this Offering and the Pending Acquisitions as if they had occurred
on January 1, 1996, the Company would have had a net loss applicable to
common stockholders of $440,000 for the six months ended June 30, 1997. There
can be no assurance that these losses will not continue or that the Company
will become profitable in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and the notes related thereto included herein.
The Company has recorded and will continue to record substantial
compensation charges to operations in connection with the issuance prior to
the date hereof of securities to certain officers, directors and consultants,
including the release from escrow of the IPO Escrow Shares and the QBQ Escrow
Shares. In the event that the IPO Escrow Shares or the QBQ Escrow 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 to operations, 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 may record charges to operations over the next two
years aggregating $237,500 (assuming a price per share of Common Stock of
$6.75 on the date of consummation of the ProServ Acquisition) 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 employment agreements with two of its officers, the Company will
recognize charges to operations aggregating $565,400 over the next five
years, exclusive of their salaries and benefits. In connection with the
Recent Acquisitions, the Company will also incur charges to operations
aggregating $530,000 over the five year period commencing in December 1996
related to the imputed interest on the indebtedness to the stockholders of
SMTI and A&A. In connection with the QBQ Acquisition, the Company will incur
additional charges to operations aggregating $388,000 related to the imputed
interest on the indebtedness to the sole stockholder of QBQ. The recognition
of these charges to operations may depress the market price of the Company's
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Principal Stockholders--Escrow Shares" and
"Agreements Related to the Pending Acquisitions."
10
<PAGE>
ABILITY TO MANAGE GROWTH AND INTEGRATE ACQUISITIONS. The Company has grown
rapidly since its formation in 1995, primarily as a result of acquiring two
independently managed businesses, SMTI and A&A. The Company anticipates
continuing this growth with the consummation of the Pending Acquisitions. The
Company's growth may place a significant strain on the Company's management
and operations. The Company's acquisitions could involve a number of risks,
including the diversion of management's attention to the assimilation of the
companies to be acquired, unforeseen difficulties in acquired operations,
difficulties in integrating the operations of acquired businesses and
potential conflicts of interest. See "Certain Relationships and Related
Transactions--Potential Conflicts of Interest with SFX." In addition, the
Company's planned international expansion is likely to involve additional
increased costs and risks, including those related to foreign regulation,
currency fluctuations and exchange controls. There can be no assurance that
the growth experienced by the Company will continue or that the Company will
be able to manage any future expansion successfully. Furthermore, the
Company's plans with respect to the Pending Acquisitions and future
acquisitions involve, to a substantial degree, strategies to increase revenue
and to reduce operating expenses as a percentage of revenue. There can be no
assurances that the Company will be able to implement its plans or that, if
implemented, they will accomplish the desired objectives of increasing
revenue or reducing operating expenses as a percentage of revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BROAD DISCRETION OF MANAGEMENT IN USE OF PROCEEDS; UNCERTAINTY RELATED TO
ACQUISITION STRATEGY. The Company's management will have broad discretion
over the use of approximately $19.3 million of the net proceeds of this
Offering allocated to working capital and other general corporate purposes, a
substantial portion of which it intends to use for future acquisitions. In
addition, the completion of the QBQ Acquisition is subject to a number of
conditions, certain of which are beyond the Company's control, and there can
be no assurance that such acquisition will be consummated. In the event the
QBQ Acquisition is not consummated, the Company intends to apply the net
proceeds of this Offering allocated for the QBQ Acquisition to general
working capital, including future acquisitions. The Company does not intend
to seek stockholder approval of such future acquisitions unless required to
do so by applicable law or regulation. Accordingly, the Company's
stockholders will be substantially dependent on the business judgment of
management in making such acquisitions and otherwise allocating the net
proceeds from this Offering. See "Use of Proceeds" and "Agreements Related to
the Pending Acquisitions--QBQ Acquisition."
In addition, 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 this 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 dilutive 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.
DEPENDENCE UPON A LIMITED NUMBER OF CLIENTS AND EVENTS. A significant
portion of the Company's revenues to date has been derived from a small
number of clients and events. On a pro forma basis, giving effect to the
Recent 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 Recent Acquisitions and
the Pending 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 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 the Company's employment of Michael Letis or the
unavailability of Mr. Letis to perform the services necessary to enable the
Company to comply with the terms of the Breeders' Cup Agreement. Management
believes, based on discussions with Breeders' Cup Limited, that the Breeders'
Cup Agreement will be extended for an additional two years; however, there
11
<PAGE>
can be no assurance that the Company will be able to extend such agreement on
similar terms, or at all. In addition, on a pro forma basis, giving effect to
the Recent Acquisitions and the Pending Acquisitions as if they had occurred
on January 1, 1996, five clients or events would have accounted for
approximately 38% of the Company's revenues for the year ended December 31,
1996. Furthermore, the timing of certain events and the resulting recognition
of revenue from such events may cause significant variations in the Company's
quarterly operating results, which may adversely effect the market price of
the Common Stock. The Company may continue to depend on a limited number of
clients and events for a significant portion of its revenues in future
periods. The loss of any of these clients or events without a replacement
would have a material adverse effect on the business and operations of the
Company. See "--Absence of Written Agreements; Nature of Contracts" and
"Business--Services Provided by the Company."
ABSENCE OF WRITTEN AGREEMENTS; NATURE OF CONTRACTS. Many of the Company's,
ProServ's and QBQ's representation arrangements with their clients, and
certain of the Company's and ProServ's corporate sponsorship projects, are
not evidenced by written agreements. Although the Company believes that the
lack of written agreements is common in the talent representation industry,
the lack of written agreements may adversely affect the enforceability and
term of certain oral agreements. In addition, written representation
agreements with clients are generally terminable annually on 30 days' notice,
and written contracts for corporate sponsorship projects are generally of a
short-term nature. The termination or expiration of the Company's, ProServ's
or QBQ's contracts with certain clients could have a material adverse effect
on the Company's operations. See "Business."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends, to a large
extent, upon the continued contributions of certain key personnel. The
Company's ability to obtain new event management, television production,
marketing, talent representation and consulting agreements is dependent, to a
large extent, on the strength of certain key personnel's relationships within
the sports, news and other entertainment industries. The loss of any such key
personnel would adversely affect the business of the Company. See
"Management."
COMPETITION. The business of providing services in the sports, news and
other entertainment industries is highly competitive. The Company's
competitors include several large companies, such as Advantage International
Inc. (part of the Interpublic Group of Companies, Inc.) and International
Management Group in the sports industry and Creative Artists Agency, Inc.,
ICM Artists, Ltd. and the William Morris Agency, Inc. in the entertainment
industry, certain of which have substantially greater financial and other
resources than the Company. In addition, the Company competes with many
smaller entities. The success of the Company will be dependent upon its
ability to obtain additional event management, television production,
marketing, talent representation and consulting opportunities and to generate
revenues from such activities. See "Business--Competition."
INFLUENCE BY MANAGEMENT; EFFECTS OF ANTI-TAKEOVER PROVISIONS. Upon
completion of this Offering, and the Pending Acquisitions, the Company's
officers and directors (including officers and directors to be appointed upon
the consummation of the Pending Acquisitions) will control approximately
29.5% of the total voting power of the Company (without giving effect to the
exercise of Warrants and options held by such persons to purchase shares of
Common Stock). As a result, such stockholders will be able to exert
substantial influence over the election of the Company's Board of Directors
and all other issues submitted to the Company's stockholders. The Company and
certain of its principal stockholders have entered into a stockholders'
agreement (the "Stockholders' Agreement") that 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
existing officers and directors. 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 "Principal Stockholders," "Certain Relationships and
Related Transactions--Stockholders' Agreement" and "Description of
Securities."
12
<PAGE>
DILUTION. Purchasers of shares of Common Stock in this Offering will incur
an immediate and substantial dilution in net tangible book value per share of
Common Stock of approximately $5.44. Dilution for this purpose represents the
difference between the per share offering price of the Common Stock and the
pro forma net tangible book value per share of Common Stock after the Pending
Acquisitions and this Offering. In connection with future acquisitions, the
Company may issue additional equity securities, which could result in further
dilution to the investors in this Offering.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of this Offering and
the Pending Acquisitions, the Company will have 16,889,532 shares of Common
Stock outstanding (assuming the issuance of 370,370 shares in connection with
the QBQ Acquisition and assuming no exercise of Warrants or options) and
527,503 Warrants outstanding. Of those securities, a total of 12,658,550
shares of Common Stock and 274,007 Warrants will be freely tradeable without
restriction or further registration under the Securities Act, unless
purchased or held by "affiliates" as that term is defined in Rule 144 under
the Securities Act. . Of the remaining 4,230,982 shares, 2,881,908 shares
will be "restricted securities" as that term is defined in Rule 144 and
approximately 1,349,074 shares will be held in escrow and subject to
forfeiture. The Company's executive officers and directors, who own an
aggregate of 4,457,096 shares of Common Stock and 253,496 Warrants, have
entered into agreements (the "Lock-Up Agreements") with the Underwriters
pursuant to which they have agreed not to, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase
or otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) any shares of Common Stock, Warrants or other capital stock or
any securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire any shares of Common Stock or other capital
stock of the Company for a period of 180 days after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for (i) bona fide gifts
of Common Stock, provided that any donee receiving such gift agrees to be
bound by the terms of the Lock-Up Agreements and (ii) the exercise of options
or warrants for shares of Common Stock, provided that the shares of Common
Stock received upon such exercise will remain subject to the Lock-Up
Agreements. Prudential Securities Incorporated may, in its sole discretion,
at any time and without notice release all or any portion of the shares of
Common Stock subject to such agreements. The holders of substantially all of
the securities subject to the Lock-Up Agreements have also entered into
similar agreements with the underwriters of the IPO which restrict the sale
or other disposition of their securities until December 5, 1998. In addition,
the holders of the shares of Common Stock to be issued in the Pending
Acquisitions have agreed to restrictions on the sale or other disposition of
such shares but have been granted registration rights for such shares. See
"Agreements Related to the Pending Acquisitions." Sales of substantial
amounts of Common Stock, or the possibility of such sales, could adversely
affect the prevailing market price for the Common Stock and could impair the
Company's ability to raise capital through a public offering of equity
securities. See "Shares Eligible for Future Sale," "Description of
Securities" and "Underwriting."
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 to 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
Securities--Preferred Stock."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby, after deducting the underwriting discounts and commissions
and other estimated expenses of this Offering, are estimated to be
approximately $46.5 million (approximately $53.6 million if the Underwriters'
over-allotment is exercised in full), assuming a public offering price of
$6.75 per share. The Company intends to use the net proceeds from this
Offering as follows: (i) approximately $10.5 million will be applied to repay
borrowings under the Bridge Facility and costs related to the Tender Offer
(including related fees and expenses of $931,000), (ii) approximately $10.1
million will be applied to fund the cash portion of the ProServ Acquisition
(including related fees and expenses of $295,000), net of $1.0 million which
has been segregated by the Company to secure a letter of credit (assuming
that the principal stockholder of ProServ does not elect to receive a $3.0
million promissory note in lieu of cash), (iii) approximately $2.2 million in
outstanding indebtedness of ProServ will be repaid, (iv) approximately $2.9
million will be applied to fund the cash portion of the QBQ Acquisition
(including related fees and expenses of $150,000), net of $400,000 previously
advanced, and (v) a $1.5 million nonrecourse loan will be made to the sole
stockholder of QBQ. The fees and expenses relating to the Pending
Acquisitions include $50,000 payable to TSC for advisory services and up to
$75,000 payable to Mr. Sillerman in connection with the ProServ Acquisition.
See "Agreements Related to the Pending Acquisitions" and "Certain
Relationships and Related Transactions--Consulting Agreement" and ''--ProServ
Acquisition." The Company intends to use the remaining net proceeds of $19.3
million for working capital and other general corporate purposes. Pending
such use, the Company intends to invest the net proceeds from this Offering
in short-term, investment-grade, interest-bearing instruments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The completion of the QBQ Acquisition is subject to a number of
conditions, certain of which are beyond the Company's control. In the event
the QBQ Acquisition is not consummated, the Company intends to apply the
proceeds allocated for the QBQ Acquisition to working capital. See
"Agreements Related to the Pending Acquisitions--QBQ Acquisition."
In the event the Company identifies attractive acquisition candidates, the
Company intends to use a portion of the proceeds from this Offering allocated
to working capital to finance such acquisitions; however, other than the
Pending Acquisitions, the Company has no agreements or understandings
regarding any possible future acquisitions. See "Risk Factors--Broad
Discretion of Management in Use of Proceeds; Uncertainty Related to
Acquisition Strategy." In addition, 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
TSC and the installment payments to certain officers and directors of the
Company related to the Recent Acquisitions and the QBQ Acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Relationships and
Related 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.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
Since September 11, 1997, the Common Stock has been listed on the AMEX
under the symbol "MRT." Prior to that date, the Common Stock was quoted on
The Nasdaq Stock Market's SmallCap Market (the "Nasdaq SmallCap Market")
under the symbol "MRQE" and was listed on the Boston Stock Exchange under the
symbol "MRT."
From December 6, 1996 (the first trading day after the effective date of
the registration statement relating to the Company's IPO) until December 13,
1996, the shares of Common Stock and the Warrants traded only as units ("IPO
Units") on the Nasdaq SmallCap Market and did not trade separately. On
December 13, 1996, the IPO Units were separated into their constituent parts
and began trading separately on the Nasdaq SmallCap Market. On March 13,
1997, the Common Stock and Warrants each commenced trading on the Boston
Stock Exchange. On September 10, 1997, the Nasdaq SmallCap Market and the
Boston Stock Exchange ceased trading the Common Stock and Warrants.
The following table sets forth the high and low closing bid information
for the shares of Common Stock of the Company, as reported by the Nasdaq
SmallCap Market through September 10, 1997 and includes the closing sales
price information on the AMEX subsequent to such date. Bid quotations reflect
interdealer prices, without retail mark-up, mark-down or commissions, and may
not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ----------------------------------------- -------- -------
<S> <C> <C>
Fourth Quarter (since December 13, 1996) $6.00 $6.00
YEAR ENDING DECEMBER 31, 1997
- -----------------------------------------
First Quarter ............................ $7.25 $6.00
Second Quarter ........................... 6.375 5.50
Third Quarter (through September 12, 1997) 7.125 4.50
</TABLE>
On September 12, 1997, the last reported sales price of the Common Stock
as reported by the AMEX was $6.75 per share. On September 3, 1997, the
Company had 81 record holders of its Common Stock. The Company believes that
there are over 2,500 beneficial holders of its shares of Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock since inception and does not anticipate declaring or paying any in the
foreseeable future. The Board of Directors intends to retain future earnings,
if any, to support the growth 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.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the
Company at June 30, 1997 and (ii) the pro forma capitalization of the Company
at June 30, 1997 giving effect to the consummation of the Tender Offer,
Bridge Facility and the Pending Acquisitions and the application of the net
proceeds from this Offering (assuming a public offering price of $6.75 per
share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company). See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
(IN THOUSANDS)
PRO FORMA FOR
TENDER OFFER,
BRIDGE FACILITY
OFFERING AND
PENDING
AS REPORTED ACQUISITIONS(1)
------------- -------------------
<S> <C> <C>
Cash and cash equivalents .................................... $ 688 $21,385
======= =======
Acquisition indebtedness, net(2) ............................. $ 1,138 $ 2,204
Common Stock subject to put options in connection with
Pending Acquisitions(3)...................................... -- 3,563
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;
8,769,162 shares issued and outstanding; 16,889,532 pro
forma shares issued and outstanding for Offering and
Pending Acquisitions(4) .................................... 88 164(5)
Additional paid-in capital ................................... 7,664 45,195(5)
Deferred compensation(6) ..................................... (16) (16)
Accumulated deficit .......................................... (3,291) (4,247)
------- --------
Total stockholders' equity ................................... 4,445 41,096 (7)
------- -------
Total capitalization........................................ $ 5,583 $46,863
======= =======
</TABLE>
- ------------
(1) Gives effect to the application of the net proceeds of this Offering,
including the repayment of borrowings incurred under the Bridge
Facility to purchase the Warrants in the Tender Offer, including fees
and expenses of $370, and the repayment of fees, expenses and interest
of the Bridge Facility aggregating $936 (assuming that the Bridge
Facility is outstanding for 45 days).
(2) Represents the installment payments payable to certain officers and
directors of the Company in connection with the Recent Acquisitions,
net of imputed interest ($480) and the current installment payment
($333) (As Reported) and the installment payments payable to the sole
stockholder of QBQ ($1,066) in connection with the QBQ Acquisition, net
of imputed interest ($388) and the current installment payment ($161).
See "Certain Relationships and Related Transactions--SMTI Acquisition"
and "--A&A Acquisition" and Note 1 of the Notes to the Company's
Financial Statements. Assumes that the controlling stockholder of
ProServ does not elect to receive a $3.0 million promissory note in
lieu of cash. See "Agreements Related to the Pending Acquisitions."
(3) Represents the Company's potential obligation ($1,875 for QBQ and
$1,688 for ProServ) to repurchase 527,777 shares of Common Stock to be
issued in connection with the Pending Acquisitions, of which 55,555
shares are QBQ Escrow Shares. These shares are not included in
stockholders' equity. Assumes a price of $6.75 per share of Common
Stock for purposes of determining the number of shares to be issued in
the QBQ Acquisition. See "Agreements Related to the Pending
Acquisitions."
(4) Excludes up to (i) 527,503 shares issuable upon the exercise of the
Warrants outstanding after the consummation of the Tender Offer, at an
exercise price of $7.50 per share, (ii) 670,000 shares issuable upon
exercise of the IPO Unit Options, including shares issuable upon
exercise of the Warrants contained therein, (iii) 800,000 shares
reserved for issuance under the Company's 1996 and 1997 Stock Option
Plans, under which options to purchase 237,500 shares are outstanding,
(iv) 105,000 shares issuable upon exercise of the Huff Options, (v)
200,000 shares issuable upon exercise of the TSC Option, (vi) 10,000
shares issuable upon exercise of an option issued to Mr. Sillerman in
connection with the ProServ Acquisition and (vii) 1,125,000 shares
issuable upon exercise of the Underwriters' over-allotment option. See
"Management--Stock Option Plans" and "Description of Securities."
(5) Excludes amounts applicable to Common Stock subject to put options
issued in connection with the Pending Acquisitions.
(6) 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. See "Certain
Relationships and Related Transactions--Founders' Stock."
(7) Includes $625 relating to the issuance of shares of Common Stock in
connection with the QBQ Acquisition.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1996 gives effect to the following
transactions and adjustments as if they had occurred as of January 1, 1996:
(i) the completion of the IPO and the Recent Acquisitions, (ii) the Pending
Acquisitions and related contractually required reductions in personnel,
officers' salaries and employee benefits and (iii) the completion of this
Offering.
The following Unaudited Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 1997 gives effect to the
following transactions and adjustments as if they had occurred as of January
1, 1996: (i) the Pending Acquisitions and related contractually required
reductions in personnel, officers' salaries and employee benefits and (ii)
the completion of this Offering.
The following Unaudited Pro Forma Condensed Combined Balance Sheet at June
30, 1997 gives effect to the following transactions and adjustments as if
they had occurred as of June 30, 1997: (i) the Pending Acquisitions, (ii) the
completion of this Offering and (iii) the completion of the Tender Offer and
the repayment of the Bridge Facility.
The Unaudited Pro Forma Condensed Combined Financial Statements are based
upon, and should be read in conjunction with, the historical audited and
unaudited financial statements and the respective notes thereto of the
Company, ProServ and QBQ. The Recent 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 held by the stockholders of SMTI and A&A. The
Pending Acquisitions have been reflected in the Unaudited Pro Forma Condensed
Combined Financial Statements using the purchase method of accounting. In the
opinion of management, all adjustments necessary to fairly present this pro
forma information have been made. The pro forma information does not purport
to be indicative of the results that would have been reported had such events
actually occurred on the dates specified, nor is it indicative of the
Company's future results if the transactions are completed. The Company
cannot predict whether the consummation of the Pending Acquisitions will
conform to the assumptions used in the preparation of the Unaudited Pro Forma
Condensed Combined Financial Statements. The Unaudited Pro Forma Statements
of Operations data include adjustments to operating expenses to reflect
anticipated savings that management believes it will be able to achieve
through the implementation of its operating strategy. However, there can be
no assurance that the Company will be able to achieve such savings.
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of the Company may differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are
not limited to, risks and uncertainties relating to the revenues of the
businesses owned and to be acquired, the integration of the businesses
acquired and management of growth and the ability of the Company to achieve
cost savings. 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.
17
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
MARQUEE RECENT PRO FORMA RECENT PROSERV PRO FORMA
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS ACQUISITIONS ACQUISITION ADJUSTMENTS
----------- -------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 2,869 $ 12,316 -- $ 15,185 $13,388 --
Operating expenses................. 2,564 6,922 -- 9,486 10,130 $ 514 (4)
General and administrative
expenses.......................... 2,199 3,644 -- 5,843 4,725 871 (4)
Restructuring costs................ -- -- -- -- 565
Depreciation and amortization ..... 61 47 -- 108 276 (691)(5)
----------- ------------- ----------- ------------ ----------- -----------
Operating income (loss)............ (1,955) 1,703 -- (252) (2,308) 694
Interest expense (income).......... 283 (12) $ (98)(2) 369 209 209 (6)
Financing expense ................. 193 -- -- 193 -- --
----------- ------------- ----------- ------------ ----------- -----------
Income (loss) before income taxes . (2,431) 1,715 (98) (814) (2,517) 903
Income taxes provision (benefit) .. (20) 341 (221)(3) 100 240 (240)(7)
----------- ------------- ----------- ------------ ----------- -----------
Net income (loss).................. (2,411) 1,374 123 (914) (2,757) 1,143
Accretion of obligation related to
the option issued in connection
with the ProServ acquisition ..... -- -- -- -- -- (115)(8)
----------- ------------- ----------- ------------ ----------- -----------
Net income (loss) applicable to
common stockholders .............. $ (2,411) $ 1,374 $ 123 $ (914) $(2,757) $ 1,028
=========== ============= =========== ============ =========== ===========
Net loss per share applicable to
common stockholders............... $ (1.03) $ (0.12)
=========== ============
Weighted average number of shares
of common stock outstanding(12) .. 2,346,717 7,494,162
=========== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR THE PRO FORMA FOR THE
OFFERING AND RECENT OFFERING AND RECENT
AND PROSERV QBQ PRO FORMA AND PENDING
ACQUISITIONS (13) ACQUISITION ADJUSTMENTS ACQUISITIONS (13)
----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Revenues........................... $ 28,573 $1,359 -- $ 29,932
Operating expenses................. 19,102 274 -- 19,376
General and administrative
expenses.......................... 9,697 931 $ 223(9) 10,405
Restructuring costs................ 565 -- 565
Depreciation and amortization ..... 1,075 38 (350)(10) 1,463
------------------- ----------- ----------- -------------------
Operating income (loss)............ (1,866) 116 (127) (1,877)
Interest expense (income).......... 369 12 16 (11) 365
Financing expense ................. 193 -- -- 193
------------------- ----------- ----------- -------------------
Income (loss) before income taxes . (2,428) 104 (111) (2,435)
Income taxes provision (benefit) .. 100 13 (13)(7) 100
------------------- ----------- ----------- -------------------
Net income (loss).................. (2,528) 91 (98) (2,535)
Accretion of obligation related to
the option issued in connection
with the ProServ acquisition ..... 115 -- -- 115
------------------- ----------- ----------- -------------------
-- --
Net income (loss) applicable to
common stockholders .............. $ (2,643) $ 91 $ (98) $ (2,650)
=================== =========== =========== ===================
Net loss per share applicable to
common stockholders............... $ (0.17) $ (0.17)
=================== ===================
Weighted average number of shares
of common stock outstanding(12) .. 15,244,162 15,540,458
=================== ===================
</TABLE>
- ------------
(1) The Company acquired SMTI and A&A on December 12, 1996 and included the
results of their operations only from the acquisition date in its
consolidated results of operations for the year ended December 31,
1996. Therefore, for pro forma purposes, the results of operations of
SMTI and A&A for the period prior to the acquisition date are presented
separately.
(2) To record imputed interest expense on the indebtedness to the
stockholders of SMTI and A&A incurred in connection with the Recent
Acquisitions.
(3) To record income taxes as if SMTI had not been an S corporation and to
record the pro forma tax benefit for the separate net loss of the
Company.
(4) To reduce expenses to reflect contractually agreed to reductions in
personnel, officers' salaries and employee benefits and other costs
provided in connection with the ProServ Acquisition, but excludes
$1,435 related to personnel and benefit costs incurred in 1996, which
will be eliminated in future periods as a result of the restructuring
of ProServ's operations and other cost reduction programs initiated by
ProServ.
(5) To record the amortization of the excess of the purchase price over net
assets acquired associated with the acquisition of ProServ over 20
years.
(6) To reduce interest expense of ProServ to reflect use of proceeds of
this Offering.
(7) To record the tax benefit of consolidated net losses.
(8) To record the expense related to the accretion of the put option over
the two year option period. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition."
(9) To reduce general and administrative expenses to reflect contractually
agreed to reductions in officers' salaries and employee benefits.
(10) To record the amortization of the excess of the purchase price over net
assets acquired associated with the acquisition of QBQ over 20 years.
(11) To record interest income on note receivable ($105) net of imputed
interest expense ($89) on the indebtedness related to the QBQ
Acquisition.
(12) Gives effect to the IPO as if it occurred as of January 1, 1996 and
excludes 1,275,000 IPO Escrow Shares. The weighted average number of
shares of common stock outstanding pro forma for the Offering and
Recent and Pending Acquisitions excludes 74,074 QBQ Escrow Shares.
Assumes a price of $6.75 per share of Common Stock for purposes of
determining the number of shares to be issued in the QBQ Acquisition.
Shares of Common Stock underlying outstanding Warrants or options are
not included in the weighted average number of shares of common stock
outstanding.
(13) Excludes charges related to the Bridge Facility, including interest,
fees and expenses of $936 (assuming that the Bridge Facility is
outstanding for 45 days) and fees and expenses of the Tender Offer of
$370.
18
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OFFERING
MARQUEE PROSERV PRO FORMA AND PROSERV
AS REPORTED ACQUISITION ADJUSTMENTS ACQUISITION
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues............................... $ 6,174 $ 6,438 -- $ 12,612
Operating expenses..................... 2,901 4,740 $ 258(1) 7,383
General and administrative expenses .. 4,048 1,778 418(1) 5,408
Depreciation and amortization.......... 104 143 (345)(2) 592
------------- ------------- ------------- ---------------
Operating income (loss)................ (879) (223) 331 (771)
Other income .......................... -- -- -- --
Minority interest ..................... -- 25 25 (10) --
Interest (income) expense.............. 2 71 71 (3) 2
------------- ------------- ------------- ---------------
Income (loss) before income taxes ..... (881) (319) 427 (773)
Income taxes provision (benefit) ...... -- 109 (109)(6) --
------------- ------------- ------------- ---------------
Net income (loss)...................... (881) (428) 536 (773)
Accretion of obligation related to the
put option issued in connection with
the ProServ Acquisition............... -- -- (58)(7) 58
------------- ------------- ------------- ---------------
Net income (loss) applicable to common
stockholders ......................... $ (881) $ (428) $ 478 $ (831)
============= ============= ============= ===============
Net loss per share applicable to
common stockholders .................. $ (0.12) $ (0.05)
Weighted average number of shares of
common stock outstanding (8) ......... 7,494,162 15,244,162
============= ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OFFERING
AND THE
QBQ PRO FORMA PENDING
ACQUISITION ADJUSTMENTS ACQUISITIONS(9)
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues............................... $ 1,013 -- $ 13,625
Operating expenses..................... 127 -- 7,510
General and administrative expenses .. 457 $ 106(4) 5,759
Depreciation and amortization.......... 13 (175)(2) 780
------------- ------------- ---------------
Operating income (loss)................ 416 (69) (424)
Other income .......................... (25) -- (25)
Minority interest ..................... -- -- --
Interest (income) expense.............. (3) (16)(5) (17)
------------- ------------- ---------------
Income (loss) before income taxes ..... 444 (53) (382)
Income taxes provision (benefit) ...... 42 (42)(6) --
------------- ------------- ---------------
Net income (loss)...................... 402 (11) (382)
Accretion of obligation related to the
put option issued in connection with
the ProServ Acquisition............... -- -- 58
------------- ------------- ---------------
Net income (loss) applicable to common
stockholders ......................... $ 402 $ (11) $ (440)
============= ============= ===============
Net loss per share applicable to
common stockholders .................. $ (0.03)
Weighted average number of shares of
common stock outstanding (8) ......... 15,540,458
===============
</TABLE>
- ------------
(1) To reduce expenses to reflect contractually agreed to reductions in
personnel, officers' salaries and employee benefits and other costs
provided in connection with the ProServ Acquisition, but excludes $80
related to personnel and benefit costs incurred by ProServ in the
six-month period which will be eliminated in future periods as a result
of the restructuring of ProServ's operations and other cost reduction
programs initiated by ProServ.
(2) To record the amortization of the excess of the purchase price over net
assets acquired associated with the Pending Acquisitions over 20 years.
(3) To reduce ProServ interest expense to reflect use of the proceeds from
this Offering.
(4) To reduce general and administrative expenses to reflect contractually
agreed to reductions in personnel, officers' salaries and employee
benefits.
(5) To record interest income on note receivable ($53) net of imputed
interest expense ($37) on the indebtedness related to the QBQ
Acquisition.
(6) To record the tax benefit of consolidated net losses.
(7) To record the expense related to accretion of the put option over the
two year option period. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition."
(8) Excludes 1,275,000 IPO Escrow Shares. In addition, the pro forma for
this Offering and the Pending Acquisitions excludes approximately
74,074 QBQ Escrow Shares. Assumes a price of $6.75 per share of Common
Stock for purposes of determining the number of shares to be issued in
the QBQ Acquisition. Shares of Common Stock underlying outstanding
Warrants or options are not included in the weighted average number of
shares of common stock outstanding.
(9) Excludes charges related to the Bridge Facility, including interest,
fees and expenses of $936 (assuming that the Bridge Facility is
outstanding for 45 days) and fees and expenses of the Tender Offer of
$370.
(10) To eliminate Mr. Dell's minority ownership interest in ProServ
Television, Inc.
19
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE BRIDGE
FACILITY,
TENDER OFFER,
OFFERING,
MARQUEE PROSERV PRO FORMA AND PROSERV
AS REPORTED ACQUISITION ADJUSTMENTS ACQUISITION
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets.............. $ 4,117 $ 5,795 $ 46,525 (1) $34,180
(9,582)(2)
(2,175)(3)
(10,500)(4)
Excess of purchase price -- -- 13,816 (2) 13,816
over net assets acquired ..
Noncurrent assets........... 4,587 1,659 (300)(2) 4,446
(1,500)(2)
------------- ------------- ------------- -------------------
Total assets............... $ 8,704 $ 7,454 $ 36,284 $52,442
============= ============= ============= ===================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities......... $ 2,700 7,199 200 (2) $ 7,924
(2,175)(3)
Noncurrent liabilities ..... 1,559 801 2,360
Common stock subject to put 1,688 (2) 1,688
option ....................
Stockholders' equity........ 4,445 (546) 46,525 (1) 40,470
546 (2)
(10,500) (4)
------------- ------------- ------------- -------------------
Total liabilities and
stockholders' equity...... $ 8,704 $ 7,454 $ 36,284 $52,442
============= ============= ============= ===================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE BRIDGE
FACILITY,
TENDER OFFER
OFFERING,
QBQ PRO FORMA AND PENDING
ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- -------------------
<S> <C> <C> <C>
ASSETS
Current assets.............. $ 1,322 $(3,253)(5) $29,432
(1,317)(5)
(1,500)(6)
Excess of purchase price -- 6,996 (5) 20,812
over net assets acquired ..
Noncurrent assets........... 86 1,500 (6) 5,932
(100)(5)
------------- ------------- -------------------
Total assets............... $ 1,408 $ 2,326 $56,176
============= ============= ===================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities......... $ 1,134 $(1,135)(5) $ 8,084
161 (5)
Noncurrent liabilities ..... 7 1,066 (5) 3,433
Common stock subject to put 1,875 (5) 3,563
option ....................
Stockholders' equity........ 267 (266)(5) 41,096
625 (5)
------------- ------------- -------------------
Total liabilities and
stockholders' equity...... $ 1,408 $ 2,326 $56,176
============= ============= ===================
</TABLE>
- ------------
(1) To reflect the estimated net proceeds from this Offering of 7,500,000
shares of Common Stock at $6.75 per share:
<TABLE>
<CAPTION>
<S> <C>
Offering ...................................................... $50,625
Less: Fees and
expenses ..................................................... 4,100
---------
Net proceeds from
this Offering ................................................ $46,525
=========
(2) To reflect the ProServ Acquisition and the preliminary allocation of
the purchase price:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash portion of purchase price
Dell Stock Purchase Agreement ........................................... $6,500
Non-Employee Stock Purchase Agreement.................................... 3,000
Employee Stock Purchase Agreements ...................................... 1,287 $10,787(a)
--------
Issuance of 250,000 shares of Common Stock under the Dell Stock Purchase
Agreement which are subject to a put option.............................. 1,688
Fees and expenses, including TSC fees of $300 which will be offset
against amounts previously advanced...................................... 595
Assumption of severance liability......................................... 200
------------
Total acquisition cost................................................. 13,270
Deficiency in net assets acquired......................................... 546
------------
Excess of purchase price over net assets acquired......................... $13,816
============
</TABLE>
(a) Cash required to complete the ProServ Acquisition excludes $1,000
previously deposited as collateral for the letter of credit issued to
Mr. Dell.
The preliminary allocation of purchase price may change upon final
determination of the fair value of the net assets acquired.
(3) To reflect the payment of the ProServ indebtedness of $2,175 from the
proceeds of this Offering.
(4) To reflect (i) the repayment of the indebtedness under the Bridge
Facility incurred to fund the Tender Offer (including fees and expenses
of the Tender Offer of $370), (ii) the issuance the TSC Option to
purchase 200,000 shares of Common Stock at an exercise price of $7.00
per share and (iii) fees, interest and expenses related to the Bridge
Facility of $936, including the issuance of the Huff Options to
purchase 105,000 shares of Common Stock, at an exercise price of $2.25
per share.
20
<PAGE>
(5) To reflect the QBQ Acquisition and the preliminary allocation of the
purchase price:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash portion of purchase price ............................................ $3,103
Issuance of approximately 370,370 shares (including 74,074 QBQ Escrow
Shares) of Common Stock, of which 277,777 shares are subject to a put
option ($1,875) .......................................................... 2,500
Acquisition indebtedness of $1,615, including current portion of $161,
less imputed interest of $388 ............................................ 1,227
Fees and expenses, including TSC fees of $150 of which $100 will be
applied against amount previously advanced................................ 250
--------
Total acquisition cost .................................................... 7,080
--------
Net assets at June 30, 1997................................................ 266
Less: Current assets not acquired.......................................... (1,317)
Add: Current liabilities not acquired...................................... 1,135 84
--------- --------
Excess of purchase price over net assets acquired ......................... $6,996
========
</TABLE>
- ------------
A deposit of $400 in cash was paid to QBQ in July 1997 and will be applied
towards the purchase price.
The preliminary allocation of purchase price may change upon final
determination of the fair value of the net assets acquired.
(6) To reflect the non-recourse loan of $1,500 to be made by the Company to
the sole stockholder of QBQ. See "Agreements Related to the Pending
Acquisitions--QBQ Acquisition."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Selected Consolidated Financial Data of the Company as of June 30,
1997 and for the six months ended June 30, 1997 and 1996 have been derived
from the unaudited financial statements and notes thereto of the Company
appearing elsewhere in this Prospectus. The pro forma summary data as of June
30, 1997, for the six months ended June 30, 1997 and for the year ended
December 31, 1996 are derived from the unaudited pro forma condensed combined
financial statements which, in the opinion of the Company, reflect all
adjustments necessary for a fair presentation of the transactions for which
such pro forma financial information is given. Operating results for interim
periods are not necessarily indicative of the results that may be achieved
for the entire fiscal year. The Company had no operations during the period
from July 11, 1995 (inception) through December 31, 1995. The following data
should be read in conjunction with the notes thereto, the audited and
unaudited financial statements and notes contained elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." See "Unaudited Pro Forma Condensed Combined
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------- -----------------------------------------------
PRO FORMA
FOR THE PRO FORMA
RECENT FOR THE PRO FORMA
PRO FORMA ACQUISITIONS, OFFERING FOR THE
FOR THE OFFERING AND RECENT RECENT
AS RECENT AND PROSERV AND PENDING AS REPORTED AS REPORTED ACQUISITIONS(1)
REPORTED ACQUISITIONS(1) ACQUISITION(2) ACQUISITIONS(3)(4) 1996 1997 1996
-------- -------------- -------------- ------------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ............ $2,869 $15,185 $28,573 $29,932 $801 $6,174 $6,265
Operating expenses .... 2,564 9,486 19,102 19,376 667 2,901 3,598
General and
administrative
expenses............ 2,199 5,843 9,697 10,405 708 4,048 2,538
EBITDA(12) ........... $(1,894) $(144) $(226) $151 $(574) $(775) $129
Restructuring costs ... -- -- 565 565 -- -- --
Depreciation and
amortization ........ 61 108 1,075 1,463 -- 104 16
Operating income (loss) (1,955) (252) (1,866) (1,877) (574) (879) 113
Net income (loss)..... (2,411) (914) (2,528) (2,535) (574) (881) 31
Net loss applicable to
common stockholders .. $(2,411) $(914) $(2,643) $(2,650) $(574) $(881) $31
Net loss per share
applicable to common
stockholders ........ $(1.03) $(0.12) $(0.17) $(0.17) $(0.28) $(0.12) $*
Weighted average number
of shares of common
stock outstanding(7) . 2,346,717 7,494,162 15,244,162 15,540,458 2,066,662 7,494,162 7,494,162
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE FOR THE
OFFERING OFFERING
AND PROSERV AND PENDING
ACQUISITION(5) ACQUISITIONS(4)(6)
1997 1997
------------ --------------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ............ $ 12,612 $ 13,625
Operating expenses .... 7,383 7,510
General and
administrative
expenses............ 5,408 5,759
EBITDA(12) ...........$ (179) $ 356
Restructuring costs ... -- --
Depreciation and
amortization ........ 592 780
Operating loss ....... (771) (424)
Net loss............. (773) (382)
Net loss applicable to
common stockholders ..$ (831) $ (440)
Net loss per share
applicable to common
stockholders ........$ (0.05) $ (0.03)
Weighted average number
of shares of common
stock outstanding(7) . 15,244,162 15,540,458
</TABLE>
- ------------
* less than $.01
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT JUNE 30, 1997
-------------------- ------------------------------------------
PRO FORMA
FOR THE BRIDGE FACILITY,
TENDER OFFER, OFFERING, AND
AS REPORTED AS REPORTED PENDING ACQUISITIONS(9)
------------------- ------------- ---------------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash .................................. $7,231 $ 688 $21,385
Current assets .......................... 9,085 4,117 29,432
Total assets ........................... 9,361 8,704 56,176
Current liabilities ..................... 1,850 2,700 8,084
Long-term debt .......................... 1,759 1,138 2,204
Common Stock subject to put options in
connection with Pending Acquisitions(10) .. -- -- 3,563
Stockholders' equity ..................... 5,409 4,445 41,096(11)
</TABLE>
22
<PAGE>
- ------------
(1) Gives effect to the IPO and the Recent Acquisitions. The Company
acquired SMTI and A&A on December 12, 1996 and included the results of
their operations only from the acquisition date in its consolidated
results of operations for the year ended December 31, 1996. Therefore,
for pro forma purposes, the results of operations of SMTI and A&A for
the period prior to the acquisition date are combined with the Company.
(2) Gives effect to (i) the IPO and the Recent Acquisitions, (ii) the
completion of this Offering at an assumed public offering price of
$6.75 per share and (iii) the ProServ Acquisition, as if they had
occurred on January 1, 1996.
(3) Gives effect to (i) the IPO and the Recent Acquisitions, (ii) the
completion of this Offering at an assumed public offering price of
$6.75 per share and (iii) the Pending Acquisitions, as if they had
occurred on January 1, 1996.
(4) Excludes charges related to the Bridge Facility, including fees,
expenses and interest aggregating $936 (assuming that the Bridge
Facility is outstanding for 45 days) and fees and expenses of the
Tender Offer of $370.
(5) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.75 per share and (ii) the ProServ
Acquisition, as if they had occurred on January 1, 1996.
(6) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.75 per share and (ii) the Pending
Acquisitions, as if they had occurred on January 1, 1996.
(7) Gives effect to the IPO as if it occurred as of January 1, 1996 and
excludes 1,275,000 IPO Escrow Shares. The Pro Forma for the Recent
Acquisitions, Offering and Pending Acquisitions excludes 74,074 QBQ
Escrow Shares. Assumes a price of $6.75 per share of Common Stock for
purposes of determining the number of shares to be issued in the QBQ
Acquisition. See "Principal Stockholders--Escrow Shares" and Note 6 to
the Company's Financial Statements.
(8) The unaudited pro forma Balance Sheet Data gives effect to the
completion of this Offering at an assumed public offering price of
$6.75 per share of Common Stock and the application of the net proceeds
therefrom to complete the Pending Acquisitions and to repay borrowings
under the Bridge Facility. See "Risk Factors--Limited Operating
History; History of Losses; Future Charges to Operations," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(9) Adjusted to give effect to the application of proceeds of this Offering
to repay borrowings incurred under the Bridge Facility to purchase the
Warrants in the Tender Offer, including fees and expenses of $370, and
to repay fees, expenses and interest of the Bridge Facility aggregating
$936 (assuming that the Bridge Facility is outstanding for 45 days).
(10) Represents the Company's potential obligation to repurchase 527,777
shares of Common Stock to be issued in connection with the Pending
Acquisitions, of which 55,555 shares are QBQ Escrow Shares. These
shares are not included in stockholders' equity. Assumes a price of
$6.75 per share of Common Stock for purposes of determining the number
of shares to be issued in the QBQ Acquisition. See "Agreements Related
to the Pending Acquisitions."
(11) Includes $625 relating to the issuance of shares of Common Stock in
connection with the QBQ Acquisition.
(12) EBITDA is defined as revenues less operating expenses and general and
administrative expenses, excluding depreciation, amortization,
interest, taxes and restructuring costs. EBITDA is not recognized under
GAAP. Investors should not consider EBITDA to be an alternative to
operating income as determined in accordance with GAAP, an alternative
to cash flows from operating activities (as a measure of liquidity) or
an indicator of the Company's performance under GAAP.
23
<PAGE>
MANAGEMENT'S 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 IPO and
the acquisitions of SMTI and A&A, the Company was engaged in developing its
sports television production, marketing and consulting business.
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 (i) the Company and the Recent
Acquisitions include the activities of the Company, SMTI and A&A and (ii) the
Company, the Recent Acquisitions and the Pending Acquisitions include the
Company, SMTI, A&A, ProServ and QBQ, in each case as if they had always been
members of the same operating group. 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, and difficulties in achieving cost savings
and revenue enhancements. See "Risk Factors." 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 based on
profit or gross receipt participations are recorded upon the determination of
such amounts.
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 result 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 of the Pending 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 Recent 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 Recent Acquisitions and the Pending 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 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 the Company's
employment of
24
<PAGE>
Michael Letis or the unavailability of Mr. Letis to perform the services
necessary to enable the Company to comply with the terms of the Breeders' Cup
Agreement. Management believes, based on discussions with Breeders Cup
Limited, that the Breeders' Cup Agreement will be extended for an additional
two years; however, there can be no assurance that the Company will be able
to extend such agreement on similar terms, or at all. See "Risk
Factors--Dependence Upon a Limited Number of Clients and Events" and
"--Absence of Written Agreements; Nature of Contracts."
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 Recent
Acquisitions and the Pending 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 the
release from escrow of the IPO Escrow Shares and the QBQ Escrow Shares. In
the event that the IPO Escrow Shares or the QBQ Escrow 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. See "Agreements
Related to the Pending Acquisitions--QBQ Acquisition" and "Principal
Stockholders--Escrow Shares." In addition, the Company may record charges to
operations over the next two years aggregating $237,500 (assuming a price per
share of Common Stock of $6.75 on the date of consummation of the ProServ
Acquisition) 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 an officer's employment agreement, the Company
will recognize a non-cash compensation charge of $542,000 over the next five
years. In connection with the Recent Acquisitions, the Company will also
incur charges to operations aggregating $530,000 over the five-year period
commencing in December 1996, related to the imputed interest on the
indebtedness to the 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 sole 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 Recent Acquisitions did not occur until
December 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
For the six months ended June 30, 1997, the Company generated revenues of
approximately $6.2 million compared to $801,000 for the period ended June 30,
1996. The increase in revenues of approximately $5.4 million is principally
related to the inclusion of the operations of the Recent Acquisitions and
revenues generated through the Company's production and programming
activities for ESPN, Outdoor Life Network, and Lifetime Network.
Additionally, the Company provided consulting services to Americast, a
partnership of certain telephone companies, to assist in the creation of
local sports networks for cable television. Subsequent to June 30, 1997, the
Company was notified that the partners in Americast had agreed to disband
their programming development department and would be terminating the
Company's contract as of September 27, 1997. On a pro forma basis, giving
effect to the Recent Acquisitions as if they had occurred as of January 1,
1996, the Company's revenues were $6.2 million for the period ended June 30,
1997 compared to $6.3 million for the period ended June 30, 1996. The
decrease in event management revenues was the result of the sponsor not
renewing its participation
25
<PAGE>
in the Major League Baseball All-Star Balloting Program offset by increased
programming and production and consulting revenues and increased fees from
talent representation.
The Company's revenues on a pro forma basis, giving effect to the Recent
and the Pending Acquisitions as if they occurred on January 1, 1996, would
have been $13.6 million and $12.0 million for the six months ended June 30,
1997 and 1996, respectively, and would have consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------------- ------------
<S> <C> <C>
Event Management...... $ 5,154,000 $ 4,168,000
Television
Production........... 1,488,000 3,060,000
Marketing............. 697,000 450,000
Talent
Representation....... 3,603,000 4,102,000
Consulting Services .. 1,044,000 1,845,000
------------- ------------
Total................ $11,986,000 $13,625,000
============= ============
</TABLE>
The increase in pro forma revenues of $1.6 million, or 13.7%, for the six
months ended June 30, 1997 as compared to the comparable period for 1996, is
attributable to the matters discussed above as well as the increased revenues
from concert bookings, the AT&T Challenge Cup (an ATP tennis tournament) and
from increased revenues from the sale of the broadcast and cable rights for
certain sports events. These pro forma revenues include revenues from the
Canon Shootout for both periods indicated; 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.
The Company's operating expenses of approximately $2.9 million for the
period ended June 30, 1997 consisted principally of television production
costs. In addition, the Company incurred event management costs associated
with The Breeders' Cup Championship and talent agent compensation expense.
Operating expenses declined approximately $697,000 in 1997 as compared to
1996 on a pro forma basis for the Recent Acquisitions due to the
discontinuance of the one-time event management engagement, partially offset
by increased television production and programming costs in the 1997 period.
On a pro forma basis giving effect to the Recent Acquisitions and the Pending
Acquisitions, operating expenses in the 1997 period declined by $825,000, or
10%, principally as a result of the decline in event management costs. Pro
forma cost savings of $250,000 related to contractually required reductions
in personnel costs were included in both periods.
General and administrative expenses were approximately $4.0 million for
the period ended June 30, 1997 as compared to $708,000 for the prior year
period. The increase of $3.3 million was a result of the inclusion of costs
associated with the operations of the Recent Acquisitions and increased
staffing and occupancy costs required to support the increase in the
corporate infrastructure required for the Company's expanded business
operations. General and administrative expenses for the period ended June 30,
1997 increased approximately $1.5 million compared to the 1996 period on a
pro forma basis giving effect to the Recent Acquisitions. This increase,
which is expected to continue in subsequent periods, is attributable to
staffing and related occupancy costs and miscellaneous expenses incurred to
support the increased business operation and anticipated Pending
Acquisitions. On a pro forma basis giving effect to the Recent Acquisitions
and the Pending Acquisitions, general and administrative expenses increased
by $988,000 in the 1997 period from approximately $4.8 million in the prior
year. ProServ's restructuring program contributed $542,000 in savings in
1997, which were offset by the increases in general and administrative
expenses related to the expanded operations of the Company. Pro forma cost
savings of $524,000 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 six months ended June 30, 1997 was
approximately $879,000 compared to approximately $574,000 for the same period
in 1996. On a pro forma basis, giving effect to the Recent Acquisitions as if
they had occurred on January 1, 1996, the Company had an operating loss of
$879,000 compared to operating income of approximately $113,000 for the same
period in 1996. This
26
<PAGE>
decrease is principally a result of increased general and administrative
expenses and the loss of operating income from the discontinuance of the
one-time event management engagement. Giving effect to the inclusion of the
operations of ProServ and QBQ on a pro forma basis, the operating loss in
1997 declined to $424,000, or 77%, from $1.8 million in the prior year six
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 Pending Acquisitions of $520,000.
The Company's net loss for the six months ended June 30, 1997 was
approximately $881,000 compared to a net loss of $574,000 for the prior
period and net income of $31,000, for the prior year period, on a pro forma
basis giving effect to the Recent Acquisitions as if they had occurred on
January 1, 1996. On a pro forma basis giving effect to the Recent
Acquisitions and the Pending Acquisitions, the net loss applicable to common
stockholders was approximately $440,000 and $2.0 million for the six months
ended June 30, 1997 and 1996, respectively. The pro forma net loss applicable
to common stockholders for both periods include a charge of $58,000 related
to the accretion of the Company's potential obligation under the put option
on the Common Stock to be issued in connection with the ProServ Acquisition.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
For the year ended December 31, 1996, the Company generated revenues of
approximately $2.9 million. The principal sources of revenues were fees
derived from the Company's one-time representation of the sponsor of the 1996
Major League Baseball All-Star balloting program and from production of
boxing programs broadcast on ESPN and ESPN2. Revenues were also derived from
commissions earned from talent representation and from production of other
programs for broadcast on various cable outlets.
On a pro forma basis giving effect to the Recent Acquisitions, as if they
had occurred on January 1, 1996, the Company would have had revenues for the
year ended December 31, 1996 of $15.2 million, an increase of approximately
$4.8 million, or 46.8%, over pro forma revenues of $10.3 million for the
prior year. The increase was principally attributable to the Company's
one-time event management engagement and television production for ESPN and
other cable outlets. Event management and consulting fees also increased as a
result of increased fees from The Breeders' Cup Championship and the addition
of revenues from a consulting agreement pursuant to which the Company handled
sports marketing and advertising placement for a client.
On a pro forma basis giving effect to the Recent Acquisitions and the
Pending Acquisitions, as if they had occurred on January 1, 1996, the
Company's revenues would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,1996
----------------
<S> <C>
Event Management .... $11,999,000
Television
Production........... 3,925,000
Marketing............. 2,664,000
Talent
Representation....... 9,033,000
Consulting Services . 2,311,000
----------------
Total ............... $29,932,000
================
</TABLE>
On a pro forma basis giving effect to the Recent and Pending Acquisitions,
the Company had revenues of approximately $29.9 million for the year ended
December 31, 1996. Pro forma revenues includes $14.7 million attributable to
the Pending Acquisitions. In 1996, ProServ's revenues declined by $4.4
million, comprised of a reduction in event management revenue of
approximately $1.6 million, principally as a result of ProServ's sale of a
tennis event, and a reduction in representation fee income due to the loss of
certain clients and reductions in fees received under representation
agreements transferred to a former employee in a prior year.
The Company's operating expenses for the year ended December 31, 1996 were
approximately $2.6 million and principally consisted of expenses related to
the one-time event management engagement and production of ESPN boxing
programs. On a pro forma basis giving effect to the Recent
27
<PAGE>
Acquisitions, operating expenses for 1996 would have been $9.5 million as
compared to $5.5 million for 1995. The increase of $4.0 million was
principally the result of increased production expenses resulting from the
Company's one-time event management engagement, expenses associated with a
client's advertising campaign, and television production costs associated
with ESPN boxing. On a pro forma basis, giving effect to the Recent and
Pending Acquisitions, operating expenses for 1996 would have been $19.4
million, of which $9.9 million is attributable to the inclusion of the
Pending Acquisitions. The increase in pro forma operating expenses in 1996
was principally related to the Company's new business ventures, which were
partially offset by decreases in ProServ's event costs which decreased as a
result of the sale of one of its tennis tournaments and cost savings of
$514,000 related to contractually agreed to reductions in personnel costs.
General and administrative expenses for the year ended December 31, 1996
were $2.2 million and consisted principally of salary and benefits of $1.7
million. On a pro forma basis giving effect to the Recent Acquisitions, these
expenses increased $2.6 million to $5.8 million in 1996 from $3.2 million in
1995. The increase was principally associated with the increased costs and
expenses associated with the Company's new operations. On a pro forma basis,
1995 reflects contractually required reductions in personnel, officers'
salaries and employee benefits related to SMTI and A&A of approximately $1.5
million. On a pro forma basis giving effect to the Recent Acquisitions and
the Pending Acquisitions, general and administrative expenses in 1996
approximated $10.4 million, of which $4.6 million is attributable to the
inclusion of the Pending Acquisitions. The pro forma results for 1996
reflects adjustments for cost savings of approximately $1.1 million related
to contractually agreed to reductions in personnel, officer salaries and
benefits and other costs applicable to ProServ and QBQ. The pro forma results
do not reflect the elimination of approximately $1.4 million in personnel and
benefit costs as a result of the restructuring begun by ProServ in 1996,
since such reductions are not directly attributable to the ProServ
Acquisition.
The Company's operating loss for the year ended December 31, 1996, as
reported, was $2.0 million and on a pro forma basis giving effect to the
Recent Acquisitions was $252,000. The operating loss in 1996 was principally
due to the increased costs and expenses associated with the Company's new
operations. In 1995, on a pro forma basis for the Recent Acquisitions, the
Company's operating income was $1.6 million. On a pro forma basis giving
effect to the Recent Acquisitions and the Pending Acquisitions, the operating
loss for 1996 would have been $1.9 million, of which $1.6 million is
attributable to the inclusion of the Pending Acquisitions. Pro forma
operating loss also includes one time charges related to the closing of
ProServ's Paris office of $565,000. Pro forma operating results for 1996
include a charge of $1.0 million for the amortization of the excess of the
purchase price over the net assets to be acquired in the Pending
Acquisitions.
For the year ended December 31, 1996, the Company's loss before taxes was
approximately $2.4 million, including interest expense of $283,000 and
financing expense of $193,000 related to the sale of debentures (the
"Debentures") in the aggregate principal amount of $2.0 million (the "Private
Placement"). For 1996, the Company had a net loss of $2.4 million after
giving effect to an income tax benefit of $20,000. On a pro forma basis for
the Recent Acquisitions, the Company had a net loss of $914,000 for the year
ended December 31, 1996 versus net income of $790,000 for the prior year.
Giving pro forma effect to the Recent Acquisitions and the Pending
Acquisitions, the net loss applicable to common stockholders was $2.7 million
in 1996, of which $1.7 million is attributable to the inclusion of the
Pending Acquisitions. Such amounts reflect the $115,000 charge related to the
accretion of the Company's potential obligation under the put option on
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 the Private Placement, which was completed
in August 1996, advances by stockholders aggregating $767,000 and net
proceeds of approximately $15.6 million from the IPO, which was completed in
December 1996. At June 30, 1997, the Company had working capital of
approximately $1.4 million.
28
<PAGE>
Of the net proceeds of approximately $15.6 million that the Company
received from the IPO, an aggregate of $9.0 million was paid to the
stockholders of SMTI and A&A. In addition, the Company has agreed to pay such
stockholders five annual installment payments of $500,000 which payments
commenced April 1, 1997. Further, the agreement relating to the acquisition
of SMTI (the "SMTI Acquisition") provided that SMTI will distribute to its
former stockholders an amount equal to 40% of the accumulated adjustments
account of SMTI. It is contemplated that a distribution of approximately
$382,000 will be paid in the fourth quarter of 1997. In connection with the
conversion of the Debentures into IPO Units upon the closing of the IPO in
December 1996, the Company paid interest of approximately $254,000.
The Company has recently entered into the ProServ Acquisition Agreements
(as defined herein), pursuant to which it has agreed to acquire ProServ.
Pursuant to one of the agreements, as amended, the Company has agreed to
purchase 70.4% of ProServ from Mr. Dell, the chief executive officer of
ProServ, for an aggregate purchase price of $6.5 million in cash and the
issuance of 250,000 shares of Common Stock ("Dell Consideration Stock"),
subject to certain put and call options. Mr. Dell has the option to elect to
receive in lieu of $3.0 million in cash at closing a $3.0 million promissory
note payable on January 2, 1998, secured by an irrevocable letter of credit.
The agreement with Mr. Dell also provides that, at any time within the 60 day
period following the second anniversary of the consummation of the ProServ
Acquisition, Mr. Dell may elect to transfer to the Company up to all of the
remaining Dell Consideration Stock held by Mr. Dell at a price per share of
$7.70 (up to approximately $1.9 million in the aggregate). In 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 up to
50% of the Dell Consideration Stock held by Mr. Dell at a price per share of
$7.70 (up to $962,500 in the aggregate). In addition, the Company will enter
into an employment agreement with Mr. Dell providing for a base salary of not
less than $300,000 per year. The Company has delivered a $1.5 million letter
of credit to secure its obligations under its agreement with Mr. Dell. This
letter of credit is secured by $1.0 million in funds segregated by the
Company and a $500,000 personal guarantee by Mr. Sillerman. Pursuant to the
other ProServ Acquisition Agreements, the Company has agreed to purchase the
remaining minority interests in ProServ for an aggregate purchase price of
approximately $4.3 million. See "Certain Relationships and Related
Transactions--ProServ Acquisition" and "Agreements Related to the Pending
Acquisitions--ProServ Acquisition."
The Company has also agreed to purchase certain assets of QBQ for an
aggregate purchase price of approximately $6.7 million, of which $2.0 million
will be payable in shares of Common Stock, $1.0 million payable in equal
annual installments over eight years, subject to acceleration in certain
circumstances, and $615,000 payable in annual installments over five years.
In addition, the Company has agreed to deposit 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. The Company has made a
cash deposit of $400,000, which will be applied to the purchase price of QBQ.
In connection with the QBQ Acquisition, the Company has agreed to enter into
an employment agreement with Mr. Arfa, the chief executive officer and sole
stockholder of QBQ, which will provide for a five-year, non-recourse loan by
the Company of $1.5 million, secured by the Common Stock to be issued in the
QBQ Acquisition. The QBQ 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 in the QBQ Acquisition Agreement), QBQ may, at
its option, elect to transfer to the Company up to 75% of the shares it
receives 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 in the Pledge Agreement
between the Company and Mr. Arfa), 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,
29
<PAGE>
elect to purchase up to 50% of the QBQ Escrow Shares for an aggregate
purchase price of up to $750,000. If the QBQ Acquisition Agreement is
terminated due to the Company's material breach of a representation, warranty
or covenant, the Company must pay QBQ $1.0 million as liquidated damages (of
which $400,000 may be offset against the cash deposit previously paid by the
Company). Pursuant to the QBQ Acquisition Agreement, QBQ may require the
Company to consummate the QBQ Acquisition by October 20, 1997. See "Use of
Proceeds" and "Agreements Related to the Pending Acquisitions--QBQ
Acquisition."
On July 23, 1997, the Company commenced the Tender Offer to purchase up to
all of the 4,519,162 outstanding Warrants at a cash purchase price of $2.40
per Warrant. On August 26, 1997, the Company entered into the Bridge Facility
with 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 $10.5 million pursuant to the Bridge Facility and purchased
3,991,659 Warrants pursuant to the Tender Offer. Borrowings under the Bridge
Facility bear interest at an annual rate of 11.25% for the first 90 days
after the date of the borrowing, which rate will increase by 0.50% every 90
days thereafter. If the rate exceeds 14.0%, the Company may choose to defer
any interest over 14.0%. If the Company defers any interest, the rate will
increase every 90 days by 0.75% rather than 0.50%. In addition, during the
pendency of any Event of Default (as defined in the Bridge Facility), the
applicable interest rate will increase by 3.0% until such Event of Default is
cured or waived. Borrowings under the Bridge Facility will become due on the
earlier of (a) the consummation of this Offering or (b) December 10, 1997.
The Company's obligation to repay its borrowings and interest is secured by
all of the capital stock of (and is guaranteed by) the Company's subsidiaries
and by the Company's and its subsidiaries' accounts receivables.
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 Bridge Facility prohibits the Company and its subsidiaries from
borrowing funds from other sources, except that the Company may borrow up to
$750,000 on terms that are reasonably acceptable to Huff, if such loans are
subordinated to the Bridge Facility and convert into the Company's preferred
stock upon any bankruptcy filing of the Company.
The net proceeds from this Offering are estimated to be approximately
$46.5 million, of which approximately $16.7 million will be paid in
connection with the Pending Acquisitions and approximately $10.5 million will
be used to repay the borrowings under the Bridge Facility. The timing and
consummation of the Pending Acquisitions are subject to a number of
conditions, certain of which are beyond the Company's control, and there can
be no assurance that the Pending Acquisitions will be consummated. However,
the consummation of this Offering is conditioned upon the concurrent closing
of the ProServ Acquisition. Although this Offering is not conditioned upon
the closing of the QBQ Acquisition, the Company anticipates closing the QBQ
Acquisition promptly following the consummation of this Offering. If the QBQ
Acquisition is not consummated, the Company intends to apply the proceeds of
this Offering allocated for the QBQ Acquisition to working capital or other
general corporate purposes, including future acquisitions. See "Use of
Proceeds."
While the Company has not entered into agreements relating to any
acquisitions other than the Pending 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 a portion of the net proceeds from
this Offering allocated to working capital to finance such acquisitions. See
"Risk Factors--Broad Discretion of Management in Use of Proceeds; Uncertainty
Related to Acquisition Strategy." In addition, to the extent funds generated
from operations are not sufficient, the Company will use a portion of the
proceeds from this Offering to pay compensation to its executive officers,
consulting fees to TSC and the installment payments to certain officers and
directors of the Company related to the Recent Acquisitions and the Pending
Acquisitions. See "Certain Relationships and Related Transactions."
30
<PAGE>
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.
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 this 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 dilutive 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 to Messrs. Dell and/or
Arfa in connection with the Pending Acquisitions, there can be no assurance
that the Company will have funds available for such repurchases.
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. Such monthly fee will increase annually by the
percentage increase in the Consumer Price Index. If SCMC 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 March 1997, SCMC assigned its rights, obligations
and duties under the consulting agreement to TSC. In connection with the
Pending Acquisitions, TSC will receive Special Advisory Fees of $450,000 (of
which $400,000 will be offset against the amount previously advanced to TSC),
and, in connection with the Tender Offer, TSC will receive an immediately
exercisable option to purchase 200,000 shares of Common Stock at $7.00 per
share. See "Certain Relationships and Related Transactions--Consulting
Agreement."
In October 1996, the Company entered into a lease for new facilities which
requires initial annual rent of $537,000 commencing October 1997, subject to
certain increases. The Company intends to incur capital expenditures of
approximately $1.4 million (net of landlord contribution) to furnish its new
office space, complete leasehold improvements and install television edit
facilities. As of June 30, 1997, the Company has expended approximately $1.2
million in connection with its new office space. The Company began occupying
the premises in early July 1997.
31
<PAGE>
BUSINESS
GENERAL
The Company provides integrated event management, television production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries. The Company's event management,
television production and marketing services involve managing sporting
events, producing sports television programs and marketing professional and
collegiate athletic leagues and organizations. The Company also arranges and
negotiates sports and entertainment-related television rights, advertising,
corporate sponsorships and entitlements for its clients. The talent
representation services provided by the Company include negotiating
employment agreements and creating and evaluating various business
opportunities for sports, news and entertainment personalities. The Company
also provides a variety of consulting services to clients either engaged in,
or seeking exposure in, sports and entertainment-related industries.
In recent years, significant developments in mass media, including the
growth of satellite communications and cable television, have resulted in
expanded national and international exposure of sports, news and
entertainment events and programming. For example, according to Gould Media,
a research and publishing company for the sports industry, the number of
national or regional television networks offering sports programming in the
United States has grown from three in 1977 to 43 in 1997. In addition,
according to IEG's Complete Guide to Sponsorship, annual North American
sponsorship spending has grown from $1.0 billion (of which the Company
believes $900 million was related to sports) in 1986 to $5.4 billion (of
which $3.5 billion was related to sports) in 1996. These amounts represent
compounded annual growth rates of 18.4% for sponsorship spending and 14.5%
for sports sponsorship spending. The increased exposure of sporting and
entertainment events and of high profile personalities has expanded the need
for the types of services provided by the Company and has given rise to
significant additional revenue sources, such as corporate sponsorships and
entitlements to events and venues. The Company intends to continue to seek
opportunities from these markets through its existing contacts and resources.
The Company was organized in July 1995 by Robert M. Gutkowski and Robert
F.X. Sillerman. Mr. Gutkowski is the Company's President and Chief Executive
Officer and has over 20 years of experience in the television, sports and
entertainment industries. He served as President of Madison Square Garden
Corporation (which included overall responsibility for MSG Cable Network)
from November 1991 until September 1994. Mr. Sillerman is the Chairman of the
Company, and his principal occupation is Executive Chairman of the Board of
Directors of SFX, a publicly-traded company which owns and operates radio
stations and concert promotion businesses.
From the time of its organization until its IPO in December 1996, the
Company developed its sports television production, marketing and consulting
business. Simultaneously with the IPO, the Company acquired SMTI, a leading
provider of television production and marketing services in the sports and
other entertainment industries since 1984, and A&A, a sports and news talent
representation firm founded in 1977, which has a client list that includes
premier athletes, sports and news broadcasters and media executives. Since
the IPO, the Company has continued to grow by hiring individuals whose
businesses and expertise complement those of the Company and by providing
services to an increasing number of clients. Through both acquisitions and
internal growth, the Company has developed or substantially expanded its
event management, television production, marketing, talent representation and
consulting capabilities. In addition, upon completion of this Offering, the
Company will continue to expand its capabilities through the consummation of
the ProServ Acquisition and the QBQ Acquisition.
PENDING ACQUISITIONS
ProServ Acquisition. The Company has recently entered into the ProServ
Acquisition Agreements to acquire ProServ, Inc. and ProServ Television, Inc.
ProServ is an established provider of international sports event management,
television production, marketing, talent representation and consulting
services. ProServ was founded in 1969 by the then-Captain of the U.S. Davis
Cup team, Donald Dell,
32
<PAGE>
who also co-founded the ATP and pioneered the commercial development of
tennis as a major international sport. Upon the consummation of the
transactions contemplated by the ProServ Acquisition Agreements, Mr. Dell
will continue to serve as the chairman and chief executive officer of ProServ
and will become a director of the Company. ProServ provides many of the same
services that the Company currently provides and, as a result, the Company
anticipates increased revenues through the sharing of business development
opportunities, contacts and expertise. In addition, although the Company's
primary operations have been in the United States, the Company believes
ProServ's existing international operations will facilitate the Company's
goal of becoming a major competitor in the burgeoning business of
international sports, particularly in European and Pacific Rim markets.
ProServ has undergone an internal restructuring focused on eliminating
business activities that do not provide adequate financial returns and
reducing its operating expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The aggregate purchase price
pursuant to the ProServ Acquisition Agreements consists of approximately
$10.8 million in cash and 250,000 shares of Common Stock. See "Agreements
Related to the Pending Acquisitions--ProServ Acquisition."
QBQ Acquisition. The Company has also entered into an agreement pursuant
to which Marquee Music, a wholly-owned subsidiary of the Company, will
acquire the assets of QBQ, a company that books tours and appearances for a
variety of entertainers. Since its founding in 1986, QBQ has developed
relationships with, and has provided booking and touring representation
services to, a variety of musicians and groups, including Billy Joel,
Metallica, Lynyrd Skynyrd, Luther Vandross and Bruce Hornsby. The Company
believes that the music business offers commercial opportunities similar to
the sports business, such as corporate sponsorships and entitlements. Mr.
Gutkowski has significant expertise in the music concert business, having
served as President of Madison Square Garden Corporation, a premier indoor
concert venue, and has been actively involved in various aspects of the music
concert business, including production of televised concerts. Upon the
consummation of the QBQ Acquisition, Dennis Arfa, the founder and chief
executive officer of QBQ, will serve as the chief executive officer of
Marquee Music. The aggregate purchase price for the QBQ Acquisition consists
of approximately $3.1 million in cash, $1.6 million payable in annual
installments over eight years and up to $2.5 million payable in shares of
Common Stock, of which shares relating to $500,000 are subject to an escrow
agreement. See "Agreements Related to the Pending Acquisitions--QBQ
Acquisition."
The timing and consummation of the Pending Acquisitions are subject to a
number of conditions, certain of which are beyond the Company's control, and
there can be no assurance that the Pending Acquisitions will be consummated.
However, the consummation of this Offering is conditioned upon the concurrent
closing of the transactions contemplated by the ProServ Acquisition
Agreements. Although this Offering is not conditioned upon the closing of the
QBQ Acquisition, the Company anticipates closing the QBQ Acquisition promptly
following the consummation of this Offering. See "Agreements Related to the
Pending Acquisitions." While the Company has not entered into agreements
relating to any acquisitions other than the Pending Acquisitions, it intends
to continue to expand its operations through additional acquisitions of
companies and events and through attracting individuals with relevant
expertise. The Company anticipates that a portion of the proceeds of this
Offering will be used for such acquisitions. See "Use of Proceeds."
In order to capitalize on the opportunities available in the sports, news
and other entertainment industries, the Company has developed an operating
and acquisition strategy consisting of the following major elements:
OPERATING STRATEGY
Enhance Revenues by Offering Integrated Services. The Company intends to
continue to enhance its revenues from its event management, television
production, marketing, talent representation and consulting businesses by
offering integrated sports and entertainment-related services. The Company
will continue to cross-promote its various services by offering additional
complementary services within its lines of business to new and existing
clients. For example, in connection with a particular event, the Company may
organize the event, provide the talent and/or broadcasters, produce the
television coverage, sell the corporate advertising and sponsorships and
negotiate the distribution and other
33
<PAGE>
ancillary rights. It is the Company's intention to expand its involvement
with current clients for whom it provides less than a full complement of
services, and to market its full service capabilities to new clients by
emphasizing its ability to deliver integrated services, thereby relieving the
client of the costly and inefficient burden of sourcing multiple providers.
Furthermore, where possible, the Company intends to create and/or seek
ownership interests in sports and entertainment-related events in order to
maximize its earnings potential from such events.
Increase Breadth of Services. The Company intends to continue to expand
its current lines of business to provide a more comprehensive array of
services to its clients. As the needs of companies utilizing advertising and
marketing services become increasingly sophisticated, the Company believes
that its clients will require a broader range of the types of services it
provides. The Company will utilize its breadth of services, its financial
resources, its heightened visibility and its management's experience and
reputation to provide it with expanded opportunities. For example, the
Company's financial resources may enable it to create or purchase ownership
interests in sporting events and to develop in-house television production
capabilities. The Company believes that, by reducing its dependence on
outside service providers, it will be able to increase its margins as well as
increase the quality of the services which it provides.
In addition, the Company intends to continue to expand its consulting
business in order to utilize management's substantial expertise in various
aspects of sports and entertainment event management, television production
and marketing. Through its wide array of activities, the Company is able to
gain experience and insight into the overall economics and developments in
the sports and other entertainment industries, including such issues as
pricing, marketability, logistics and publicity. Various sports and
entertainment-related businesses require such expertise in order to maximize
revenues from activities such as team and event ticket sales, venue
management, sales of television rights, program development and obtaining and
maintaining sponsorships. The Company is also able to use its expertise in
advising businesses that are seeking exposure through sports and
entertainment events.
Increase International Market Penetration. The Company intends to continue
to pursue expansion opportunities in international markets, focusing on the
European and Pacific Rim markets. The Company believes that the sports, news
and entertainment industries in these markets are less developed than in the
United States and therefore present significant opportunities for the
Company. For example, IEG's Complete Guide to Sponsorship projects 1997
sponsorship spending to be $4.5 billion in Europe and $3.1 billion in the
Pacific Rim (compared to $5.9 billion in the United States). The Company also
believes that, over the next few years, these international markets will
exhibit rapid growth, in which case there will be significant opportunities
to provide the types of services offered by the Company.
ACQUISITION STRATEGY
As part of its strategy to provide comprehensive services to sports, news
and entertainment-related businesses, the Company intends to continue to
expand through the acquisition of companies and events and through attracting
individuals with relevant expertise, both within its existing lines of
business and within complementary lines of business. According to the 1997
Sports Business Directory published by E.J. Krause & Associates, Inc., there
are presently over 700 companies in North America that provide sports
marketing and/or talent representation services. The Company believes that
the highly fragmented nature of its industry offers many attractive
acquisition opportunities, and the Company intends to rely on the experience
of its management team to continue to identify acquisition candidates whose
businesses will complement the Company's existing operations and whose
operations may be constrained by lack of capital. In particular, the Company
intends to focus on consolidation opportunities presented by privately-held
competitors of moderate size. In the European and Asian markets, the Company
intends to focus on companies with an established presence in their market
and experienced management. The Company believes that it is one of the few
publicly-traded companies within its industry, and, as a result, the Company
will have certain advantages over many of its smaller competitors in
negotiating and consummating acquisitions. To date, the Company has no
agreements to acquire any companies, other than ProServ and QBQ. See "Risk
Factors--Broad Discretion of Management in Use of Proceeds; Uncertainty
Related to Acquisition Strategy."
34
<PAGE>
SERVICES PROVIDED BY THE COMPANY
The Company believes that, upon the consummation of the Pending
Acquisitions, it will be one of the leading integrated providers of
comprehensive event management, television production, marketing, talent
representation and consulting services within the sports, news and
entertainment industries. The following are descriptions of the Company's
lines of business:
Event Management, Television Production and Marketing Services
The Company manages sporting events, produces sports television programs
and markets professional and collegiate athletic leagues and organizations.
The Company also arranges and negotiates sports and entertainment-related
television rights, advertising, corporate sponsorships and entitlements for
its clients. The Company mainly derives its revenue for these services from
commissions and/or fees for managing sporting events, selling broadcast
rights to television networks and cable stations, packaging an event for a
particular corporate sponsor, producing and distributing television
programming or videos and selling entitlements and signage to sporting events
and venues. For an event in which the Company has ownership rights, the
Company derives revenues from the various revenue streams associated with the
event's operations.
Although they may vary from event to event, the Company's activities in
event management include site selection, recruitment of athletes or
personalities, procurement of television coverage, merchandising, sale of
corporate sponsorship, creation of corporate hospitality programs and general
administrative duties, including contract negotiation and scheduling. The
Company generally receives fixed fees and/or commissions, generally ranging
from 15% to 35% of the contracted amount, although these fees and commissions
are negotiated between the parties on an event-by-event basis. 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 to be common in its industry. See "Risk
Factors--Absence of Written Agreements; Nature of Contracts."
35
<PAGE>
The Company provides, or will provide upon consummation of the ProServ
Acquisition, event management, television production and/or marketing
services to many clients or events, including the following:
<TABLE>
<CAPTION>
FIRST YEAR OF
PROJECT SPORT/FOCUS SERVICES PROVIDED AFFILIATION
- --------------------------------------- ------------------------ ---------------------- ---------------
<S> <C> <C> <C>
The Breeders' Cup Championship ......... Thoroughbred horse Event management,
racing television production
and marketing 1984
The Hambletonian ....................... Harness horse racing Television production
and marketing 1985
Legg Mason Tennis Classic .............. Tennis Event management and
marketing 1969
AT&T Challenge* ........................ Tennis Event management,
television production
and marketing 1986
U.S. Open Tennis Championship .......... Tennis Television marketing 1989
French Open Tennis Championship ....... Tennis Television marketing 1991
Isuzu Celebrity Golf Championship* .... Golf Event management
and marketing 1991
European PGA Shootout .................. Golf Event management,
television production
and marketing 1991
NCAA Championships ..................... Collegiate sports Television marketing 1993
ESPN Boxing ............................ Boxing Television production 1996
ESPN-Subaru American Outback ........... Wilderness television Television production 1996
series
The PBA Tour ........................... Bowling Television production
and marketing 1996
U.S. Open Professional Figure Skating Television production
Championship .......................... Figure skating and marketing 1996
More Than a Game........................ Sports television series Television production 1997
Lifetime Sports Presents ............... Women's sports Television production 1997
television series
Sale of Signage at Jack Kent Cooke Sale of stadium and
Stadium ............................... Football concourse signage 1997
</TABLE>
- ------------
* The Company has, or upon consummation of the ProServ Acquisition will
have, an ownership interest in these events.
The Breeders' Cup Championship. In 1984, SMTI, together with the
Thoroughbred Racing Association and NBC Sports, created The Breeders' Cup
Championship. This event consists of an annual series of thoroughbred horse
races held at a rotating series of racetracks, including Churchill Downs,
Santa Anita and Belmont Park. As co-creator of The Breeders' Cup
Championship, SMTI handles substantially every management, television
production, marketing and sponsorship aspect of the event. The Company has
entered into a marketing agreement (the "Breeders' Cup Agreement") with
Breeders' Cup Limited ("BCL"), pursuant to which the Company was granted the
right to provide general marketing consultation, sales of broadcast and
sponsorship rights, television advertising production, media placement,
publicity, public relations, television and video production, production of
promotional materials, merchandising and licensing of BCL in connection with
The Breeders' Cup Championship. The Company 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 the Company's
employment of Michael Letis or the unavailability of Mr. Letis to perform the
services necessary to enable the Company to comply with the terms of the
Breeders' Cup Agreement. Management believes, based on discussions with BCL,
that the Breeders' Cup Agreement will be extended for an additional two
years; however, there can be no assurance that the Company will be able to
extend such agreement on similar terms, or at all. Giving pro forma effect to
the Recent Acquisitions and the Pending Acquisitions as if such acquisitions
had occurred on January 1, 1996, the Breeders' Cup Agreement would have
accounted for approximately 15% of the Company's revenues for the year ended
December 31, 1996. See "Risk Factors--Dependence upon a Limited Number of
Clients and Events."
36
<PAGE>
The Hambletonian. Since April 1995, the Company has acted as the exclusive
television agent for The Hambletonian, a premier event in harness horse
racing held annually at The Meadowlands. The Company's responsibilities
include negotiating all television contracts and producing the telecast of
the event. This agreement expires in March 1998.
Legg Mason Tennis Classic. Since July 1969, when this event was first
held, ProServ has operated all aspects of this event for the Washington
Tennis Foundation, a non-profit group which runs programs for "at-risk"
youths throughout the metropolitan Washington area. This event is a
Championship Series event on the ATP tour that features 56 singles players
and 28 doubles teams. ProServ's agreement with the Washington Tennis
Federation has expired, and ProServ is currently negotiating to extend this
agreement. There can be no assurance that the Company will be able to extend
such agreement on similar terms or at all.
AT&T Challenge. In January 1986, ProServ created the AT&T Challenge, a
men's tennis tournament authorized by the ATP Tour that features 32 singles
players and 16 doubles teams. ProServ owns the rights to this event, which
serves as a major clay-court tune-up event for the French Open. ProServ
provides all event management and television production services relating to
the event, including ticket sales, sponsorship sales, player procurement,
site preparation, public relations, television rights and event management.
U.S. Open Tennis Championship. Since October 1990, ProServ has negotiated
the sale of U.S. cable television rights to the U.S. Open Tennis
Championship. This event is one of only four Grand Slam events on the
professional tennis tour. ProServ's agreement with respect to the U.S. Open
Tennis Championship expires in October 2002.
French Open Tennis Championship. Since 1991, ProServ has acted as the
exclusive consultant and representative for the distribution and sale of all
television rights to the French Open Tennis Championship in North America.
The French Open Tennis Championship is another of the four Grand Slam events
on the professional tennis tour. ProServ's agreement with the French Tennis
Federation expires in January 2001.
Isuzu Celebrity Golf Championship. In January 1995, the Company and NBC
formed Celebrity Golf Championship, LLC (in which the Company owns a 25%
interest) to conduct the Isuzu Celebrity Golf Championship. This event is an
annual celebrity professional golf tournament held in Lake Tahoe, Nevada,
where the competitors include well-known sports, entertainment and media
personalities. In partnership with NBC, the Company organizes all aspects of
the event, including event management, sponsorship sales and television
production.
European PGA Shootout. In 1991, ProServ developed in conjunction with the
European PGA a series of nine-hole sudden death shoot-outs between 10
European PGA golfers. In November 1993, ProServ arranged the license of the
name to this event to Canon Europa N.V. This series is known as the Canon
Shootout and consists of 10 weekly shoot-outs. The agreement with Canon
Europa N.V. expires in December 1997, and the Company does not anticipate
renewing the agreement. Therefore, there can be no assurance that the Company
will be able to continue its participation in this event.
NCAA Championships. Since December 1993, ProServ has had the right to
sell, on behalf of the NCAA, all television rights outside the United States
for most of the NCAA Championships, including the Final Four and the College
World Series. ProServ's agreement with the NCAA expired in July 1997. The
Company is currently negotiating with the NCAA to extend its agreement;
however, there can be no assurance that the Company will be able to extend
such agreement.
ESPN Boxing. Since March 1996, the Company has produced all of the boxing
matches broadcast on ESPN and ESPN2. In 1996, the Company produced
approximately 30 such boxing matches, and the Company anticipates that it
will produce approximately 50 boxing matches in 1997. The Company's
television production services in connection with these boxing matches
include reviewing sites, arranging for television cameras, lighting, audio
and video equipment and technical facilities and coordinating the use of
on-air broadcasters. The Company's agreement with ESPN expires in April 1998.
37
<PAGE>
ESPN-Subaru American Outback. In October 1996, the Company agreed to
produce "Subaru America Outback," an outdoor television series featuring
adventurers who take on the challenges of the wilderness. Twenty-four
half-hour episodes are scheduled to air on ESPN and ESPN2, which began in the
second quarter of 1997.
The PBA Tour. Since September 1996, the Company has served as the
exclusive representative to the Professional Bowling Association's ("PBA")
Pro Bowlers Tour, one of the longest-running sports series on network and
cable television. In connection therewith, the Company handles sponsorship
sales, television rights negotiations and television production. The Company
receives a portion of the proceeds from the sale of television rights and
fees for television production and sponsorship sales. The Company's agreement
with the PBA expires in December 1999.
U.S. Open Professional Figure Skating Championship. Since December 1996,
the Company has licensed from the Professional Skaters Association the rights
to the United States Open Professional Figure Skating Championship. The
Company is the exclusive promoter of this event, with full financial and
management responsibility for the event's operation. The Company has also
agreed to produce two prime-time television specials annually featuring this
event for United Paramount Network ("UPN"), a television network. The
Company's licensing agreement expires in April 2001, subject to the right of
the Company to renew for an additional five years, and its agreement with UPN
expires in January 1999, subject to the right of UPN to renew for up to an
additional three years.
More Than a Game. In February 1997, the Company agreed with Raycom Sports,
a television syndication company, to produce 52 episodes of "More Than a
Game," a weekly syndicated sports magazine show featuring athletes and sports
personalities who present examples of the positive side of sports. The
episodes began airing in the third quarter of 1997.
Lifetime Sports Presents. In December 1996, the Company agreed with The
Lifetime Television Network, a cable television network devoted to women's
programming, to produce four special television programs dealing with sports,
sports personalities and sports-related issues of interest to the network's
audience. Two of these programs aired in the second quarter of 1997, and the
two remaining programs are scheduled to air later in the year.
Sale of Signage to Jack Kent Cooke Stadium. In September 1997, ProServ was
granted the right to sell stadium and concourse signage to Jack Kent Cooke
Stadium, the playing field for the Washington Redskins football team. This
arrangement is not evidenced by a written contract.
Talent Representation
The Company represents broadcasting, sports, news and entertainment
personalities. These representation services encompass the negotiation of
employment agreements and the creation and evaluation of endorsement,
promotional and other business opportunities for such personalities. Fees for
these services may be fixed, but ordinarily represent a percentage of income
realized by the Company's clients through its efforts. The Company's fees
generated from a particular client are not necessarily related to the
prominence of such client. The Company's written representation agreements
with its clients are generally terminable annually on 30 days' notice and the
Company does not have written representation agreements with many of its
clients, which the Company believes to be common in the industry. In
addition, the Company's relationship with the talent which it represents may
be dependent upon the Company's continued relationship with the particular
agent who represents such talent. While the Company has agreements with many
of its agents, there can be no assurance that they will continue to be
employed by the Company during the term of such agreements. See "Risk
Factors--Absence of Written Agreements; Nature of Contracts."
38
<PAGE>
Upon the consummation of the ProServ Acquisition, the Company will
represent, or derive revenues from the representation of, over 150
professional athletes in a variety of sports, 80 national broadcasters, 40
local broadcasters, five authors and eight television producers and
directors, including:
SELECTED ATHLETES
<TABLE>
<CAPTION>
<S> <C> <C>
FOOTBALL HOCKEY BASKETBALL
Mark Chmura* Ken Dryden Kareem Abdul-Jabbar*
Ben Coates Jody Hull Marcus Camby*
Irving Fryar Brian Leetch Avery Johnson*
Joey Galloway* Darren Turcotte Shawn Kemp*
Kevin Hardy* Sergei Zubov Gheorghe Muresan*
Billy Joe Hobert* WOMEN'S TENNIS Nick Van Exel*
MEN'S TENNIS Amanda Coetzer* GOLF
Alex Corretja* Lindsay Lee* Per-Ulrik Johansson*
Stefan Edberg* Gabriela Sabatini* Olle Karlsson*
Patrick Rafter** Naoko Sawamatsu*
Greg Rusedski*
Stan Smith*
MaliVai Washington*
</TABLE>
- ------------
* The Company will provide talent representation services to, or derive
revenues from the representation of, these clients upon consummation of
the ProServ Acquisition.
** Upon consummation of the ProServ Acquisition, the Company will
represent Mr. Rafter with respect to marketing opportunities in
Australia.
In July 1997, in anticipation of the consummation of the ProServ
Acquisition, the Company and ProServ combined their operations relating to
the representation of football players. No revenues have been realized to
date from this combination of operations.
SELECTED BROADCASTERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Kenny Albert Christiane Amanpour Willow Bay Chris Berman
Len Berman Vince Cellini Bud Collins Dan Dierdorf
John Donvan Mike Emrick Bill Geist Jim Gray
Kevin Harlan Leon Harris Fred Hickman John Hockenberry
Tom Jackson Craig James Mark Jones Andrea Joyce
Jim Lampley Steve Lyons Sean McDonough Bob McKeown
Al Michaels Russ Mitchell Brad Nessler Eileen O'Connor
Judd Rose Forrest Sawyer Dick Schaap Claire Shipman
Hannah Storm Al Trautwig Mike Tirico Sam Wyche
</TABLE>
QBQ, founded in 1986, books tours and appearances for a variety of
musicians, entertainers and groups. As a booking representative, QBQ is
exclusively responsible for, among other things, evaluating and reserving
particular concert venues, planning and scheduling concert routes and
negotiating the entertainer's fees. In some instances, QBQ also negotiates
merchandising agreements in connection with a concert tour. QBQ generally
receives payment based upon a percentage of the entertainer's fees. QBQ has
provided such booking and touring representation services to a variety of
musicians, entertainers and groups including:
SELECTED MUSICIANS AND ENTERTAINERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Billy Joel Bruce Hornsby Def Leppard Duran Duran
Joan Jett & the Blackhearts Luther Vandross Lynyrd Skynyrd Metallica
Queensryche Richard Marx Rodney Dangerfield Styx
</TABLE>
39
<PAGE>
QBQ's revenues are dependent, to a large extent, on the caliber of talent
which it represents. Although many of the clients represented by QBQ have an
extended history with QBQ, touring periodically over a number of years,
generally, QBQ's agreements are for one-time tours or events and are not
evidenced by written agreements. For the year ended December 31, 1996, two
clients represented 38% of QBQ's revenues; however, on a pro forma basis,
giving effect to the Recent Acquisitions and the Pending Acquisitions as if
they had occurred on January 1, 1996, such two clients would have accounted
for only 2% of the Company's revenues. QBQ's revenues will vary depending on
the timing, frequency and size of concert tours its clients conduct. QBQ's
agreements with clients and venues regarding specific performances are
generally not evidenced by written contracts until shortly prior to such
performances. See "Risk Factors--Absence of Written Agreements; Nature of
Contracts."
The Company believes that transactions between personalities it represents
and entities for which it produces events generally have been conducted at
arms' length and on terms no less favorable to the personalities and entities
than could be obtained from independent third parties. However, there can be
no assurance that the Company will not have a conflict of interest between
personalities and entities that it represents in differing capacities.
Consulting
The Company offers specialized consulting services to clients either
engaged in, or seeking exposure in, the sports and entertainment-related
industries. The Company's employees have substantial experience in all
aspects of sports, news and entertainment event management, marketing, sales
and television production. The Company's employees also have numerous
personal contacts within the sports, news and other entertainment industries
with individuals who work for companies that are in need of consulting
services or are in a position to refer clients to the Company.
Sports, news and entertainment-related businesses often require expertise
in areas that are outside of their principal line of business. Such
businesses may seek consultants to advise them in connection with team and
event ticket sales, venue management of concert halls and sporting arenas,
sales of television rights, program development, public relations and
obtaining and maintaining sponsorships. In addition, businesses that are
seeking exposure within the sports and entertainment industries may seek
consultants to advise them on the most efficient way to reach their target
audiences. The Company will seek to enter into agreements with businesses
pursuant to which it will provide customized services in these and other
areas. The Company provides consulting services to certain clients to which
it also provides event management, television production and/or marketing
services.
Upon consummation of the ProServ Acquisition, the Company will provide the
following consulting services:
Hershey Foods Corporation. Hershey Foods Corporation manufactures,
distributes and sells a broad line of chocolate and non-chocolate
confectionary, pasta and grocery products. Since October 1993, ProServ has
provided consulting services to Hershey Foods Corporation. ProServ's
consulting duties include strategic consulting regarding Hershey Foods
Corporation's investments in sports and entertainment. ProServ provides such
services pursuant to an oral understanding.
Major League Baseball. Since September 1993, the Company has consulted
with Major League Baseball Properties, Inc. in its negotiations with current
and potential corporate sponsors. The Company also consults on the creation
and management of sponsorship campaigns and derives fees for such services.
The Company's representation of Major League Baseball Properties, Inc. is not
evidenced by a formal agreement.
Princeton Video Image, Inc. Princeton Video Image, Inc. ("PVI") has
developed a computer system that makes it possible to insert images into a
live television program without interrupting the action being televised. For
example, this system can place an advertiser's logo into the video scene so
that it appears to the television viewer to exist at the place of the event,
such as on the back wall of a tennis court or in the end zone of a football
field. Since September 1996, the Company has advised PVI on marketing this
system to sports teams, events and sponsors. The Company's agreement with PVI
expires in September 1998.
40
<PAGE>
Schering-Plough Corporation. Schering-Plough Corporation produces
Claritin, a drug used in alleviating allergies and sinus problems. Since
March 1997, ProServ has assisted in the promotion of Claritin by developing
and implementing sponsorships of PGA Tour events and by creating a wide range
of opportunities for consumers to sample Claritin. ProServ's agreement with
Schering-Plough Corporation expires in October 1997.
Staples, Inc. Staples, Inc. owns and operates a chain of office products
superstores. Since January 1994, ProServ has assisted Staples, Inc. in
developing and implementing sponsorships of major league sports teams.
ProServ's agreement with Staples, Inc. may be terminated by Staples, Inc. at
its discretion.
Wizards of the Coast, Inc. Wizards of the Coast, Inc. produces Magic: The
Gathering(Registered Trademark), a best-selling fantasy and adventure trading
card game. Since January 1996, ProServ has developed sponsorships for the
game and has assisted in the game's professional tour. ProServ provides such
services pursuant to an oral understanding.
DEPENDENCE ON A LIMITED NUMBER OF CLIENTS AND EVENTS; REVENUE RECOGNITION
A significant portion of the Company's revenues to date has been derived
from a small number of clients and events. On a pro forma basis, giving
effect to the Recent 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 Recent
Acquisitions and the Pending 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. Although the Company is negotiating to extend this agreement, it is
scheduled to terminate in December 1997, and there can be no assurance that
the Company will be able to extend the agreement on similar terms, or at all.
In addition, on a pro forma basis, giving effect to the Recent Acquisitions
and the Pending Acquisitions as if they had occurred on January 1, 1996, five
clients or events would have accounted for approximately 38% of the Company's
revenues for the year ended December 31, 1996. The Company may continue to
depend on a limited number of clients and events for a significant portion of
its revenues in future periods. See "Risk Factors--Dependence on a Limited
Number of Clients and Events."
The Company's revenues vary throughout the year. 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 Pending
Acquisitions, it is anticipated that the Company's revenues will increase
significantly, and the Company expects that these increased revenues will be
recorded substantially in the third as well as the fourth quarter.
COMPETITION
The business of providing services in the sports, news and other
entertainment industries is highly competitive. The Company's competitors
include several large companies, such as Advantage International Inc. (part
of the Interpublic Group of Companies, Inc.) and International Management
Group in the sports industry and Creative Artists Agency, Inc., ICM Artists,
Ltd. and the William Morris Agency, Inc. in the entertainment industry,
certain of which have substantially greater financial and other resources
than the Company. In addition, the Company competes with many smaller
entities. The success of the Company will be dependent upon its ability to
obtain additional event management, television production, marketing, talent
representation and consulting opportunities and to generate revenues from
such activities. The Company believes that it competes with other companies
primarily on the basis of the experience of its management and the breadth of
the services that it offers.
41
<PAGE>
EMPLOYEES
As of September 1, 1997, the Company had approximately 59 full-time
employees, none of whom was covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good. In addition,
from time-to-time, the Company engages independent contractors to provide
certain of the services required by its business. Upon consummation of the
Pending Acquisitions, the Company will have approximately 130 full-time
employees.
PROPERTIES
The Company's executive offices are 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 is
making certain capital improvements to furnish its new office space, complete
leasehold improvements and install video editing facilities.
ProServ's executive offices are located at 1620 L Street, NW, Suite 600,
Washington, D.C. ProServ also leases office space in Los Angeles, California;
Atlanta, Georgia; Scottsdale, Arizona; and London, England.
The Company believes that its facilities will be sufficient for its
current operations for the foreseeable future. However, the Company's
expansion plans may require the Company to obtain the use of additional
office space or other facilities in the future. The Company anticipates that
such facilities will be available at a reasonable cost.
LEGAL PROCEEDINGS
The Company is a defendant in various legal actions, involving breach of
contract and various other claims, which are incidental to the conduct of its
business. In the opinion of management, there are no material threatened or
pending legal proceedings against the Company which if adversely decided,
would have a material effect on the financial condition or prospects of the
Company.
The Company has been notified of a lawsuit brought by Angel Salgado in
1996 in the Superior Court of the State of Arizona, County of Maricopa, No.
CV 96-18700, naming Shawn Kemp, Tony Dutt, ProServ and others as defendants.
The plaintiff alleges that Mr. Kemp breached a contract to act in a motion
picture, and that Mr. Dutt (a former employee and a current business
associate of ProServ) and ProServ tortiously interfered with Mr. Kemp's
contractual relations with the plaintiff. The plaintiff seeks unspecified
damages. The parties are engaging in discovery. Upon consummation of the
ProServ Acquisition, the Company intends to defend the case vigorously.
However, there can be no assurance that the case will not be decided
adversely to ProServ or settled, and, if so decided or settled, such decision
or settlement may have a material adverse effect on the financial conditions
or prospects of the Company upon the consummation of the ProServ Acquisition.
42
<PAGE>
AGREEMENTS RELATED TO THE PENDING ACQUISITIONS
The following is a summary of certain terms of the agreements related to
the Pending Acquisitions. This summary is not intended to be complete and is
subject to, and is qualified in its entirety by reference to, the agreements,
copies of which have been filed with the Commission as exhibits to the
Registration Statement, of which this Prospectus forms a part, and are
incorporated herein by reference.
PROSERV ACQUISITION
The Company has entered into the ProServ Acquisition Agreements, which
will allow it to acquire all of the outstanding shares of ProServ. The
ProServ Acquisition Agreements consist of the Dell Stock Purchase Agreement,
the Non-Employee Stock Purchase Agreement and the Employee Stock Purchase
Agreements (each as defined herein).
Dell Stock Purchase Agreement. The Company has entered into a Purchase and
Sale Agreement dated as of June 25, 1997, and amended on August 19, 1997 (as
amended, the "Dell Stock Purchase Agreement"), among ProServ, Inc., ProServ
Television, Inc. and Donald L. Dell, pursuant to which the Company has agreed
to purchase 70.4% of the outstanding common stock and 100% of the outstanding
preferred stock of ProServ, Inc. and 51% of the outstanding capital stock of
ProServ Television, Inc., the remainder of which is owned by ProServ, Inc.
Pursuant to the agreement, the aggregate purchase price is $6.5 million,
subject to certain adjustments, and the Dell Consideration Stock, consisting
of 250,000 shares of Common Stock. Mr. Dell has the option to receive the
$6.5 million portion of the purchase price entirely in cash or may elect to
receive $3.5 million in cash and a $3.0 million promissory note, secured by a
standby letter of credit, payable on January 2, 1998.
The Company has delivered a $1.5 million letter of credit to secure its
obligations under the Dell Stock Purchase Agreement and has secured such
letter of credit by segregating $1.0 million of the Company's funds and
obtaining a $500,000 personal guarantee from Mr. Sillerman. See "Certain
Relationships and Related Transactions--ProServ Acquisition." The
transactions contemplated by the Dell Stock Purchase Agreement must be
consummated by October 15, 1997. If the Company fails to purchase Mr. Dell's
shares by such time for any reason other than certain breaches by Mr. Dell or
ProServ, Mr. Dell may draw upon the letter of credit, and the Company will
indemnify Mr. Dell for his legal fees and expenses relating to the ProServ
Acquisition. The Company is not obligated to purchase Mr. Dell's shares
unless it is able to acquire simultaneously the 250 shares of ProServ, Inc.
pursuant to the Non-Employee Stock Purchase Agreement.
Mr. Dell has agreed not to offer, sell or otherwise transfer or dispose
of, directly or indirectly, 50% of the Dell Consideration Stock (except, in
certain circumstances, by gift, inheritance or pledge) for a period of 12
months from the consummation of the purchase of his shares and the remaining
50% of the Dell Consideration Stock for a period of 27 months from the
consummation of the purchase of his shares. The Company has granted Mr. Dell
certain demand and piggyback registration rights with respect to the Dell
Consideration Stock, which, in certain situations, permit Mr. Dell to sell
100% of the Dell Consideration Stock 12 months after the consummation of the
purchase of his shares of ProServ.
In addition, the Company and Mr. Dell have agreed to indemnify each other
for any losses incurred by either party as a result of the inaccuracy of any
representation or warranty or the breach of any covenant or agreement;
however, in certain circumstances, if Mr. Dell breaches the agreement, and
the Company still elects to purchase Mr. Dell's shares, then the Company's
remedy for such breach will be limited to $900,000. Mr. Dell has also agreed
to indemnify the Company for 50% of the amount by which ProServ's deficit in
net working capital at the time of the consummation of the purchase of Mr.
Dell's shares exceeds $1,450,000 and for all of such amount exceeding
$1,750,000.
The Dell Stock Purchase Agreement provides that, at any time within the 60
day period following the second anniversary of the consummation of the
purchase of Mr. Dell's shares, Mr. Dell may elect to transfer to the Company
up to all of the remaining Dell Consideration Stock held by Mr. Dell at a
price per share equal to $7.70 (up to approximately $1.9 million in the
aggregate). In the event the Company does not purchase the shares from Mr.
Dell, Mr. Dell has certain rights to require the Company to issue more shares
of Common Stock to Mr. Dell. In addition, at any time between the 61st and
90th day
43
<PAGE>
following the second anniversary of the consummation of the purchase of Mr.
Dell's shares, the Company may purchase up to 50% of the Dell Consideration
Stock held by Mr. Dell at a price per share equal to $7.70 (up to $962,500 in
the aggregate). The Company will record charges to operations over the next
two years related to the Company's potential obligation to repurchase the
Dell Consideration Stock. See "Risk Factors--Limited Operating History;
History of Losses; Future Charges to Operations."
The Company has agreed to enter into an employment agreement with Mr. Dell
pursuant to which Mr. Dell will serve for an initial term of four years as
the chairman and chief executive officer of ProServ and a director of the
Company for a base salary of not less than $300,000 per year plus certain
bonuses. The employment agreement will be terminable after three years by Mr.
Dell without any further obligation on his part (except that he will be
subject to a one-year agreement not to compete with the Company if he opts to
receive options to purchase 40,000 shares of Common Stock); if he does not so
terminate the employment agreement, the Company may extend the employment
agreement for a fifth year. In addition, pursuant to the employment
agreement, Mr. Dell will receive, at the closing and upon each anniversary
thereof during the term of his employment agreement, an option to purchase
40,000 shares of Common Stock at an exercise price per share based upon the
closing price of the Common Stock on the date of grant.
Other Stock Purchase Agreements. On July 2, 1997, the Company entered into
an agreement (the "Non-Employee Stock Purchase Agreement") with a
non-employee stockholder, pursuant to which the Company has agreed to
purchase 250 shares of the issued and outstanding common stock of ProServ,
Inc. for an aggregate purchase price of $3.0 million. The consummation of the
purchase will take place concurrently with the consummation of the purchase
of Mr. Dell's shares.
In addition, the Company has entered into agreements (the "Employee Stock
Purchase Agreements") with William J. Allard, the president and chief
operating officer of ProServ, and Ivan Blumberg and Jeffrey Knapple, who are
also officers of ProServ, pursuant to which the Company has agreed to
purchase an aggregate of 120 shares of the common stock of ProServ, Inc. and
options to purchase an aggregate of 70 shares of the common stock of ProServ,
Inc. for an aggregate purchase price of $1.3 million. Upon the consummation
of the transactions contemplated by the Employee Stock Purchase Agreements,
the Company intends to enter into employment agreements with these persons
and to appoint Mr. Allard to the Company's Board of Directors.
The timing and consummation of the ProServ Acquisition is subject to a
number of conditions, certain of which are beyond the Company's control, and
there can be no assurance that the ProServ Acquisition will be consummated.
However, the consummation of this Offering is conditioned upon the concurrent
closing of the ProServ Acquisition.
QBQ ACQUISITION
The Company has entered into an Asset Purchase Agreement, dated as of July
21, 1997 (the "QBQ Acquisition Agreement"), with QBQ Entertainment, Inc.,
Dennis Arfa and Marquee Music, Inc., a wholly-owned subsidiary of the
Company, pursuant to which the Company will purchase substantially all of the
assets, and assume certain obligations, of QBQ for (i) approximately $3.1
million in cash, (ii) $1.0 million to be paid in equal annual installments
over eight years, subject to acceleration in certain circumstances, (iii)
$615,000 to be paid in annual installments over five years beginning on April
1, 1998 and (iv) shares of Common Stock with an aggregate market value on the
day before the date of consummation of the QBQ Acquisition of $2.0 million,
such market value to be determined by the average closing price per share of
Common Stock from the date of the QBQ Acquisition Agreement until the date
five business days prior to the consummation of the QBQ Acquisition (the
"Closing Value"); provided, however, that the Closing Value will not be
greater than $8.50. In addition, upon consummation of the QBQ Acquisition,
the Company has agreed to deposit into escrow the QBQ Escrow Shares with a
Closing Value of $500,000, which shall be released from escrow to QBQ if the
Operating Income (as defined in the QBQ Acquisition Agreement) derived from
the purchased assets exceeds $1.0 million in any of the first three full
fiscal years (or $1.25 million in the fourth full fiscal year) of operation
of the assets by the Company. If the QBQ Escrow Shares are released from
escrow, the Company will record, for financial reporting purposes, a
substantial non-cash compensation charge to operations. See "Risk
44
<PAGE>
Factors--Limited Operating History; History of Losses; Future Charges to
Operations." The Company has made a cash deposit of $400,000 to secure the
Company's obligations under the QBQ Acquisition Agreement. If the QBQ
Acquisition Agreement is terminated due to the Company's material breach of a
representation, warranty or covenant, the Company is required to pay $1.0
million to QBQ as liquidated damages (of which $400,000 may be offset against
the cash deposit). The Company has granted Dennis Arfa certain demand and
piggyback registration rights with respect to the Common Stock to be issued
to him in connection with the QBQ Acquisition.
The QBQ Acquisition Agreement may be terminated by either party, if the
party seeking termination is not in material default or breach of the
agreement, upon, among other things: (i) an uncured material default by the
other party in respect of the observance or timely performance of any of its
covenants or agreements which is not cured within 15 days of notice thereof
or (ii) the first anniversary of the agreement, if there is then in effect
any judgement, final decree or order that would prevent or make unlawful the
consummation of the acquisition. Pursuant to the QBQ Acquisition Agreement,
QBQ may require the Company to consummate the QBQ Acquisition by October 20,
1997.
The QBQ Acquisition Agreement 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
in the QBQ Acquisition Agreement), QBQ may, at its option, elect to transfer
to the Company up to 75% of the shares it receives in connection with the
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 in the Pledge Agreement between the Company and Mr. Arfa),
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.
See "Principal Stockholders--Escrow Shares."
The Company has agreed to enter into an employment agreement with Dennis
Arfa pursuant to which Mr. Arfa has agreed to serve for a term of five years
as the chairman, president and chief executive officer of Marquee Music. Upon
execution of the employment agreement with Mr. Arfa, the Company will make a
non-recourse loan to Mr. Arfa in the amount of $1.5 million. Such loan will
(i) accrue interest at a rate of 7% per annum, (ii) mature on the fifth
anniversary of the agreement and (iii) be secured by a pledge of all of the
shares of Common Stock issued in connection with the QBQ Acquisition. If Mr.
Arfa's employment agreement expires without timely renewal, any outstanding
deferred payments will become immediately due and payable.
The Company anticipates that it will consummate the QBQ Acquisition
promptly following the closing of this Offering. However, the timing and
completion of the QBQ Acquisition is subject to a number of conditions,
certain of which are beyond the Company's control, and there can be no
assurance that the acquisition will be consummated. If the QBQ Acquisition is
not consummated, the Company intends to apply the proceeds of this Offering
allocated for the QBQ Acquisition to general working capital, including
future acquisitions. See "Use of Proceeds."
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ----- -----------------------------------------------
<S> <C> <C>
Robert M. Gutkowski 49 President, Chief Executive Officer and Director
Robert F.X. Sillerman 49 Chairman
Arthur C. Kaminsky 50 Director and Executive Vice President
Michael Letis 56 Director and Executive Vice President
Louis J. Oppenheim 39 Director and Executive Vice President
Michael Trager 55 Director and Executive Vice President
Jan E. Chason 51 Chief Financial Officer
Howard J. Tytel 51 Director
Arthur R. Barron 62 Director
Myles W. Schumer 51 Director
</TABLE>
The following are brief descriptions of the business experience of the
executive officers and directors of the Company.
Robert M. Gutkowski has served as President, Chief Executive Officer and a
director of the Company since December 1995. Mr. Gutkowski has more than 20
years of experience in the television, sports and entertainment industries.
From September 1994 until December 1995, Mr. Gutkowski was a consultant to
sports-related businesses. From November 1991 to September 1994, he served as
President and Chief Executive Officer of Madison Square Garden Corporation,
where he oversaw the operations of the New York Knicks, the New York Rangers,
the MSG Entertainment Group, the MSG Cable Network, Madison Square Garden and
the Paramount Theater. From July 1990 to November 1991, Mr. Gutkowski served
as President of MSG Communications Group, having served as Executive Vice
President thereof from September 1987 to July 1990. From October 1985 to
September 1987, he served as President of Madison Square Garden Network.
Prior to his tenure at Madison Square Garden, Mr. Gutkowski was Vice
President--Sales for Paramount Television Domestic Distribution. From
February 1981 to September 1983, Mr. Gutkowski was Vice
President--Programming for ESPN. Mr. Gutkowski earned a B.A. from Hofstra
University.
Robert F.X. Sillerman has been Chairman of the Company since July 1995.
Mr. Sillerman has been Executive Chairman of SFX, a publicly-traded company
since 1995, which owns and operates radio stations and concert venues, and
from 1992 through 1995 he served as Chairman and/or Chief Executive Officer
of SFX. Since 1985, Mr. Sillerman has been Chairman of the Board and Chief
Executive Officer of SCMC, a private investment company which makes
investments in and provides financial consulting services to companies
engaged in media and sports-related businesses, including the Company, and,
through privately-held entities, he controls the general partner of Sillerman
Communications Partners, L.P., an investment partnership. See "Certain
Relationships and Related Transactions." 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. Mr. Sillerman earned a B.A. from Brandeis
University. In 1993, Mr. Sillerman became the Chancellor of the Southampton
campus of Long Island University.
46
<PAGE>
Arthur C. Kaminsky has been a director of the Company since March 1996 and
an Executive Vice President of the Company since December 1996. Mr. Kaminsky
has served as President and Chief Executive Officer of A&A since 1977. From
1974 to 1990, Mr. Kaminsky was a partner with the law firm of Taft &
Kaminsky. Mr. Kaminsky earned a B.A. from Cornell University and a J.D. from
Yale University.
Michael Letis became a director and an Executive Vice President of the
Company in December 1996. Mr. Letis has served as President of SMTI since
1984. Mr. Letis is a director of Thoroughbred Racing Communications, Inc. and
of the Thoroughbred Club of America. Mr. Letis earned a B.A. from Dartmouth
College.
Louis J. Oppenheim became a director and an Executive Vice President of
the Company in December 1996. Mr. Oppenheim has served as Chief Operating
Officer, Vice President and Secretary of A&A since 1985. 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 an
Executive Vice President of the Company since December 1996. Mr. Trager has
served as Chairman of SMTI since 1984. From November 1994 to December 1995,
Mr. Trager served as a director of Select Media Communications, Inc. Mr.
Trager is a member of the Board of Directors and the past President of the
Greenwich Old-timers Athletics Association, which provides college
scholarships and financial assistance to young athletes in the Greenwich
community. Mr. Trager earned a B.A. and M.S. from Bucknell University.
Jan E. Chason has been the Chief Financial Officer of the Company since
June 1997. From November 1996 to July 1997, Mr. Chason was the Chief
Financial Officer of Triathlon Broadcasting Company, a publicly-traded
company that owns and operates radio stations. In addition, since June 1996,
Mr. Chason has been a consultant to SCMC and TSC and, through TSC, has
provided advisory services to the Company. Mr. Chason was the principal in
JEC Consulting Associates, which specialized in providing financial
consulting and advisory services, from October 1994 to June 1996. From 1982
until September 1994, Mr. Chason was a Partner, specializing in auditing and
accounting services, of Ernst & Young LLP. Mr. Chason earned a B.B.A. from
City College of New York and is a Certified Public Accountant.
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. From March 1995 until March
1997, Mr. Tytel was 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 B.A. and B.S. from Washington
University and a J.D. from New York University.
Arthur R. Barron has served as a director of the Company since December
1996. Since January 1997, Mr. Barron also serves as a non-exclusive
consultant to Callahan Associates International LLC, a company seeking to
finance, develop and acquire communication, entertainment and wireless
projects around the world. 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 has served as a director of the Company since December
1996. 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. From July 1993 until November 1996, Mr.
Schumer served as a director of Multi-Market Radio, Inc., a publicly-traded
company engaged in the ownership and operation of radio stations.
47
<PAGE>
In addition, upon the consummation of the ProServ Acquisition, it is
anticipated that Donald L. Dell and William J. Allard will be appointed as
directors of the Company. See "Agreements Related to the Pending
Acquisitions."
Donald L. Dell founded, and since 1971 has been the Chairman and Chief
Executive Officer of, ProServ, Inc. In 1980, Mr. Dell founded and became the
Chairman of the Board of ProServ Television, Inc. Mr. Dell is also the
Honorary Chairman of the KidSports Foundation, the Co-Chairman of the D.C.
Tennis Classic in Washington, D.C. and the Vice Chairman of the International
Tennis Hall of Fame in Newport, Rhode Island. He also serves on the Advisory
Committee of the Washington Tennis Foundation. Mr. Dell earned a B.A. from
Yale University and a J.D. from the University of Virginia.
William J. Allard has served as the Chief Operating Officer of ProServ,
Inc. since January 1993 and as President of ProServ, Inc. since December
1996. From December 1990 to January 1993, Mr. Allard served as Managing
Director of ProServ Europe, S.A., a French subsidiary of ProServ, Inc. Mr.
Allard earned a B.S. from Babson College and an M.B.A. from Harvard
University.
Directors serve until the next annual meeting or until their successors
are elected and qualified subject to the provisions of the Stockholders'
Agreement. Officers serve at the discretion of the Board of Directors,
subject to rights, if any, under employment agreements with the Company.
The Company has agreed with Royce Investment Group, Inc., the underwriters
in the IPO, that until December 5, 2001, the Company will have at least two
non-affiliated independent directors on its Board of Directors. Messrs.
Barron and Schumer presently serve as the Company's independent directors.
EXECUTIVE COMPENSATION
The table below sets forth certain information regarding all the
compensation awarded to, earned by or paid to Robert M. Gutkowski, the
President and Chief Executive Officer of the Company, and the next most
highly compensated officers who received salary and bonuses of at least
$100,000, on an annual basis (collectively, the "Named Executive Officers")
during the year ended December 31, 1996 for services rendered in all
capacities to the Company and its subsidiaries. No executive officer of the
Company, other than Mr. Gutkowski, received compensation in excess of
$100,000 during the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- ----------------------
SECURITIES UNDERLYING
NAME SALARY ($) BONUS ($) OPTIONS/SARS (#)
- --------------------------------------- ----------- --------- ----------------------
<S> <C> <C> <C>
Robert M. Gutkowski, ................... 231,250 122,500 20,000
President and Chief Executive Officer
Arthur C. Kaminsky ..................... 12,500(1) -- 20,000
Executive Vice President
Michael Letis .......................... 12,500(2) -- 20,000
Executive Vice President
Louis J. Oppenheim ..................... 7,292(3) -- 10,000
Executive Vice President
Michael Trager ......................... 12,500(4) -- 20,000
Executive Vice President
</TABLE>
48
<PAGE>
- ------------
(1) Mr. Kaminsky became an Executive Vice President of the Company
effective December 11, 1996 upon the consummation of the A&A
Acquisition, when he entered into an employment agreement providing for
an initial annual salary of $300,000. See "--Employment Agreements."
(2) Mr. Letis became an Executive Vice President of the Company effective
December 11, 1996 upon the consummation of the SMTI Acquisition, when
he entered into an employment agreement providing for an initial annual
salary of $300,000. See "--Employment Agreements."
(3) Mr. Oppenheim became an Executive Vice President of the Company
effective December 11, 1996 upon the consummation of the A&A
Acquisition, when he entered into an employment agreement providing for
an initial annual salary of $175,000. See "--Employment Agreements."
(4) Mr. Trager became an Executive Vice President of the Company effective
December 11, 1996 upon the consummation of the SMTI Acquisition, when
he entered into an employment agreement providing for an initial annual
salary of $300,000. See "--Employment Agreements."
The table below sets forth information with respect to the grant of stock
options and stock appreciation rights ("SARs") to the Named Executive
Officers during the year ended December 31, 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING PERCENT OF TOTAL EXERCISE OR
OPTIONS/SARS OPTIONS GRANTED TO BASE PRICE
NAME GRANTED(#) EMPLOYEES IN 1996 ($/SHARE) EXPIRATION DATE
- -------------------- -------------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
Robert M. Gutkowski 20,000 8.7% $6.25 October 1, 2002
Arthur C. Kaminsky . 20,000 8.7% $6.25 October 1, 2002
Michael Letis ....... 20,000 8.7% $6.25 October 1, 2002
Louis J. Oppenheim . 10,000 4.3% $6.25 October 1, 2002
Michael Trager....... 20,000 8.7% $6.25 October 1, 2002
</TABLE>
The table below sets forth information with respect to the exercise of
stock options and SARs by the Named Executive Officers during the year ended
December 31, 1996 and the value at December 31, 1996 of unexercised stock
options and SARs held by the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT FY-END AT FY-END
ON REALIZED (#) EXERCISABLE/ ($) EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- -------------------- ------------ ---------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert M. Gutkowski 0 0 0/20,000 0/0
Arthur C. Kaminsky . 0 0 0/20,000 0/0
Michael Letis ....... 0 0 0/20,000 0/0
Louis J. Oppenheim . 0 0 0/10,000 0/0
Michael Trager....... 0 0 0/20,000 0/0
</TABLE>
- ------------
(1) No listed options were in-the-money as of December 31, 1996, when the
closing price of the Common Stock was $6.00 per share.
49
<PAGE>
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 provides that Mr.
Gutkowski will 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." For purposes of the employment agreement, "cause" 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
during the term of the agreement. In addition, the employment agreement
prohibits Mr. Gutkowski from engaging in such activities for certain periods
of time in the event that he voluntarily terminates his employment agreement,
the Company terminates his employment agreement or the employment agreement
is not extended on substantially similar terms.
Upon the consummation of the Recent Acquisitions, the Company entered into
employment agreements 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. The employment agreements provided that each of Messrs.
Kaminsky, Letis and Trager will receive an annual base salary of $300,000 and
that Mr. Oppenheim will receive an annual base salary of $175,000. The
Company has also entered into employment agreements with other members of the
Company's management.
The Company has agreed to enter into employment agreements with Messrs.
Dell and Allard upon the consummation of the ProServ Acquisition and with Mr.
Arfa upon the consummation of the QBQ Acquisition. In addition, the Company
has agreed to enter into two additional employment agreements with current
executive officers of ProServ. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition."
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives $1,500 for
each Board of Directors' meeting attended and $750 for each committee meeting
attended, in addition to reimbursement for travel expenses in attending such
meetings.
STOCK OPTION PLANS
The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 and 1997 Stock Option Plans. The plans, which
provide for grants of non-qualified and incentive stock options to purchase
up to an aggregate of 800,000 shares of Common Stock to eligible employees,
officers, directors and consultants, are 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.
Options to purchase an aggregate of 237,500 shares of Common Stock have
been granted under the 1996 Stock Option Plan. In October 1996, 14 employees
of the Company received an aggregate of
50
<PAGE>
100,000 options with an exercise price of $5.00 per share, and the Company's
executive officers and directors received an aggregate of 130,000 options
with an exercise price of $6.25 per share. All of these options vest in
unequal annual installments over a five year period commencing October 1,
1997 and expire on October 1, 2002, except that options to purchase 6,500
shares of Common Stock vest in annual installments over a three year period
commencing on October 1, 1997 and expire on October 1, 2002. In June 1997,
the Company granted an executive officer options to purchase 7,500 shares of
Common Stock at a price of $5.875 which vest over a three year period and
expire in June 2002. No options have been granted to date under the 1997
Stock Option Plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company has adopted provisions in its Certificate of Incorporation
that eliminate the personal liability of its directors for monetary damages
arising from a breach of their fiduciary duties in certain circumstances to
the fullest extent permitted by the Delaware General Corporation Law
("Delaware Law"). In addition, the Certificate of Incorporation requires the
Company to indemnify its directors and officers if they are made parties to
litigation because they are directors and officers of the Company or because
they were acting in certain capacities for other entities at the Company's
request. The Company's By-laws also require the Company to indemnify its
officers and directors to the fullest extent permitted by Delaware Law and
provide for the advancement of legal expenses in litigation to which the
directors and officers are parties. Accordingly, indemnification may occur
pursuant to the Certificate of Incorporation and By-laws for liabilities
arising under the Securities Act.
The underwriting agreement relating to this Offering provides for
indemnification of the Company's officers and directors by the Underwriters
against certain liabilities, including liabilities under the Securities Act,
that arise out of, among other things, an actual or alleged untrue statement
contained in this Prospectus or the actual or alleged omission of a material
fact required to be stated in this Prospectus. However, this indemnification
is only required to the extent that the misstatement or omission was based on
written information furnished to the Company by the Underwriters for use in
this Prospectus.
At present, there is no pending material litigation or proceeding
involving a director or officer of the Company where indemnification may be
required or permitted. The Company is not aware of any threatened material
litigation or proceeding that may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock, including the IPO Escrow Shares, as of September 1, 1997, and
as adjusted to reflect the completion of this Offering and the Pending
Acquisitions, by (i) each person known by the Company to own beneficially
more than five percent of the outstanding Common Stock, (ii) each director of
the Company and (iii) all executive officers and directors of the Company as
a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
AND PENDING AND PENDING
ACQUISITIONS ACQUISITIONS(1)
---------------------- ----------------------
NAME(2) NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman(3)(4) ................ 1,373,330 15.7% 1,583,330 9.4%
Robert M. Gutkowski(4)(5) .................. 686,615 7.8 686,615 4.1
Arthur C. Kaminsky(4)(6) ................... 686,615 7.8 686,615 4.1
Michael Letis(4)(7) ........................ 686,615 7.8 686,615 4.1
Michael Trager(4)(8) ....................... 686,615 7.8 686,615 4.1
Louis J. Oppenheim(4)(9) ................... 343,306 3.9 343,306 2.0
Myles W. Schumer(10) ....................... 3,000 * 3,000 *
Howard J. Tytel(11) ........................ -- -- -- --
Arthur R. Barron ........................... -- -- -- --
Jan E. Chason(12) .......................... 4,000 * 4,000 *
Donald L. Dell(13) ......................... -- -- 290,000 1.7
William J. Allard(14) ...................... -- -- 25,000 *
All executive officers and directors of the
Company as a group (10 persons prior to
Offering and Pending Acquisitions,
12 persons after Offering and Pending
Acquisitions)(15) ......................... 4,470,096 50.9% 4,995,096 29.5%
</TABLE>
- ------------
* Less than 1%.
(1) Assumes (i) no exercise of the Underwriters' over-allotment option
and (ii) a price per share of Common Stock of $6.75 for purposes of
determining the number of shares of Common Stock issued in
connection with the QBQ Acquisition.
(2) The address of each beneficial owner is c/o The Marquee Group, Inc.,
888 Seventh Avenue, 37th 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.
(3) Robert F.X. Sillerman, the Chairman of the Company, is the Chairman,
Chief Executive Officer and controlling stockholder of TSC, which
beneficially owns 1,369,230 shares of Common Stock. Includes 392,308
shares of Common Stock held in escrow but in respect of which TSC
retains the power to vote and 4,000 shares of Common Stock issuable
upon the exercise of options that are exercisable within 60 days.
See "--Escrow Shares--IPO 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 December 5, 1997. Does not
include 36,000 shares of Common Stock issuable upon the exercise of
options that are not exercisable within 60 days. Shares Beneficially
Owned After the Offering, Tender Offer and Pending Acquisitions
includes options to purchase 200,000 shares of Common Stock granted
to TSC in connection with the Tender Offer and options to purchase
10,000 shares granted to Mr. Sillerman in connection with the
ProServ Acquisition, each of which was exercisable on the date of
grant. See "Certain Relationships and Related
Transactions--Consulting Agreement" and "--ProServ Acquisition."
(4) The Company, TSC and Messrs. Gutkowski, Kaminsky, Letis, Trager and
Oppenheim have entered into an agreement with respect to the voting
of shares of Common Stock held by them. See "Certain Relationships
and Related Transactions--Stockholders' Agreement."
(5) Includes 196,154 shares of Common Stock that Mr. Gutkowski placed in
escrow but in respect of which he retains the power to vote and
2,000 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days. See "--Escrow Shares--IPO
Escrow Shares." Does not include 38,461 shares of Common Stock
issuable upon exercise of an equal number of Warrants, which are not
exercisable until December 5, 1997. Does not include 18,000 shares
of Common Stock issuable upon the exercise of options that are not
exercisable within 60 days.
52
<PAGE>
(6) Includes 196,154 shares of Common Stock that Mr. Kaminsky placed in
escrow but in respect of which he retains the power to vote and
2,000 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days. See "--Escrow Shares--IPO
Escrow Shares." Does not include 38,461 shares of Common Stock
issuable upon exercise of an equal number of Warrants, which are not
exercisable until December 5, 1997. Does not include 18,000 shares
of Common Stock issuable upon the exercise of options that are not
exercisable within 60 days.
(7) Includes 196,154 shares of Common Stock that Mr. Letis placed in
escrow but in respect of which he retains the power to vote and
2,000 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days. See "--Escrow Shares--IPO
Escrow Shares." Does not include 38,461 shares of Common Stock
issuable upon exercise of an equal number of Warrants, which are not
exercisable until December 5, 1997. Does not include 18,000 shares
of Common Stock issuable upon the exercise of options that are not
exercisable within 60 days.
(8) Includes 196,154 shares of Common Stock that Mr. Trager placed in
escrow but in respect of which he retains the power to vote and
2,000 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days. See "--Escrow Shares--IPO
Escrow Shares." Does not include 38,461 shares of Common Stock
issuable upon exercise of an equal number of Warrants, which are not
exercisable until December 5, 1997. Does not include 18,000 shares
of Common Stock issuable upon the exercise of options that are not
exercisable within 60 days.
(9) Includes 98,076 shares of Common Stock that Mr. Oppenheim placed in
escrow but in respect of which he retains the power to vote and
1,000 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days . See "--Escrow Shares--IPO
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 December 5, 1997. Does not include 9,000 shares of
Common Stock issuable upon the exercise of options that are not
exercisable within 60 days.
(10) Includes 1,500 shares of Common Stock issuable upon exercise of an
equal number of Warrants, which are currently exercisable.
(11) Mr. Tytel is a minority stockholder of TSC, which owns 1,369,230
shares of Common Stock; however, he is not deemed to beneficially
own any such shares.
(12) Includes 2,000 shares issuable upon exercise of an equal number of
Warrants, which are currently exercisable. Does not include 7,500
shares of Common Stock issuable upon the exercise of options that
are not exercisable within 60 days.
(13) Includes 40,000 shares issuable upon exercise of options to be
granted at the consummation of the transactions contemplated by the
ProServ Acquisition Agreements, which will be immediately
exercisable. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition--Dell Stock Purchase Agreement."
(14) Includes 25,000 shares issuable upon exercise of options to be
granted at the consummation of the transactions contemplated by the
ProServ Acquisition Agreements, which will be immediately
exercisable. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition--Other Stock Purchase Agreements."
(15) All amounts include 3,500 shares issuable upon exercise of an equal
number of Warrants, which are currently exercisable and 13,000
shares issuable upon the exercise of options that are exercisable
within 60 days, but do not include (i) 249,996 shares issuable upon
exercise of an equal number of Warrants that are not exercisable
until December 5, 1997, or (ii) 124,500 shares of Common Stock
issuable upon the exercise of options that are not exercisable
within 60 days. In addition, Shares Beneficially Owned After the
Offering, Tender Offer and Pending Acquisitions includes (i) options
to purchase 200,000 shares granted to TSC in connection with the
Tender Offer, which were exercisable on the date of grant, (ii)
options to purchase 10,000 shares granted to Mr. Sillerman in
connection with the ProServ Acquisition, which were exercisable on
the date of grant and (iii) options to purchase 65,000 shares to be
issued in connection with the Pending Acquisitions. See "Agreements
Related to Pending Acquisitions" and "Certain Relationships and
Related Transactions--Consulting Agreement" and "--ProServ
Acquisition."
ESCROW SHARES
IPO Escrow Shares. In connection with the IPO, TSC and Messrs. Gutkowski,
Kaminsky, Oppenheim, Letis and Trager deposited an aggregate of 1,275,000 IPO
Escrow Shares into escrow. The IPO Escrow Shares are not assignable or
transferable. Of the IPO Escrow Shares, (i) 425,000 shares 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 shares (or, if the condition set forth in
(i) above was not met, 850,000 shares) shall be released, if, for
53
<PAGE>
the fiscal year ending December 31, 1998, the Minimum Pretax Income equals or
exceeds $2,400,000; (iii) 425,000 shares (or, if the conditions set forth in
either (i) or (ii) were not met, the remaining IPO 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 IPO 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 any 20
consecutive trading days during the period from December 5, 1998 until
December 31, 1999; or (b) the Company is acquired by or merged into another
entity in a transaction in which the value of the per share consideration
received by the stockholders of the Company on the date of such transaction
equals or exceeds $15.00 per share.
If the applicable Minimum Pretax Income levels or Closing Price level set
forth above have not been met by March 31, 2000, the IPO 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 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 IPO Escrow Shares
and any Escrow Property (as defined below) 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 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
IPO 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 IPO Escrow Shares promptly upon the escrow agent's receipt thereof. The
Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the underwriters in the IPO
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.
QBQ Escrow Shares. In connection with the QBQ Acquisition, the Company has
agreed to deposit into escrow shares of Common Stock with an aggregate value
at the closing of the QBQ Acquisition of approximately $500,000. Pursuant to
the terms of such escrow, the QBQ Escrow Shares shall be released from escrow
if Marquee Music's Operation Income (as defined in the QBQ Acquisition
Agreement) exceeds $1.0 million in any of the three fiscal years (or $1.25
million in the fourth fiscal year) following the consummation of the QBQ
Acquisition. See "Agreements Related to the Pending Acquisitions--QBQ
Acquisition."
Potential Charges to Operations. The Company expects that the release of
the IPO Escrow Shares or the QBQ Escrow Shares 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 Company's losses 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 "Risk
Factors--Limited Operating History; History of Losses; Future Charges to
Operations."
IPO UNIT OPTIONS
The Company issued to the underwriters of its IPO, Royce Investment Group,
Inc. and Continental Broker-Dealer Corp., the IPO Unit Options to purchase up
to 335,000 IPO Units. The holders of the IPO Unit Options have certain demand
and piggyback registration rights. See "Description of Securities--IPO Unit
Options."
54
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AGREEMENT
The Company has entered into a Financial Consulting Agreement with SCMC,
dated as of August 1, 1996 (the "Consulting Agreement"). In March 1997, SCMC
assigned its rights, obligations and duties under the Consulting Agreement to
TSC. Pursuant to the Consulting Agreement, TSC, a principal stockholder of
the Company, has agreed to serve as the Company's financial consultant until
August 1, 2002. Robert F.X. Sillerman, the Chairman of the Company, is the
Chairman, Chief Executive Officer and controlling stockholder of SCMC and
TSC, and Howard J. Tytel, a director of the Company, is the Executive Vice
President and General Counsel of SCMC and TSC. SCMC and/or TSC have 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 $30,000 per month commencing in September 1997 to TSC as
compensation for its services under the Consulting Agreement, which amount
will be increased annually based on the Consumer Price Index for New York
City. Under the Consulting Agreement, TSC 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 Consulting Agreement also provides for Special Advisory Fees to be
paid to TSC in the event of any financings or mergers and acquisitions,
whether or not such transactions are originated by TSC, although such fees
are subject to the approval of the Company's independent directors. The
Company did not, however, make any such payment to SCMC or TSC in connection
with the IPO, the Recent Acquisitions or the Private Placement. In February
1997, the Company advanced $400,000 to TSC as an advance against Special
Advisory Fees to be earned by TSC. In connection with the Pending
Acquisitions, TSC will receive Special Advisory Fees of $450,000 (of which
$400,000 will be offset against the amount previously advanced to TSC) and,
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. The TSC
Option expires in 2002. Although the Special Advisory Fees to be paid in
connection with the Pending Acquisitions exceed those contemplated by the
Consulting Agreement, the Company's independent directors have approved such
fees as an affiliated transaction.
The Company has also agreed to reimburse TSC for all reasonable
out-of-pocket disbursements incurred by TSC in connection with the
performance of services under the Consulting Agreement and to indemnify TSC
and its affiliates for losses, claims, damages or liabilities arising out of
TSC's performance of its obligations under the Consulting 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 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 to the firm by Mr. Tytel. Mr. Tytel's primary employment is as an
officer of SCMC and TSC.
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.
PROSERV ACQUISITION
In August 1997, the Company and Mr. Dell amended the terms of the Dell
Stock Purchase Agreement. This agreement had previously required the Company
to maintain a $1.5 million cash deposit in escrow, which deposit would be
increased to $2.0 million if the Company desired to extend the termination
date of the Dell Stock Purchase Agreement from September 15, 1997 to October
15, 1997.
55
<PAGE>
The amendment allowed the Company to replace its escrowed funds with a $1.5
million letter of credit and to extend the termination date of the agreement
to October 15, 1997. In consideration for the amendment, the Company agreed
to issue an additional 25,000 shares of Common Stock to Mr. Dell upon
consummation of the purchase of his shares.
Of the $1.5 million in returned escrow funds, the Company applied $500,000
to working capital and segregated $1.0 million to secure the letter of
credit. The remaining $500,000 of the letter of credit was personally
guaranteed by Mr. Sillerman. In consideration for his guarantee, the Company
agreed to grant Mr. Sillerman an immediately exercisable, five-year option to
purchase 10,000 shares of Common Stock at an exercise price per share equal
to the lower of $6.40 or the offering price per share in this Offering and to
pay Mr. Sillerman $50,000 plus his related legal fees and expenses, not to
exceed $25,000.
STOCKHOLDERS' AGREEMENT
In March 1996, the Company entered into the Stockholders' Agreement with
each of TSC, Robert M. Gutkowski, Arthur C. Kaminsky, Louis J. Oppenheim,
Michael Trager and Michael Letis. 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 two
directors, Messrs. Trager and Letis are entitled to nominate two directors,
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). The Company anticipates that the Stockholders' Agreement will
be amended to provide for an increase in the size of the Company's Board of
Directors in order to permit the addition of Messrs. Dell and Allard upon the
consummation of the transactions contemplated by the ProServ Acquisition
Agreements.
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 December 11, 1996 (the date of the closing of
the IPO), provided that such Stockholder shall remain obligated to vote his
shares of Common Stock in accordance with the terms of the Stockholders'
Agreement.
POTENTIAL CONFLICTS OF INTEREST WITH SFX
Robert F.X. Sillerman, the Chairman of the Company, is principally
employed as the Executive Chairman of, and Howard J. Tytel, a director of the
Company, serves as a director, Executive Vice President and Secretary of,
SFX. In connection with its concert promotion business, SFX owns, operates or
is the exclusive promoter for certain major music venues. Upon the
consummation of the QBQ Acquisition, the Company may book musicians it
represents at such venues. In such cases, Messrs. Sillerman and Tytel may
have conflicts between their responsibilities to the Company and to SFX. SFX
has recently agreed to spin off its concert promotion business, and the
Company has been informed that Messrs. Sillerman and Tytel will become
officers and directors of the concert promotion business subsequent to such
spin-off.
FOUNDERS' STOCK
In connection with the organization of the Company, in July 1995 the
Company sold 333 shares of Common Stock to Robert M. Gutkowski, the Company's
President and Chief Executive Officer, and in August 1995 the Company sold
666 shares of Common Stock 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 Martin R. Ehrlich, the Senior
Vice President of Programming 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 the number of shares outstanding by means of a stock split (the
"Stock Split"), thereby increasing the number of shares held by Mr. Gutkowski
to 646,154 shares, TSC to 1,292,308 shares and Mr. Ehrlich to 50,000 shares.
56
<PAGE>
PRIVATE PLACEMENT AND CORPORATE INDEBTEDNESS
In August 1996 the Company consummated the Private Placement of $2,000,000
aggregate principal amount of Debentures. The $2,000,000 aggregate principal
amount of Debentures were converted into an aggregate of 666,662 IPO Units
upon the consummation of the IPO in December 1996.
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 automatically converted upon
the consummation of the Company's IPO into 38,461 shares of Common Stock and
38,461 Warrants. 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 agreed not to sell the
securities issuable upon conversion of the Debentures during the two-year
period commencing on December 5, 1996.
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. The
indebtedness accrued interest at the rate of 12% per annum but the interest
was waived by TSC. The indebtedness was 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
automatically converted upon the consummation of the IPO into 76,924 shares
of Common Stock and 76,924 Warrants. The investment by TSC in the Private
Placement was on the same terms as the investments by the non-affiliated
investors, except that TSC agreed not to sell the securities issuable upon
conversion of the Debentures during the two-year period commencing on
December 5, 1996.
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
currently an Executive Vice President and a director of the Company, made a
loan to the Company in the aggregate principal amount of $100,000. The loan
accrued interest at the rate of 12% per annum but the interest was waived by
Messrs. Trager and Letis. The proceeds of the loan 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 the $100,000 loan, which
Debentures automatically converted upon the consummation of the IPO into an
aggregate of 76,924 shares of Common Stock and 76,924 Warrants. 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 each agreed not to sell the securities issuable upon
conversion of the Debentures during the two-year period commencing on
December 5, 1996.
On August 6, 1996, Louis J. Oppenheim, the Vice President of A&A and an
Executive Vice President and a director of the Company, made a loan to the
Company in the aggregate principal amount of $33,334. The loan accrued
interest at the rate of 12% per annum but the interest was waived by Mr.
Oppenheim. The proceeds of the loan was used by the Company for working
capital purposes. In August 1996, Mr. Oppenheim purchased $57,692 in
principal amount of Debentures through the payment of $24,358 and the
cancellation of the $33,334 loan, which Debentures automatically converted
upon the consummation of the IPO into 19,230 shares of Common Stock and
19,230 Warrants. 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 agreed not to sell the securities issuable upon conversion
of the Debentures during the two-year period commencing on December 5, 1996.
In August 1996, Arthur C. Kaminsky, the President and Chief Executive
Officer of A&A and an Executive Officer and a director of the Company,
purchased $115,385 principal amount of Debentures, which Debentures
automatically converted upon the consummation of the IPO into 38,461 shares
of
57
<PAGE>
Common Stock and 38,461 Warrants. 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 agreed not to sell the
securities issuable upon conversion of the Debentures during the two-year
period commencing on December 5, 1996.
SMTI ACQUISITION
The Company, SMTI, Messrs. Trager, Letis, Gutkowski and TSC 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 merged with and into SMTI on December 11, 1996, simultaneously
with the closing of the IPO. The aggregate purchase price paid by the Company
to Messrs. Trager and Letis, the sole stockholders of SMTI, consisted of (i)
$8,000,000 cash, of which $6,500,000 was paid at the closing and an aggregate
of $1,500,000 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 also entered into five-year employment
agreements with each of Messrs. Trager and Letis. See "Management--Employment
Agreements."
From its inception until immediately prior to the completion of the SMTI
Acquisition, SMTI was 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 stockholders
substantially all of its earnings during such period. Pursuant to the SMTI
Acquisition Agreement, immediately prior to the closing of the SMTI
Acquisition, SMTI declared a dividend to Messrs. Trager and Letis of 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
stockholders of SMTI expected to pay personally for income taxes based on
such earnings. The amount of such dividend was $382,311 and it is anticipated
that it will be paid by the Company in the fourth quarter of 1997.
The SMTI Acquisition constituted a tax-free exchange to the extent of the
receipt of Common Stock under Section 351 of the Code.
A&A ACQUISITION
The Company, A&A, Messrs. Kaminsky, Oppenheim, Gutkowski and TSC 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 merged with and into A&A on December 11, 1996, simultaneously
with the consummation of the IPO. The aggregate purchase price paid by the
Company to Messrs. Kaminsky and Oppenheim, the sole stockholders of A&A,
consisted of (i) $3,500,000 cash, of which $2,500,000 was 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 were issued to Mr. Kaminsky and 323,076 of which were issued
to Mr. Oppenheim. The Company also entered into five-year employment
agreements with each of Messrs. Kaminsky and Oppenheim. See
"Management--Employment Agreements."
The terms of the A&A Acquisition Agreement provided that Messrs. Kaminsky
and Oppenheim were to be permitted to withdraw from A&A an amount of money
equal to the amount that A&A recovers in pending lawsuits in which it is the
plaintiff, provided, however, that such amount shall not exceed $100,000.
Messrs. Kaminsky and Oppenheim have withdrawn an aggregate of approximately
$80,000 from A&A pursuant to this provision of the A&A Acquisition Agreement
and have waived their right to withdraw any additional amount from A&A
pursuant to this provision.
The A&A Acquisition constituted a tax-free exchange to the extent of the
receipt of Common Stock under Section 351 of the Code.
PENDING ACQUISITIONS
In connection with the ProServ Acquisition, the Company has agreed to
purchase shares of ProServ held by Donald L. Dell, William J. Allard and two
other officers of ProServ. Upon the consummation of the
58
<PAGE>
transactions contemplated by the ProServ Acquisition Agreements, Mr. Dell
will continue to serve as the chief executive officer of ProServ and will
become a director of the Company, Mr. Allard will continue to serve as
president and chief operating officer of ProServ and will become a director
of the Company, and the two other officers will be employed by the Company.
See "Agreements Relating to the Pending Acquisitions--ProServ Acquisition."
Pursuant to the QBQ Acquisition Agreement, the Company has agreed to
purchase substantially all of the assets of QBQ, of which Dennis Arfa is the
founder and sole stockholder. Upon the consummation of the QBQ Acquisition,
Mr. Arfa will serve as the chief executive officer of Marquee Music. See
"Agreements Relating to the Pending Acquisitions--QBQ Acquisition."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Gutkowski,
Kaminsky, Letis, Oppenheim and Trager. 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.
59
<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.
COMMON STOCK
As of September 12, 1997, there are 8,769,162 shares of Common Stock
outstanding, and after this Offering and the Pending Acquisitions there will
be 16,889,532 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and that 370,370 shares will be issued in
connection with the QBQ Acquisition). In addition, the Company has 1,197,503
shares of Common Stock reserved for issuance upon the exercise of the
Warrants and the IPO Unit Options (including the shares issuable upon
exercise of the Warrants contained therein), 800,000 shares of Common Stock
reserved for issuance upon the exercise of options pursuant to the 1996 and
1997 Stock Option Plans and 315,000 shares reserved for issuance under other
options and warrants of the Company. The holders of 4,450,096 shares of
Common Stock have entered into a Stockholders' Agreement with respect to the
voting of such shares. See "Certain Relationships and Related
Transactions--Stockholders' Agreement." 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.
WARRANTS
On July 23, 1997, the Company commenced the Tender Offer to purchase up to
all of the 4,519,162 then-outstanding 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. Accordingly, as of September 12, 1997,
527,503 Warrants remained outstanding, of which 253,496 were beneficially
owned by directors and executive officers of the Company.
Each Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $7.50 at any time until 5:00 P.M., New
York City time, on December 13, 2001. Commencing on December 5, 1997, 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 were issued pursuant to a warrant agreement among the
Company, the underwriters in the IPO and Continental Stock Transfer & Trust
Company, as warrant agent, and are 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 Warrants do not confer upon the Warrant holder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrant holders,
the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants.
60
<PAGE>
IPO UNIT OPTIONS
The Company issued to the underwriters of its IPO, Royce Investment Group,
Inc. and Continental Broker-Dealer Corp., the IPO Unit Options to purchase up
to 335,000 IPO Units. Each IPO Unit consists of one share of Common Stock and
one warrant. The warrants included in the IPO Unit Options are identical to
the Warrants except that they will not be subject to redemption by the
Company unless, at the time the Warrants are called for redemption, the IPO
Unit Options have been exercised and the underlying warrants are outstanding.
The IPO Unit Options cannot be transferred, sold, assigned or hypothecated
for two years, except to any officer of either IPO underwriter or members of
the IPO selling group or their officers. The IPO Unit Options are exercisable
during the three-year period commencing December 1998 at an exercise price of
$8.25 per Unit, subject to adjustment in certain events to protect against
dilution. The holders of the IPO Unit Options have certain demand and
piggyback registration rights.
PREFERRED STOCK
As of June 1, 1997, 5,000,000 shares of Preferred Stock are authorized and
no shares are outstanding. 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 has no shares of Preferred Stock outstanding
and has no present 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.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
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 (i) 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," (ii) 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 (a) by
persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the agent to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer or (iii) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66% 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
61
<PAGE>
Section 203 permits the Company to elect not to be governed by its
provisions, the Company to date has not made this election. As a result of
the application of Section 203 of the Delaware Law, potential acquirees 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.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Pending Acquisitions and this Offering, the Company
will have outstanding 16,889,532 shares of Common Stock, assuming the
issuance of 370,370 shares in connection with the QBQ Acquisition and
assuming no exercise of Warrants or options. Of these shares, a total of
12,658,550 shares and 274,007 Warrants will be freely tradeable without
restriction or further registration under the Securities Act, unless
purchased or held by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act ("Rule 144"). Of the remaining 4,230,982
shares, 2,881,908 shares will be "restricted securities" as that term is
defined in Rule 144 and approximately 1,349,074 shares will be held in escrow
and subject to forfeiture. In addition, 4,457,096 shares (including certain
of the foregoing restricted and escrowed securities) and 253,496 Warrants are
subject to the Lock-Up Agreements, as discussed below. See "Principal
Stockholders--Escrow Shares."
In December 1997, an aggregate of 2,261,539 shares that constitute
restricted securities will become eligible for sale subject to the manner of
sale, volume and similar limitations of Rule 144. However, these shares are
also subject to the Lock-Up Agreements, which restrict their availability for
sale until one year after the consummation of this Offering. An additional
250,000 shares will become eligible for sale subject to the limitations of
Rule 144 one year following the consummation of the purchase of Mr. Dell's
shares of ProServ, and up to approximately 370,370 shares will become
eligible for such sale one year after the consummation of the QBQ
Acquisition.
In general, under Rule 144, as recently amended, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year (including the holding period of any prior owner except an affiliate
from whom those shares were purchased) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 1.7 million shares
upon completion of this Offering and the Pending Acquisitions) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain requirements
pertaining to the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements but
without regard to the one year holding period. Under Rule 144(k), a person
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holder of any prior
owner other than an affiliate from whom the shares were purchased), is
entitled to sell the shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
As an alternative to sales under Rule 144, shares of Common Stock and
Warrants may be sold without any volume limitations pursuant to an effective
registration statement filed with the Commission. The persons who acquired
shares of Common Stock and Warrants upon conversion of the Debentures, and
the holders of the IPO Options and Huff have demand and "piggyback"
registration rights covering such securities (including the securities
underlying the IPO Options). In addition, the Company has agreed to grant the
holders of the shares of Common Stock to be issued in the Pending
Acquisitions certain demand and piggyback registration rights. See
"Agreements Related to Pending Acquisitions," "Certain Relationships and
Related Transactions--Private Placement and Corporate Indebtedness" and
"Description of Securities--IPO Unit Options."
Pursuant to the Lock-Up Agreements, all of the Company's executive
officers and directors, owning, in the aggregate, 4,457,096 shares of Common
Stock and 253,496 Warrants, have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) any shares of Common Stock, Warrants or other capital stock
or any securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire any shares of Common Stock or other capital
stock of the Company for a period of 180 days after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf
63
<PAGE>
of the Underwriters, except for (i) bona fide gifts of Common Stock, provided
that any donee receiving such gift agrees to be bound by the terms of the
Lock-Up Agreements and (ii) the exercise of options or warrants for shares of
Common Stock, provided that the shares of Common Stock received upon such
exercise will remain subject to the Lock-Up Agreements. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the shares of Common Stock and Warrants subject
to such agreements. The holders of substantially all of the securities
subject to the Lock-Up Agreements have also entered into similar agreements
with the underwriters of the IPO which restrict the sale or other disposition
of their securities until December 5, 1998. In addition, the holders of the
shares of Common Stock to be issued in the Pending Acquisitions have agreed
to restrictions on the sale or other disposition of such shares. Sales of
substantial amounts of Common Stock, or the possibility of such sales, could
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to rise capital through a public offering of
equity securities. See "Agreements Related to the Pending Acquisitions,"
"Description of Securities" and "Underwriting."
An aggregate of 1,275,000 IPO Escrow Shares are, and upon consummation of
the QBQ Acquisition approximately 74,074 QBQ Escrow Shares will be, held in
escrow and may become available for sale in the future. See "Principal
Stockholders--Escrow Shares." The Company also has outstanding (i) Warrants
representing the right to purchase an aggregate of 527,503 shares of Common
Stock, (ii) IPO Options representing the right to purchase an aggregate of
670,000 shares of Common Stock, assuming exercise of the underlying Warrants,
(iii) options to purchase an aggregate of 237,500 shares issued pursuant to
the Company's 1996 Stock Option Plan and (iv) the Huff Options to purchase an
aggregate of 105,000 shares of Common Stock. In addition, 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, and, in connection with
the ProServ Acquisition, Robert F.X. Sillerman received an immediately
exercisable option to purchase 10,000 shares at a price per share equal to
the lower of $6.40 or the offering price per share in this Offering. See
"Certain Relationships and Related Transactions--Consulting Agreement."
Pursuant to the Dell Acquisition Agreement, Mr. Dell has agreed not to
offer, sell or otherwise transfer or dispose of, directly or indirectly, 50%
of the Dell Consideration Stock (except, in certain circumstances, by gift,
inheritance or pledge) for a period of 12 months from the consummation of the
purchase of his shares and the remaining 50% of the Dell Consideration Stock
for a period of 27 months from the consummation of the purchase of his
shares. The Company has granted Mr. Dell certain demand and piggyback
registration rights with respect to the Dell Consideration Stock, which, in
certain situations, permit Mr. Dell to sell 100% of the Dell Consideration
Stock 12 months after the consummation of the purchase of his shares of
ProServ.
Following this Offering, the Company intends to file a Registration
Statement on Form S-8 covering an aggregate of 800,000 shares of Common Stock
(including 237,500 shares subject to outstanding options as of the date
hereof) that have been reserved for issuance under the Company's 1996 and
1997 Stock Option Plans, thus permitting the resale of such shares in the
public market without restriction under the Securities Act.
Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.
64
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Cowen & Company are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock set forth opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------- -------------
<S> <C>
Prudential Securities Incorporated ....
Cowen & Company ........................
-------------
Total................................. 7,500,000
=============
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are
purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters
may allow to selected dealers a concession of $ per share; and that such
dealers may re-allow a concession of $ per share to certain other dealers.
After the public offering, the offering price and the concessions may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 1,125,000 additional
shares of Common Stock at the public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
7,500,000.
The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Company, its officers and directors and certain other beneficial
owners of the Common Stock and holders of warrants or options to purchase
Common Stock have agreed not to, directly or indirectly, offer, sell, offer
to sell, contract to sell, pledge, grant any option to purchase or otherwise
sell or dispose (or announce any offer, sale, offer of sale, contract of
sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock, Warrants or other capital stock or any
securities convertible into or exercisable or exchangeable for any shares of
Common Stock or other capital stock of the Company, subject to certain
exceptions, for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters. Prudential Securities Incorporated may in its
sole discretion, and at any time without notice release all or any portion of
the securities subject to lock-up agreements.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
then they are committed to purchase from the Company, and in such case may
purchase Common Stock in the open market following completion of the Offering
to cover all or a portion of such short position. The Underwriters may also
cover all or a portion of such short position, up to 1,125,000 shares of
Common Stock, by exercising the Underwriters' over-allotment option referred
to above. In addition, Prudential Securities Incorporated, on behalf of the
Underwriters, may impose "penalty bids" under contractual
65
<PAGE>
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required, and, if they are
undertaken, they may be discounted at any time.
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 Relationships and Related
Transactions." Certain legal matters related to this Offering will be passed
upon for the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of The Marquee Group, Inc. as of
December 31, 1996 and for the year ended December 31, 1996 and for the period
from July 11, 1995 (inception) to December 31, 1995, 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 consolidated balance sheet of ProServ, Inc. as of December 31, 1996
and the consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years ended December 31, 1996 and 1995, included in
this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The financial statements of QBQ Entertainment, Inc. as of December 31,
1996 and for the years ended December 31, 1995 and 1996, each appearing in
this Prospectus and Registration Statement, have been audited by David Berdon
& Co., 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.
AVAILABLE INFORMATION
The Company is 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 Common Stock 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 Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits. The Registration Statement,
exhibits, reports and other information filed with the Commission 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.
66
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) F-3
Consolidated Statements of Operations for the period from July 11, 1995 (inception) to
December 31, 1995 and for the year ended December 31, 1996 and for the six months ended June
30, 1997 and 1996 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the period from July 11, 1995 (inception)
to December 31, 1995 and for the year ended December 31, 1996 and for the six months ended
June 30, 1997 (unaudited) F-5
Consolidated Statements of Cash Flows for the period from July 11, 1995 (inception) to
December 31, 1995 and for the year ended December 31, 1996 and for the six months ended June
30, 1997 and 1996 (unaudited) F-6
Notes to Consolidated Financial Statements F-8
PROSERV, INC. AND SUBSIDIARIES
Report of Independent Accountants F-17
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) F-18
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 and for
the six months ended June 30, 1997 (unaudited) and 1996 (unaudited) F-19
Consolidated Statements of Stockholders' Equity/(Deficit) for the years ended December 31,
1996 and 1995 and for the six months ended June 30, 1997 (unaudited) F-20
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 and for
the six months ended June 30, 1997 (unaudited) and 1996 (unaudited) F-21
Notes to Consolidated Financial Statements F-22
QBQ ENTERTAINMENT, INC.
Report of Independent Auditors F-35
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) F-36
Statements of Operations for the years ended December 31, 1996 and 1995 and for the six
months ended June 30, 1997 and 1996 (unaudited) F-37
Statements of Stockholder's Equity (Deficiency) for the years ended December 31, 1996 and
1995 and the six months ended June 30, 1997 (unaudited) F-38
Statements of Cash Flows for the years ended December 31, 1996 and 1995 and for the six
months ended June 30, 1997 and 1996 (unaudited) F-39
Notes to Financial Statements F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of The Marquee Group, Inc.
We have audited the accompanying consolidated balance sheet of The Marquee
Group, Inc. and Subsidiaries (the "Company"), as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1996 and 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at December 31, 1996, and the consolidated results of its operations and its
cash flows for the year ended December 31, 1996 and for the period from July
11, 1995 (Inception) to December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
February 14, 1997
F-2
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 7,230,526 $ 688,005
Accounts receivable......................................... 1,295,894 2,902,001
Due from related parties.................................... 138,699 245,573
Due from Celebrity Golf Championship, LLC................... 169,100 --
Prepaid expenses and other current assets................... 250,363 281,707
----------------- --------------
Total current assets......................................... 9,084,582 4,117,286
Property and equipment, net.................................. 218,604 1,449,324
Loan receivable--non current ................................ -- 335,112
Deposits and other costs related to pending acquisitions and
tender offer................................................ -- 2,045,000
Other assets................................................. 57,612 757,612
----------------- --------------
Total assets................................................. $ 9,360,798 $ 8,704,334
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................... $ 1,134,692 $ 1,863,095
Distribution payable to stockholders........................ 382,311 382,311
Loan payable to officer/stockholder......................... -- 121,615
Acquisition indebtedness--current portion................... 332,500 332,500
----------------- --------------
Total current liabilities.................................... 1,849,503 2,699,521
Loan payable to officer/stockholder.......................... 121,615 --
Acquisition indebtedness--stockholders....................... 1,637,500 1,137,500
Other liabilities............................................ 343,000 422,739
Commitments
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 shares issued and outstanding.................... 87,692 87,692
Additional paid-in capital.................................. 7,795,199 7,664,071
Deferred compensation....................................... (63,334) (15,838)
Accumulated deficit......................................... (2,410,377) (3,291,351)
----------------- --------------
5,409,180 4,444,574
----------------- --------------
Total liabilities and stockholders' equity................... $ 9,360,798 $ 8,704,334
================= ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD SIX MONTHS ENDED
FROM JULY 11, 1995 JUNE 30,
YEAR ENDED (INCEPTION) TO ----------------------
DECEMBER 31, 1996 DECEMBER 31, 1995 1997 1996
----------------- ----------------- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Commissions and fee income.......... $ 2,868,788 $ -- $ 6,174,087 $ 800,895
Operating expenses.................. 2,563,682 -- 2,900,732 666,796
General and administrative
expenses........................... 2,259,760 -- 4,152,511 707,600
----------------- ------------------ ------------ ------------
Loss from operations................ (1,954,654) -- (879,156) (573,501)
Interest expense (income), net ..... 283,222 -- 1,818 --
Financing expense................... 192,501 -- -- --
----------------- ------------------ ------------ ------------
Loss before income taxes............ (2,430,377) -- (880,974) (573,501)
Income tax benefit.................. 20,000 -- -- --
----------------- ------------------ ------------ ------------
Net loss............................ $ (2,410,377) $ -- $ (880,974) $ (573,501)
================= ================== ============ ============
Net loss per share.................. $ (1.03) $ -- $ (.12) $ (.28)
================= ================== ============ ============
Weighted average common stock
outstanding........................ 2,346,717 2,066,662 7,494,162 2,066,662
================= ================== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED 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--July 1995 .......... 1,938,462 $19,385 $ 595 $ -- $ -- $ 19,980
----------- --------- --------------- -------------- -------------- --------------
Balance--December 31, 1995 . 1,938,462 19,385 595 -- -- 19,980
Issuance of common stock:
Issuance to employee....... 50,000 500 118,750 (118,750) -- 500
Conversion of Debentures .. 666,662 6,667 1,993,333 -- -- 2,000,000
Public offering, net of
offering costs............ 3,852,500 38,525 15,547,001 -- -- 15,585,526
Acquisition of
Subsidiaries.............. 2,261,538 22,615 1,487,831 -- -- 1,510,446
Distribution to acquired
companies' stockholders ... -- -- (10,970,000) -- -- (10,970,000)
S corporation dividend of
subsidiary................. -- -- (382,311) -- -- (382,311)
Amortization of deferred
compensation............... -- -- -- 55,416 -- 55,416
Net loss for the year ended
December 31, 1996.......... -- -- -- -- (2,410,377) (2,410,377)
----------- --------- --------------- -------------- -------------- --------------
Balance--December 31, 1996 . 8,769,162 87,692 7,795,199 (63,334) (2,410,377) 5,409,180
Offering costs.............. -- -- (131,128) -- -- (131,128)
Amortization of deferred
compensation............... -- -- -- 47,496 -- 47,496
Net loss for the six months
ended June 30, 1997........ -- -- -- -- (880,974) (880,974)
----------- --------- --------------- -------------- -------------- --------------
Balance--June 30, 1997
(unaudited)................ 8,769,162 $87,692 $ 7,664,071 $ (15,838) $(3,291,351) $ 4,444,574
=========== ========= =============== ============== ============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM SIX MONTHS ENDED
JULY 11, 1995 JUNE 30,
YEAR ENDED (INCEPTION) TO ----------------
DECEMBER 31, 1996 DECEMBER 31, 1995 1997 1996
----------------- ----------------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(2,410,377) $ -- $ (880,974) $(573,501)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation............................ 5,620 -- 18,836 --
Non-cash compensation................... 55,416 -- 84,596 500
Deferred income taxes................... (40,000) -- 79,739 --
Changes in operating assets and
liabilities:
Accounts receivable.................... 974,169 -- (1,606,107) --
Due from related parties............... (67,810) -- (39,986) --
Due from Celebrity Golf Championship,
LLC .................................. -- -- 169,100 --
Prepaids and other current assets ..... (178,318) -- (31,344) --
Accounts payable and accrued
liabilities........................... (192,630) -- 713,503 70,000
Income taxes payable................... 20,250 -- -- --
----------------- ----------------- ------------- ------------
Net cash used in operating activities .... (1,833,680) -- (1,492,637) (503,001)
----------------- ----------------- ------------- ------------
INVESTING ACTIVITIES
Purchase of fixed assets.................. (122,422) -- (1,249,556) --
Employee loan............................. -- -- (424,200) --
Deposits and other costs related to
acquisitions............................. -- -- (1,550,000) --
Security Deposits......................... (44,760) -- (700,000) --
----------------- ----------------- ------------- ------------
Net cash used in investing activities .... (167,182) -- (3,923,756) --
----------------- ----------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from loans payable to related
parties.................................. 766,718 -- -- 587,000
Repayments of loans payable to related
parties.................................. (200,000) -- -- --
Proceeds from private placement........... 1,554,897 -- -- --
Payment of acquistion indebtedness ....... -- -- (500,000) --
Issuance of common stock, net of offering
costs.................................... 15,586,026 19,980 (131,128) --
Distribution to Subsidiary stockholders .. (9,000,000) -- -- --
Cash acquired through acquisition of
Subsidiaries............................. 503,767 -- -- --
Costs related to Tender Offer............. -- -- (495,000) --
----------------- ----------------- ------------- ------------
Net cash provided by (used in) financing
activities............................... 9,211,408 19,980 (1,126,128) 587,000
Increase (decrease) in cash and cash
equivalents.............................. 7,210,546 19,980 (6,542,521) 83,999
Cash and cash equivalents at beginning of
period................................... 19,980 -- 7,230,526 19,980
----------------- ----------------- ------------- ------------
Cash and cash equivalents at end of
period................................... $ 7,230,526 $19,980 $ 688,005 $ 103,979
================= ================= ============= ============
</TABLE>
F-6
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM SIX MONTHS ENDED
JULY 11, 1995 JUNE 30,
YEAR ENDED (INCEPTION) TO -----------------
DECEMBER 31, 1996 DECEMBER 31, 1995 1997 1996
----------------- ----------------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES:
Exchange of loans payable--related
parties for debentures............ $ 445,103 $-- $ -- $--
================= ================= ========== ======
Conversion of debentures to common
stock............................. $2,000,000 $-- -- --
================= ================= ========== ======
Issuance of acquisition
indebtedness--stockholders........ $1,970,000 $-- -- --
================= ================= ========== ======
S Corporation dividend payable .... $ 382,311 $-- -- --
================= ================= ========== ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Income taxes...................... $ -- $-- $268,250 --
================= ================= ========== ======
Interest.......................... $ 254,000 $-- -- --
================= ================= ========== ======
</TABLE>
See accompanying notes.
F-7
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
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 integrated event management, televised production, marketing,
talent representation and consulting services in the sports, news and other
entertainment industries.
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 talent representation firm. The
SMTI stockholders received cash of $6,500,000 from the proceeds of the IPO,
an additional $1,500,000 payable in five equal installments over five years
and 1,292,307 shares of the Company's common stock. The A&A stockholders
received cash of $2,500,000 from the proceeds of the IPO, miscellaneous
reimbursements of $80,000, an additional $1,000,000 payable in five equal
installments over five years and 969,231 shares of the Company's common
stock.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its Subsidiaries from and after December 12, 1996. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL STATEMENTS
The unaudited interim information as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 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. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
REVENUE RECOGNITION
Fee revenue from television production services is recognized when the
program is available for broadcast. Licensing, sponsorship and merchandise
revenues are recognized for guaranteed amounts when contractual obligations
are met (subsequent royalties are recorded when received). Fee revenue from
advertising services is recognized in the month the advertisement is
broadcast or printed. Consulting revenue is recognized as services are
provided.
The Company recognizes talent representation commissions 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 ranging from five to
seven years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining lease term.
F-8
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company accounts for income taxes using the liability method.
CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
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.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
At December 31, 1996, 90% of the Company's cash and cash equivalents was
invested with one financial institution.
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
client base.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Loan payable to officer stockholder: The carrying amount of the Company's
borrowings under its long-term debt agreement approximates fair value.
Acquisition indebtedness--stockholders: The carrying amount of the
Company's borrowings under its long-term debt agreement approximates fair
value.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based upon net income (loss) divided by
weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Shares of common stock placed in
escrow upon completion of the IPO described in Note 6, which are common stock
equivalents, have been excluded from the calculation of earnings per share.
The shares of common stock issued upon the automatic conversion of the
debentures (see Note 5) are considered outstanding for all periods presented.
In addition, all shares have been adjusted to give effect to the stock split
discussed in Note 4.
Supplementary net loss per share would have been $(.83) for the year ended
December 31, 1996 if the debentures had been converted at the beginning of
the year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted in
December 1997. At that time the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. The impact of Statement No. 128 on earnings per share is not
expected to be material.
F-9
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.................... $118,172 $ 211,122
Leasehold improvements.................... 79,413 1,236,019
Vehicles.................................. 26,639 26,639
-------------- -----------
224,224 1,473,780
Accumulated depreciation and
amortization............................. 5,620 24,456
-------------- -----------
$218,604 $1,449,324
============== ===========
</TABLE>
3. RELATED PARTY TRANSACTIONS
At June 30, 1997 and December 31, 1996, the Company has a loan payable of
$121,615 to an officer/stockholder which is due on January 1, 1998 with
interest at 12% per annum.
The Company provided services as a subcontractor for SMTI aggregating
$724,000, for the period from January 1, 1996 to December 12, 1996 (see Note
1), which are included in revenues in the accompanying consolidated statement
of operations.
In April 1997, in connection with the employment of an officer of the
Company, the Company loaned the officer $424,000 which loan by its terms may
be forgiven. In addition, the officer will over a three year period beginning
with his date of employment receive $100,000 payable in shares of Common
Stock.
4. 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 the 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.
5. PRIVATE PLACEMENT
In August 1996, the Company issued debentures (the "Debentures"), in the
aggregate principal amount of $2,000,000, each Debenture consisted of $50,000
principal amount of 10% Convertible Debentures. Interest on the Debentures of
$254,000 was 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.
The Debentures were automatically converted into units (see Note 6) identical
in all respects to those offered in the IPO at a rate of one unit for each
$3.00 principal amount of Debentures.
Stockholders of the Company and stockholders of the Subsidiaries 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
officer/stockholders from the proceeds of the private placement.
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS
In December 1996, the Company closed its IPO of 3,852,500 units (the
"Units"), each unit consisting of one share of common stock and one
redeemable warrant, at a price of $5.00 per Unit. Each warrant
F-10
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS (Continued)
entitles the holder to purchase one share of common stock at an exercise
price of $7.50, subject to adjustment, at any time until December 4, 2001.
The warrants are redeemable by the Company under certain circumstances at a
redemption price of $.05 per warrant.
The Company also granted to the underwriters or their designees options
(the "IPO Options") to purchase up to 335,000 Units. The Units purchaseable
upon exercise of the IPO Options are identical to the Units described above,
except that the underlying warrants are redeemable only by the Company under
limited circumstances. The IPO Options are exercisable during a three-year
period commencing two years from the date of the public offering at an
exercise price of $8.25, subject to adjustment in certain events.
Certain of the Company's stockholders and the stockholders of the
Subsidiaries have placed 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 then fair market
value of the shares.
The acquisition by merger of the Subsidiaries was 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 the Subsidiaries
following completion of the acquisitions. Accordingly, the acquired assets
and liabilities of the Subsidiaries were recorded at their historical
amounts. The capital stock of the Subsidiaries was included in additional
paid-in capital. In addition, the cash paid to the Subsidiaries' stockholders
was recorded as a dividend charged to additional paid-in capital.
SMTI was an S Corporation prior to the merger. The SMTI stockholders will
receive a distribution of $382,000 which represents 40% of the taxable
earnings of SMTI prior to the merger.
The following unaudited pro forma information presents the results of
operations of the Company as though the aforementioned acquisitions and the
completion of the IPO had occurred as of the beginning of 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Pro forma revenue..................... $15,184,589 $10,341,827
============= =============
Pro forma net income (loss)........... $ (913,005) $ 789,773
============= =============
Pro forma net income (loss) per
share................................ $ (.12) $ .10
============= =============
Pro forma weighted average shares .... 7,494,162 7,494,162
============= =============
</TABLE>
F-11
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS (Continued)
Included in the above unaudited pro forma information are the historical
results of operations of SMTI and A&A for the years ended December 31, 1996
and 1995 as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
----------------------------
SMTI A&A
------------- -------------
<S> <C> <C>
Revenues................... $ 9,193,000 $ 4,103,000
Costs and expenses......... (8,055,000) (3,625,000)
------------- -------------
Income before income
taxes..................... 1,138,000 478,000
Income tax provision....... (112,000) (229,000)
------------- -------------
Net income................. $ 1,026,000 249,000
============= =============
</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 income
taxes..................... 93,000 76,000
Income tax provision....... (9,000) (77,000)
------------- -------------
Net income (loss).......... $ 84,000 $ (1,000)
============= =============
</TABLE>
In addition, the pro forma information for the years ended December 31,
1996 and 1995, include adjustments for the following transactions, as if they
had each occurred on January 1, 1995.
o The terms of new employment contracts with key executives of SMTI and
A&A 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 year ended December 31,
1996 (therefore no pro forma adjustment is required); and
o At December 12, 1996, the date of the consummation of the IPO, the
status of SMTI as an S Corporation was terminated and accordingly, SMTI
is 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.
7. INCOME TAXES
The income tax benefit for the year ended December 31, 1996 consists of:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal.......... $ --
State and local . $(20,000)
-----------
$(20,000)
-----------
Deferred:
Federal ......... 30,000
State and local 10,000
-----------
$ 40,000
-----------
$ 20,000
===========
</TABLE>
F-12
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
7. INCOME TAXES (Continued)
A reconciliation of the federal statutory tax rate to the actual
effective rate for the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Statutory rate ....................................... (34.0)%
State and local income taxes, net of federal benefit .4
Valuation allowance................................... 31.8
Permanent differences................................. 1.0
---------
(.8)%
=========
</TABLE>
The net deferred tax liabilities is comprised of the following at December
31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Cumulative effect of change in tax accounting basis ... $ (343,000)
Compensation expense deducted for tax purposes, not
for financial reporting purposes...................... (29,000)
Net operating losses................................... 1,051,000
Valuation allowance.................................... (1,022,000)
-------------
$ (343,000)
=============
</TABLE>
8. 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 within the meaning of
Section 422A of the Internal Revenue Code to certain employees and
consultants and (ii) options not intended to so qualify. The total number of
shares of common stock for which options may be granted under the Plan is
500,000 shares. In October 1996, options to purchase an aggregate of 230,000
shares of common stock were granted under the Plan. Of such options, 100,000
were granted to 14 employees of the Company and have an exercise price of
$5.00 per share, and 130,000 were granted to the Company's executive officers
and directors and have an exercise price of $6.25 per share. The options vest
in annual installments over the three to five year period commencing one year
from the date of grant. In June 1997, the Company granted an executive
officer options to purchase 7,500 shares of Common Stock at a price of $5.875
which vest over a three year period and expire in June 2002.
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 terms of the options, including the exercise
price, the number of shares subject to the options and the terms and
conditions of exercise.
The Company has elected to follow Accounting Principles Board opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of options valuation models that were not developed for use in valuing
employee stock options. The exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant
and, therefore, no compensation expense is recognized.
F-13
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
8. STOCK OPTION PLAN (Continued)
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 5.45% to
6.18% and a volatility factor of the expected market price of the Company's
common stock of .718. The weighted-average expected life of the options is
3.6 years. Dividends are not expected in the future.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma net loss .......... $ (2,453,995)
===============
Pro forma net loss per
share....................... $ (1.05)
===============
</TABLE>
The weighted average fair value of options granted during 1996 is $2.57.
The exercise prices for options outstanding as of December 31, 1996 ranged
from $5.00 to $6.25. The weighted average remaining contractual life of those
options is 9.75 years. At December 31, 1996 none of the options are
exercisable.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office space under operating leases which expire
through 2008. These operating leases provide for basic annual rents plus
escalation charges. The aggregate future minimum lease payments required
under these leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997......... $ 135,000
1998......... 404,000
1999......... 672,000
2000......... 696,000
2001......... 719,000
Thereafter .. 4,515,000
-----------
$7,141,000
===========
</TABLE>
The Company also rents office space on a month-to-month basis. Rent
expense amounted to $45,000, $23,000, and $158,561, respectively, for the
year ended December 31, 1996, for the six months ended June 30, 1996 and
1997.
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. During December 1996 the Company entered into
five-year employment agreements with four key executives that provide for an
annual base salaries aggregating $1,075,000.
F-14
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (Continued)
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. 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 IPO 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 $118,750 over the vesting period.
The Company recognized non-cash compensation expense of $55,416 in 1996,
which is included in general and administrative expense in the accompanying
consolidated statement of operations.
During August 1996, the Company 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 The Sillerman Companies, Inc., a principal
stockholder of the Company, that provides for a monthly fee of $30,000
commencing in September 1997. The monthly fee shall be increased annually by
the percentage increase in the consumer price index.
In February 1997, the Company paid $400,000 to The Sillerman Companies
("TSC"), a company controlled by Robert F. X. Sillerman, the Chairman of the
Company, as an advance against advisory services to be provided. The advance
will be applied against amounts which will be payable to TSC in connection
with the consummation of the Pending Acquisitions and tender offer mentioned
in Note 11.
In March 1997, SCMC assigned its rights, obligations, and duties under the
consulting agreement to The Sillerman Companies, Inc.
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business. 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.
10. INVESTMENT IN JOINT VENTURE
SMTI and NBC formed a limited liability corporation, Celebrity Golf
Championship, LLC ("CGC") the purpose of which is to conduct the annual
golfing tournament currently known as The Celebrity Golf Championship.
Earnings are allocated 75% to NBC and 25% to SMTI in accordance with the LLC
agreement. All profits from CGC are distributed.
Condensed financial information of CGC at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash.......... $ 169,100
===========
Due to SMTI .. $(169,100)
===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Revenues........... $ 2,743,700 $ 2,875,600
Costs and
expenses.......... (2,067,400) (1,928,300)
------------- -------------
Net income......... $ 676,300 $ 947,300
============= =============
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED)
In June 1997 and subsequently, the Company entered into agreements (the
"ProServ Acquisition Agreements") to acquire ProServ, Inc. and ProServ
Television, Inc. (collectively, "ProServ"). ProServ is an established
provider of international sports event management, television production,
marketing, talent representation and consulting services. The aggregate
purchase price pursuant to the ProServ
F-15
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
11. SUBSEQUENT EVENTS (UNAUDITED) (Continued)
Acquisition Agreements consists of approximately $10.8 million in cash and
250,000 shares of Common Stock. In connection with the acquisition of Pro
Serv, in June 1997, the Company deposited $1.5 million, in escrow, as a down
payment on the purchase price. In August 1997, an amendment to one of the
ProServ Acquisition Agreements permitted the Company to replace its down
payment with a $1.5 million letter of credit secured by $1.0 million in funds
segregated by the Company and a $500,000 personal guarantee by the Chairman
of the Company.
The Company has also entered into an agreement pursuant to which Marquee
Music, Inc. ("Marquee Music"), a wholly-owned subsidiary of the Company, will
acquire the assets of QBQ Entertainment, Inc. ("QBQ"), a company that books
tours and appearances for a variety of entertainers. The aggregate purchase
price for the acquisition of QBQ consists of approximately $3.1 million in
cash, $1.6 million payable in annual installments over eight years and up to
$2.5 million payable in shares of Common Stock, of which shares relating to
up to $500,000 are subject to an escrow agreement. In connection with the
acquisition of QBQ, in July 1997, the Company deposited $400,000 of the
purchase price in escrow.
In September 1997, the Company purchased in a tender offer 3,991,659 of
the 4,519,162 outstanding warrants at a cash purchase price of $2.40 per
warrant. The Company borrowed $10.5 million to fund the purchase of the
Warrants pursuant to a short-term loan (the "Bridge Facility") The Company
intends to repay the borrowings under the Bridge Facility with a portion of
the proceeds from the Offering (as described below).
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 in July 1997 in order to register for
sale 8,625,000 shares of its common stock including 1,125,000 shares subject
to the Underwriter's over-allotment option (the "Offering"). The proceeds of
the Offering will be used to fund the cash portion of the acquisitions
described above, repay certain debt of ProServ, repay borrowings under the
Bridge Facility, working capital and other general corporate purposes. The
Offering is conditional on the concurrent closing of the ProServ Acquisition.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
ProServ, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of ProServ,
Inc. and Subsidiaries as of December 31, 1996 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
the years ended December 31, 1996 and 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ProServ,
Inc. and Subsidiaries as of December 31, 1996, and the consolidated results
of their operations and their cash flows for the years ended December 31,
1996 and 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
June 25, 1997
F-17
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
-------------- ---------------
1996 (UNAUDITED)
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 168,295 $ 1,181,889
Restricted cash....................................... -- 254,401
Accounts receivable, net.............................. 3,241,184 4,099,189
Prepaid expenses and other current assets............. 158,364 259,944
-------------- ---------------
Total current assets................................... 3,567,843 5,795,423
Property and equipment, net ........................... 468,444 450,949
Noncurrent accounts receivable......................... 1,228,206 1,158,819
Other assets........................................... 76,426 49,019
-------------- ---------------
Total assets........................................... $ 5,340,919 $ 7,454,210
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable...................... $ 900,000 $ 2,175,000
Accounts payable...................................... 1,104,623 2,330,864
Accrued expenses...................................... 1,003,968 554,250
Income tax payable.................................... 48,290 156,207
Production rights payable............................. 42,741 370,588
Accounts payable--clients............................. -- 254,401
Deferred revenue...................................... 659,386 1,098,213
Deferred income taxes................................. 259,000 259,000
-------------- ---------------
Total current liabilities.............................. 4,018,008 7,198,523
Notes payable.......................................... 650,000 --
Deferred rent.......................................... 875,778 776,726
Minority interest ..................................... -- 24,683
-------------- ---------------
Total liabilities...................................... 5,543,786 7,999,932
-------------- ---------------
Commitments and contingencies
Stockholders' deficit:
Class A preferred stock, $1,000 par value--2,000
shares authorized; 600 shares issued and
outstanding.......................................... 600,000 600,000
Common stock, $1.00 par value--20,000 shares
authorized; 1,250 shares issued and outstanding .... 1,250 1,250
Additional paid-in capital............................ 3,571,692 3,571,692
Unearned compensation................................. (341,369) (258,475)
Accumulated deficit................................... (4,232,051) (4,659,107)
Cumulative translation adjustment..................... 197,611 198,918
-------------- ---------------
Total stockholders' deficit............................ (202,867) (545,722)
-------------- ---------------
Total liabilities and stockholders' deficit............ $ 5,340,919 $ 7,454,210
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ ---------------------------
1996 1995 1997 1996
-------------- -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue....................... $13,387,810 $17,792,247 $6,438,343 $ 5,253,016
Operating expenses...................... 10,130,353 11,926,379 4,739,531 4,872,175
General and administrative expenses .... 5,000,927 6,581,388 1,921,300 2,481,005
Restructuring costs..................... 565,000 -- -- --
Legal settlement........................ -- 300,000 -- --
Loss on sublease........................ -- 293,832 -- --
-------------- -------------- ------------ -------------
Loss from operations.................... (2,308,470) (1,309,352) (222,488) (2,100,164)
Interest expense, net................... 208,691 190,967 71,368 124,438
Equity in loss of joint venture......... -- (6,927) -- --
Gain on sale of joint venture interest -- 67,763 -- --
Minority interest....................... -- -- 24,683 --
-------------- -------------- ------------ -------------
Loss before income taxes................ (2,517,161) (1,439,483) (318,539) (2,224,602)
Provision (benefit) for income taxes ... 239,824 (1,126) 108,517 2,003
-------------- -------------- ------------ -------------
Net loss................................ $(2,756,985) $(1,438,357) $ (427,056) $(2,226,605)
============== ============== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
PREFERRED COMMON PAID-IN TREASURY UNEARNED ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL STOCK COMPENSATION DEFICIT ADJUSTMEN TOTAL
----------- -------- ------------ ------------ -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 . $600,000 $1,000 $ 248,041 $(218,020) $ (59,778) $ (36,709) $141,468 $ 676,002
Net loss.................. -- -- -- -- -- (1,438,357) -- (1,438,357)
Treasury stock reissued
under restricted
purchase................. -- -- -- 218,020 (218,020) -- -- --
Amortization of unearned
compensation............. -- -- -- -- 164,937 -- -- 164,937
Foreign currency
translation adjustment .. -- -- -- -- -- -- 107,332 107,332
----------- -------- ------------ ------------ -------------- -------------- ------------- -----------
Balance, December 31,
1995 .................... 600,000 1,000 248,041 -- (112,861) (1,475,066) 248,800 (490,086)
Net loss.................. -- -- -- -- -- (2,756,985) -- (2,756,985)
Issuance of stock
options.................. -- -- 323,901 -- (323,901) -- -- --
Issuance of common stock . -- 250 2,999,750 -- -- -- -- 3,000,000
Amortization of unearned
compensation............. -- -- -- -- 95,393 -- -- 95,393
Foreign currency
translation adjustment .. -- -- -- -- -- -- (51,189) (51,189)
----------- -------- ------------ ------------ -------------- -------------- ------------- ----------
Balance, December 31,
1996 .................... 600,000 1,250 3,571,692 -- (341,369) (4,232,051) 197,611 (202,867)
Net loss (unaudited) ..... -- -- -- -- -- (427,056) -- (427,056)
Amortization of unearned
compensation
(unaudited).............. -- -- -- -- 82,894 -- -- 82,894
Foreign currency
translation adjustment
(unaudited).............. -- -- -- -- -- -- 1,307 1,307
----------- -------- ------------ ------------ -------------- -------------- ------------- ---------
Balance, June 30, 1997
(unaudited).............. $600,000 $1,250 $3,571,692 $ -- $(258,475) $(4,659,107) $198,918 $ (545,722)
=========== ======== ============ ============ ============== ============== ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------
1996 1995 1997 1996
-------------- -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $(2,756,985) $(1,438,357) $ (427,056) $(2,226,605)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation .............................................. 181,048 152,349 51,408 60,111
Deferred income taxes ..................................... 77,000 (288,119) -- --
Provision for bad debts ................................... 537,820 385,616 -- --
Amortization of unearned compensation ..................... 95,393 164,937 82,894 35,000
Equity in loss of investee ................................ -- 6,927 -- 10,836
Gain on distribution from joint venture ................... -- (67,763) -- --
Realized gain on sale of marketable securities ........... -- (4,511) -- --
Minority interest ......................................... -- -- 24,683 --
Changes in assets and liabilities:
Restricted cash .......................................... (332,999) (31,886) (260,238) (303,193)
Accounts receivable ...................................... (256,278) 466,686 (964,658) (862,833)
Income tax receivable .................................... 83,175 143,959 -- 83,175
Prepaid expenses and other current assets ................ 233,664 (74,220) (112,525) (63,933)
Noncurrent accounts receivable ........................... 410,016 445,949 69,387 --
Other assets ............................................. (6,202) 37,275 (37,195) 13,791
Accounts payable ......................................... (702,583) 212,128 1,466,375 1,798,750
Accrued expenses ......................................... 21,551 35,000 (315,592) (278,124)
Income tax payable ....................................... (47,869) 96,159 107,917 (16,754)
Production rights payable ................................ (12,573) (522,327) 327,847 540,732
Deferred revenue ......................................... (211,276) (1,109,279) 442,410 840,737
Deferred rent ............................................ (172,879) 263,036 (99,052) (339,969)
Accounts payable-clients ................................. 332,999 31,886 260,238 303,193
-------------- -------------- ------------ --------------
Net cash (used in) provided by operating activities .... (2,526,978) (1,094,555) 616,843 (405,086)
-------------- -------------- ------------ --------------
Cash flows from investing activities:
Proceeds from sale of marketable securities ................ -- 216,590 -- --
Purchases of property and equipment......................... (74,297) (142,609) (5,001) (14,770)
Investment in joint venture ................................ (10,836) (89,164) -- (10,836)
-------------- -------------- ------------ --------------
Net cash used in investing activities ................... (85,133) (15,183) (5,001) (25,606)
-------------- -------------- ------------ --------------
Cash flows from financing activities:
Proceeds from issuance of capital stock .................... 3,000,000 -- -- --
Proceeds from notes payable ................................ 1,250,000 2,460,000 425,000 957,500
Payments on notes payable .................................. (1,800,000) (1,822,500) -- --
-------------- -------------- ------------ --------------
Net cash provided by financing activities ............... 2,450,000 637,500 425,000 957,500
-------------- -------------- ------------ --------------
Effect of exchange rate changes on cash and cash equivalents 47,626 30,090 (23,248) 1,194
-------------- -------------- ------------ --------------
Increase (decrease) in cash and cash equivalents ........... (114,485) (442,148) 1,013,594 528,002
Cash and cash equivalents, beginning of period .............. 282,780 724,928 168,295 282,780
-------------- -------------- ------------ --------------
Cash and cash equivalents, end of period .................... $ 168,295 $ 282,780 $1,181,889 $ 810,782
============== ============== ============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes, net of refunds $ 127,518 $ 61,930 $ -- $ --
============== ============== ============ ==============
Cash paid during the year for interest ..................... $ 224,461 $ 181,106 $ 71,368 $ 124,438
============== ============== ============ ==============
Noncash investing and financing activities:
Issuance of treasury stock for restricted stock award ..... $ -- $ 218,020 $ -- $ --
============== ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
ProServ, Inc. and Subsidiaries (the Company) is an international
corporation operating as one segment in the business of sports marketing. The
Company provides career management and advisory services to professional
athletes and also engages in sports event management and promotion,
production and distribution of television sports broadcasting, and corporate
sports consulting. The Company conducts its business principally in North
America and Europe.
The Company experienced negative cash flow from operations during the
years ended December 31, 1996 and 1995, and the Company has been reliant on
financing activities to fund its operations. As further described in Note 4,
the Company has certain lines of credit available to fund working capital
through May 31, 1998. In management's opinion, the Company has sufficient
financing available to meet its current obligations as they come due.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries and a partially owned subsidiary in which
the Company has a controlling financial interest through its direct and
indirect ownership. The following entities are included in the consolidated
financial statements:
o ProServ, Inc.
o ProServ Europe
o ProServ, U.K.
o ProServ Financial Services, Inc.
o ProServ Television, Inc.
The above subsidiaries are wholly-owned except for ProServ Television,
Inc. (ProServ TV), which is 49% owned by the Company and 51% owned by an
officer/majority shareholder of the Company. The 51% ownership is accounted
for as a minority interest in the accompanying consolidated financial
statements. As of December 31, 1996, there was no minority interest
liability. All significant intercompany balances and transactions have been
eliminated in consolidation.
INVESTMENT IN JOINT VENTURE
The Company accounts for its investment in joint venture (see Note 10)
under the equity method. Under this method, the original investment is
recorded at cost and adjusted by the Company's share of undistributed
earnings of the joint venture. The investment balance is further adjusted for
additional investments in and cash distributions from the joint venture.
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
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-22
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
REVENUE RECOGNITION
The Company's revenues arise primarily from a percentage fee or
commissions received for performing services. The Company recognizes revenue
when services have been performed. Fees or commissions collected in advance
for services to be performed in subsequent years are recorded on the
accompanying consolidated balance sheets as deferred revenue. Deferred
revenue is recognized when the event is held or the Company's client performs
under the related contract. Revenue associated with television event
production is recorded net of fees payable to the related events. All
recognized but unpaid fees are included in the accompanying consolidated
balance sheets as production rights payable. The Company manages or
represents various sporting events and has an ownership interest in certain
of these events. Revenues and expenses from these events are recognized on
the accrual basis.
CASH EQUIVALENTS
Short-term investments with an original maturity of three months or less
are considered to be cash equivalents.
RESTRICTED CASH
The Company collects endorsement fees, special appearance fees, and
tournament earnings on behalf of its clients. These funds are held in
separate bank accounts pending disbursement to the individual clients. These
cash balances are reflected separately on the accompanying consolidated
balance sheets as restricted cash with a corresponding accounts payable to
clients.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts
of $577,650 and $569,559 at December 31, 1996 and June 30, 1997,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company deposits its cash and cash equivalents
in two financial institutions which are insured by the Federal Depository
Insurance Corporation (FDIC). The Company has not experienced any losses on
these balances to date. In addition, the Company maintains a repurchase
agreement with one of the financial institutions, in which excess funds are
deposited by the financial institution in an overnight investment account.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific clients, historical trends and other
information.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, accounts receivable, notes payable and accounts
payable approximate fair value as of December 31, 1996 because of the
relatively short maturity of these instruments. The carrying value of
noncurrent receivables approximates fair value as of December 31, 1996 based
on discounted future cash flows using a discount rate that approximates the
current interest rate available from the Company's financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from five to fifteen years. Leasehold
F-23
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
improvements are amortized over the remaining lease term using the
straight-line method. Upon retirement or disposition of property and
equipment, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in operations.
INCOME TAXES
ProServ, Inc. and ProServ Financial Services, Inc. file a consolidated
Federal income tax return. ProServ TV files separate Federal and state
returns and ProServ Europe and ProServ U.K. file separate tax returns in
their respective tax jurisdictions. The Company accounts for income taxes
utilizing the liability method. Deferred income taxes are recognized for the
tax consequences in future years for differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year
end, based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income taxes
is the current tax expense for the period plus the change during the period
in deferred tax assets and liabilities.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation." SFAS 123 is effective for the year
ended December 31, 1996. SFAS 123 permits companies to account for stock
based compensation based on the provisions prescribed in SFAS 123 or based on
the authoritative guidance in Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." The Company has
elected to continue to account for its stock based compensation in accordance
with APB 25, however, as required by SFAS 123, the Company has disclosed the
pro forma impact on the financial statements assuming the recognition
provisions of SFAS No. 123 had been adopted.
CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated at the exchange rates in effect on the reporting date and revenues
and expenses are translated at the weighted average exchange rate in effect
during the period. Adjustments resulting from these translations are included
as a separate component of stockholders' equity.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 is unaudited. The unaudited interim
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results of operations, changes in cash flows and financial position as of
and for the periods presented. The unaudited interim financial information
should be read in conjunction with the audited financial statements and
related notes thereto. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full year.
F-24
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Office equipment ................................ $ 1,651,915 $ 1,570,645
Leasehold improvements .......................... 264,639 225,351
Tape library .................................... 229,813 229,813
-------------- -------------
2,146,367 2,025,809
Less: accumulated depreciation and amortization (1,677,923) (1,574,860)
-------------- -------------
$ 468,444 $ 450,949
============== =============
</TABLE>
Depreciation and amortization expense was $181,048 and $152,349 for the
years ended December 31, 1996 and 1995, respectively and $51,408 and $60,111
for the six months ended June 30, 1997 and 1996, respectively.
3. NONCURRENT ACCOUNTS RECEIVABLE
Noncurrent accounts receivable include certain contractually earned
amounts for which there is no future performance required by the Company and
outstanding loans that will not be collected within one year from the balance
sheet date. Amounts to be collected during the twelve months subsequent to
December 31, 1996 are included in accounts receivable. The noncurrent
accounts receivable are reflected at the present value of future receipts
based on the discount rate prevailing on the date upon which the earnings
process is complete and are recorded net of an unamortized discount of
approximately $872,000 and $837,000 as of December 31, 1996 and June 30,
1997, respectively. Interest resulting from the amortization of the discount,
which is included in operating revenues, was approximately $80,000 and
$129,000 for the years ended December 31, 1996 and 1995, respectively and
approximately $35,000 and $50,000 for the six months ended June 30, 1997 and
1996, respectively. Based on the present value at December 31, 1996 of future
cash receipts, the noncurrent accounts receivable will be realized over the
next five years and thereafter as follows as of December 31, 1996 and June
30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
1997.................. $ 482,559 $ 482,559
1998.................. 534,836 465,449
1999.................. 52,695 52,695
2000.................. 11,724 11,724
2001.................. 12,566 12,566
Thereafter............ 616,385 616,385
-------------- -----------
1,710,765 1,641,378
Less: current
portion.............. (482,559) (482,559)
-------------- -----------
Total................ $1,228,206 $1,158,819
============== ===========
</TABLE>
F-25
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Lines of credit....... $1,450,000 $ 2,150,000
Term notes payable ... 100,000 25,000
-------------- -------------
Total notes payable . 1,550,000 2,175,000
Less: current
portion.............. (900,000) (2,175,000)
-------------- -------------
Noncurrent portion .. $ 650,000 $ --
============== =============
</TABLE>
LINES OF CREDIT
The Company maintains three lines of credit providing an aggregate working
capital facility of $1,850,000 and $2,100,000 at December 31, 1996 and June
30, 1997, respectively, of which $1,450,000 and $1,950,000 was outstanding as
of December 31, 1996 and June 30, 1997, respectively. Specific descriptions
of these lines of credit are set forth below.
The Company maintains two of its lines of credit with one financial
institution for an aggregate working capital facility of up to $1,100,000.
Total amounts outstanding under these lines of credit were $700,000 and
$1,100,000 at December 31, 1996 and June 30, 1997, respectively. Interest
payments are due monthly on these facilities at the bank's prime rate (8.25%
at December 31, 1996 and 8.5% at June 30, 1997). These lines of credit are
collateralized by substantially all of the Company's assets and certain
future contract rights and are guaranteed by a shareholder of the Company.
One of the lines maintained by ProServ TV is also guaranteed by ProServ, Inc.
The line of credit agreements contain certain restrictive covenants,
including a minimum cash flow coverage requirement, a minimum net worth
requirement and restrictions on incurring additional indebtedness and issuing
shares of common stock. As of December 31, 1996, the Company was not in
compliance with these covenants but received a waiver from the bank related
to each covenant violation. These facilities expired on May 31, 1997. On June
17, 1997, the Company renegotiated these lines of credit. The lines were
combined into one $1,100,000 line of credit with a maturity date of May 31,
1998. The revised line of credit agreement requires a principal payment of
$550,000 on the earlier of October 15, 1997 or the closing of a definitive
purchase and sale agreement (the Agreement) between the majority shareholder
of the Company and The Marquee Group (see Note 10) and a principal payment on
the earlier of October 30, 1997 or 15 days after the closing of the
Agreement. All other terms of the previous lines of credit remain the same.
The Company has an additional line of credit at another bank that provides
for a working capital facility of up to $750,000 and $1,000,000 at December
31, 1996 and June 30, 1997, respectively, of which $750,000 and $850,000 was
outstanding as of December 31, 1996 and June 30, 1997, respectively. Interest
payments were due monthly on this facility at the prime rate as published in
the Wall Street Journal (8.25% at December 31, 1996 and 9.5% at June 30,
1997). This line of credit expired on December 31, 1996. The Company
subsequently renegotiated this line of credit, and the resulting new terms
include a scheduled principal payment of $150,000 on or before September 30,
1997 with the remaining outstanding balance due May 31, 1998. The terms of
the renegotiated line of credit terms included an increase in the maximum
principal available on the line of credit to $1,000,000 and an increased
interest rate of prime (as published in the Wall Street Journal) plus 1%.
This line is collateralized by the rights to the Company's earnings generated
by an agreement related to a specific Company sponsored event, earnings
generated from certain ongoing management contracts, the rights to certain
cash flow generated from the Company's team sports operations and certain
royalties received by the Company pursuant to a specific contract. The line
is also guaranteed by a shareholder of the
F-26
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
4. NOTES PAYABLE (Continued)
Company. The line contains certain restrictive covenants, including a
requirement that the Company maintain thirty consecutive days with a zero
balance on this line. The Company was not in compliance with this covenant as
of December 31, 1996, but received a waiver from the bank related to this
covenant violation.
During 1996, the Company borrowed an additional $482,500 from this
financial institution. Interest payments were due monthly on this facility at
the prime rate (as published in the Wall Street Journal) plus 2%. This loan
was repaid in full during July 1996.
The majority shareholder of the Company also entered into a line of credit
agreement with a third financial institution during 1996. This line provides
the Company with up to $600,000 in borrowings, none of which was outstanding
at December 31, 1996 and $200,000 of which was outstanding at June 30, 1997.
Interest payments are due monthly at the bank's prime rate (8.50% at December
31, 1996 and 9% at June 30, 1997) plus .50%, and this line expired July 31,
1997. This line is collateralized by the majority shareholder's primary
residence. The line was subsequently renewed through December 31, 1997 with
all of the terms remaining the same.
The weighted average interest rate on short term borrowings was
approximately 8.75% and 9.25% for the years ended December 31, 1996 and 1995,
respectively and approximately 9% and 8.5% for the six months ended June 30,
1997 and 1996, respectively.
TERM NOTES PAYABLE
The Company maintains a term note payable with a financial institution
with quarterly principal payments and monthly interest payments at the bank's
prime rate (8.25% at December 31, 1996). The note is collateralized by
substantially all of the Company's assets as well as certain future contract
rights and is guaranteed by a shareholder of the Company. This note expired
on July 31, 1997 and was repaid in full at that time. The term notes payable
agreement contained certain restrictive covenants including a minimum cash
flow coverage requirement, a minimum net worth requirement, and restrictions
on incurring additional indebtedness and issuing common stock. As of December
31, 1996, the Company was not in compliance with these covenants but received
a waiver from the bank related to each covenant violation.
5. INCOME TAXES
The components of the provision (benefit) for income taxes were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------------
1996 1995 1997 1996
---------- ----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal .. $123,116 $ 220,340 $ 74,117 $1,903
State...... 39,708 41,313 13,100 100
Foreign.... -- 25,340 21,300 --
---------- ----------- ---------- --------
162,824 286,993 108,517 2,003
---------- ----------- ---------- --------
Deferred
Federal.... -- (276,119) -- --
State...... -- (12,000) -- --
Foreign.... 77,000 -- -- --
---------- ----------- ---------- --------
77,000 (288,119) -- --
---------- ----------- ---------- --------
Total..... $239,824 $ (1,126) $108,517 $2,003
========== =========== ========== ========
</TABLE>
F-27
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
5. INCOME TAXES (Continued)
Although the Company has a loss before income taxes on a consolidated
basis for the years ended December 31, 1996 and 1995, ProServ TV has
generated taxable income for both of those years, giving rise to the current
provision. The Company's consolidated provision (benefit) for income taxes
differs from the provision (benefit) that would have resulted from applying
the federal statutory rates to net income before taxes. The reasons for these
differences are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- -------------------------
1996 1995 1997 1996
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(Benefit) provision based upon Federal
statutory rate of 34%................... $ (855,835) $(489,424) $(99,911) $(756,365)
State tax provision--ProServ TV.......... 20,000 28,432 13,000 --
IRS contingency (see Note 7)............. -- 57,000 -- --
Increase in deferred tax asset valuation
allowance............................... 1,054,000 312,000 220,000 746,868
French tax audit (see Note 7)............ 77,000 -- -- --
Other.................................... (55,341) 90,866 24,572 11,500
------------ ------------ ----------- ------------
$ 239,824 $ (1,126) $108,517 $ 2,003
============ ============ =========== ============
</TABLE>
The sources and tax effects of temporary differences which give rise to
deferred tax assets (liabilities) are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards.................... $ 1,244,000 $ 1,464,000
AMT credit carryforwards......... 109,000 109,000
Deferred rent.................... 333,000 310,000
Accrued liabilities.............. 302,000 300,000
Foreign tax credit
carryforwards.................... 360,000 360,000
-------------- -------------
2,348,000 2,543,000
Less: valuation allowance........ (1,726,000) (1,946,000)
-------------- -------------
Total deferred tax assets........ 622,000 597,000
-------------- -------------
Deferred tax liabilities:
Property and equipment........... (80,000) (80,000)
Accounts receivable.............. (535,000) (510,000)
IRS contingency.................. (182,000) (182,000)
French Tax Audit................. (77,000) (77,000)
Other............................ (7,000) (7,000)
-------------- -------------
Total deferred tax liabilities .. (881,000) (856,000)
-------------- -------------
Net deferred tax liability ...... $ (259,000) $ (259,000)
============== =============
</TABLE>
As of December 31, 1996 and June 30, 1997, the Company had foreign tax
credit carryforwards (FTC's) of $360,000 expiring in 1997. Utilization of the
FTC's is subject to certain limitations, including the generation of future
foreign source taxable income, the effective tax rate on such income and the
amount of future U.S. taxable income. Based on the expiration of the FTC's in
1997, their recoverability is doubtful; therefore, a valuation allowance has
been established for the full amount of these FTC's at December 31, 1996 and
June 30, 1997. The $1,054,000 and $320,000 increases in the valuation
allowance at December 31, 1996 and June 30, 1997, respectively, relate
primarily to the Company's net operating loss carryforwards generated during
1996 and 1997.
F-28
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
5. INCOME TAXES (Continued)
The Company has approximately $3,054,000 in domestic net operating loss
carryforwards and approximately $220,000 in foreign net operating loss
carryforwards. The realizability of the deferred tax asset generated from
these operating loss carryforwards is dependent upon future taxable income
generated by the entity to which the operating loss carryforwards relate. The
Company's net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
<S> <C>
2010... $1,324,000
2011... 1,950,000
------------
$3,274,000
============
</TABLE>
6. RESTRUCTURING COSTS
During 1996, the Company incurred $565,000 in restructuring costs related
to closing down the Paris office of ProServ Europe. Included in these costs
were approximately $432,000 in severance, resulting from the termination of
16 employees and $133,000 in other miscellaneous costs. There were no
significant accrued expenses resulting from this restructuring included in
the consolidated balance sheet as of December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company rents all of its space under operating leases, primarily a
twelve-year lease that expires in May 2001. The terms of this lease included
a waiver of rental payments for the first year of the lease term and
scheduled rent increases at specified intervals during the twelve year term
of the lease. The Company is recognizing rent expense on a straight-line
basis over the life of the lease, giving rise to deferred rent. The rental
payments prescribed in the lease are also subject to changes resulting from
changes in the consumer price index. During 1995, the Company entered into an
agreement with the lessor resulting in a reduction of the space under lease
and a corresponding reduction in annual rental payments. In connection with
this agreement and in connection with a sublease entered into during 1995,
the Company recorded a non-cash loss of $293,832 in the consolidated
statement of operations for the year ended December 31, 1995. The loss
reflects the Company's future lease commitments for space for which no future
benefit to the Company is anticipated. Aggregate future minimum rental
payments, net of noncancelable subleases, greater than one year as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
RENTAL SUBLEASE
PAYMENTS INCOME NET
------------ ---------- -----------
<S> <C> <C> <C>
1997 ... $ 825,501 $169,057 $ 656,444
1998 ... 838,869 182,511 656,358
1999 ... 847,086 186,161 660,925
2000 ... 844,548 189,884 654,664
2001 ... 351,895 80,166 271,729
------------ ---------- -----------
$3,707,899 $807,779 $2,900,120
============ ========== ===========
</TABLE>
Rent expense, net of sublease income of $160,902 and $11,572, was $740,444
and $1,321,612 for the years ended December 31, 1996 and 1995, respectively.
Rent expense, net of sublease income of $81,612 and $74,870, was $244,553 and
$305,305 for the six months ended June 30, 1997 and 1996, respectively.
F-29
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (Continued)
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key
officers of the Company. These employment agreements set forth salary terms
and provide for the issuance of restricted common stock of the Company that
will be released to the officers at specified dates if the officers remain
with the Company. Unearned compensation, representing the difference between
the price of the restricted stock issued to the officers and the estimated
fair value of the stock on the effective date of the agreements, is amortized
over the stated period of performance. Amortization of unearned compensation,
which represents a non-cash charge, was $95,393 and $164,937 for the years
ended December 31, 1996 and 1995, respectively, and $82,894 and $35,000 for
the six months ended June 30, 1997 and 1996, respectively.
During 1996, one of the employment agreements with an officer of the
Company was revised. The terms of this revised agreement include a reduction
in the period of performance associated with the restricted common stock
mentioned above and certain cash bonus provisions based on the achievement of
specific criteria set forth in the agreement. Additionally, the officer was
granted options to purchase 50 shares of the Company's common stock at an
exercise price of $2,585 per share. Twenty-five of these options will vest on
December 31, 1997 and the remaining 25 options will vest on December 31,
1998. All 50 options were outstanding and there were none exercisable as of
December 31, 1996. The fair value of these options, which was determined
using the Black-Scholes Valuation method, was $10,042 per share on the date
of grant, and the assumptions used to estimate the fair value were as
follows: risk-free interest rate 5.71%; expected term of 5 years; expected
volatility of 0%; and dividend yield of 0%. The remaining contractual life of
these options was 4.8 years as of December 31, 1996. Had the recognition
provisions of SFAS 123 been implemented and this compensation cost recorded
based on the fair value of the stock options at the date of grant, the
Company's net loss would have been $2,771,000 for the year ended December 31,
1996.
Subsequent to December 31, 1996, an employment agreement with a second key
officer was revised. This revised employment agreement included the grant of
new options to purchase 30 shares of the Company's common stock that will
vest at specified dates in 1997 and 1998 based on the achievement of certain
performance criteria.
OTHER
In the normal course of business, the Company enters into certain
contracts in which specified revenue levels are guaranteed to its clients.
Any material known future losses related to these guarantees are recorded in
the period in which the losses are determined.
CONTINGENCIES
The Company was a party to a suit filed by a former client alleging legal
and investment advisory wrongdoing on the part of the Company and several
other named parties. Pursuant to an agreement dated May 28, 1996, the Company
and the other named parties reached a settlement with the former client.
Under the terms of the agreement, the Company is required to pay $300,000 in
aggregate from March 1997 through March 1999 in three annual installments.
Additionally, the Company could be liable for recapture taxes due by the
former client on any passive income to be generated by certain of the
investments in question. The Company's potential liability related to these
recapture taxes is not presently estimable. The Company's payments related to
this settlement agreement are guaranteed by a shareholder of the Company. As
a result of the settlement agreement, the Company recorded a one-time expense
of $300,000 in the consolidated statement of operations for the year ended
December 31, 1995. The related liability is recorded in accrued expenses as
of December 31, 1996 and June 30, 1997.
F-30
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (Continued)
The Company, a former employee (current business associate) and a former
client have been named as defendants in a lawsuit, in which the plaintiff
alleges that the Company's former client breached a contract to act in a
motion picture and that the Company and the former employee tortiously
interfered with the former client's contractual relations to the plaintiff.
The Company, the former employee and its former client have each filed
motions for summary judgment, requesting the dismissal of the complaint. The
Company is not presently able to determine the likelihood of any exposure
resulting from this lawsuit.
The Company, a former employee (current business associate) and a client
are defendants in a lawsuit. The plaintiff alleges that the Company's client
breached a contract to act in a motion picture and the former employee
(current business associate) and the Company tortiously interfered with the
client's contractual relations with the plaintiff. The plaintiff seeks
unspecified damages. The parties are engaging in discovery. The Company is
not presently able to determine the likelihood of any exposure resulting from
this lawsuit.
In connection with examinations of the consolidated federal tax returns of
ProServ, Inc. and ProServ Financial Services, Inc. for the years 1990 through
1993, the Internal Revenue Service (IRS) has raised questions regarding the
tax treatment of certain significant transactions. Although the Company
believes it has valid defenses to defeat any tax assessment, the Company has
accrued $182,000, reflected in deferred income taxes (see Note 5), for this
contingency, representing the best estimate of the exposure to the Company as
of December 31, 1996 and June 30, 1997.
The French taxing authorities are conducting an audit of ProServ Europe's
tax returns for the years 1993 through 1995. The Company has accrued $77,000,
reflected in deferred income taxes (see Note 5), for this contingency,
representing the best estimate of the exposure to the Company as of December
31, 1996 and June 30, 1997.
In the normal course of business, the Company is involved in various
lawsuits. Management is of the opinion that any liability or loss resulting
from such litigation will not have a material adverse effect on the
consolidated financial statements.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified defined contribution plan under section
401(k) of the Internal Revenue Code. The defined contribution plan enables
all full time employees who have completed one year of service with the
Company to make voluntary contributions to the plan of up to 15% of their
compensation not to exceed the dollar limits prescribed by the IRS.
Additional contributions to be made by the Company are prescribed in the
Plan, subject to certain limitations. The Company's expense related to the
plan totaled approximately $35,000 and $45,000 for the years ended December
31, 1996 and 1995, respectively.
9. AGREEMENT AND MEMORANDUM OF UNDERSTANDING
In January 1992, an Agreement and Memorandum of Understanding was executed
with a former officer of the Company under which the former officer
represents, through a separate company, certain former clients of the
Company. Under the terms of the agreements, the revenue on certain playing
and endorsement contracts was divided between the companies based on varying
percentages and terms, including dates of execution, renegotiations and
renewals of such playing and endorsement contracts. Net revenue recognized
under this agreement was approximately $694,000 and $1,228,000 for the years
ended December 31, 1996 and 1995, respectively and $81,000 and $184,000 for
the six months ended June 30, 1997 and 1996, respectively.
F-31
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
10. INVESTMENT IN JOINT VENTURE
On March 30, 1995, the Company and a former executive of the Company
formed a corporate joint venture to produce sports and entertainment events
for television. Under the terms of the original joint venture agreement, the
Company invested $48,000 in cash, certain contracts and events with a fair
value of $400,000, and $52,000 in professional service, valued at cost, to be
contributed over a one year period, collectively representing a 50% interest
in the joint venture. The fair value of the contracts and events was agreed
upon by both original shareholders of the joint venture. As of December 31,
1996 and 1995, the Company had incurred $52,000 and $41,000, respectively, of
the professional services as part of the Company's investment in the joint
venture.
In December 1995, the joint venture entered into an agreement with a third
investor for the purchase of a 20% ownership interest in the joint venture
for $550,000 in cash. The agreement stipulated that each previously existing
shareholder in the joint venture would receive a $150,000 payment as a result
of this cash infusion. Upon completion of this transaction, the Company's
interest in the joint venture was reduced to 40%
The Company's basis in the contracts and events that were contributed to
the joint venture was $0 upon the initial contribution. The Company is
amortizing the resulting basis difference over the seven year estimated life
of the related contracts and events.
The joint venture allocates and distributes income and losses in
proportion to each shareholders' percentage ownership. The following
represents a rollforward of the investment in joint venture for the years
ending December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance, January 1, 1995 ...................... $ --
Cash investment ............................... 48,000
Professional services ......................... 41,164
Equity in loss of investee:
Share of investee net loss ................... (52,165)
Amortization of basis difference ............. 45,238
----------
(6,927)
Reduction of investment based on sale of joint
venture interest ............................. (82,237)
----------
Balance, December 31, 1995 .................... --
Professional services ......................... 10,836
Equity in loss of investee:
Amortization of basis difference ............. 57,142
Share of investee net loss ................... (67,978)
----------
(10,836)
----------
Balance December 31, 1996 ..................... $ --
==========
</TABLE>
The Company's proportionate share of the joint venture's net loss for the
year ended December 31, 1996 and the six month period ended June 30, 1997 was
approximately $72,000 and $89,000, respectively; however, since the
investment in joint venture balance is $0, these losses were only recognized
to the extent of the amortization of the basis difference in the contracts
and events and the professional services contributed to the joint venture.
F-32
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
10. INVESTMENT IN JOINT VENTURE (Continued)
Summarized unaudited financial information of the joint venture are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1996 1995 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Operating revenues....... $ 910,000 $ 505,000 $ 828,000 $ 713,000
Operating expenses....... (1,090,000) (609,000) (1,051,000) (1,039,000)
------------- ------------- ------------- -------------
Net loss................. $ (180,000) $ (104,000) $ (223,000) $ (326,000)
============= ============= ============= =============
BALANCE SHEET
Total assets............. $ 1,266,000 $ 904,000
Total liabilities ....... (301,000) (132,000)
------------- -------------
Shareholders' equity .... $ 965,000 $ 772,000
============= =============
</TABLE>
11. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Operating revenue, (loss) income from operations and identifiable assets
for the Company's North America and European operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ----------------------------
1996 1995 1997 1996
-------------- -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue
North America................ $10,910,000 $14,551,000 $5,472,071 $ 4,369,182
Europe....................... 2,478,000 3,241,000 966,272 883,834
-------------- -------------- ------------ --------------
Total....................... $13,388,000 $17,792,000 $6,438,343 $ 5,253,016
============== ============== ============ ==============
(Loss) income from operations
North America................ $(1,465,000) $(1,421,000) $ (257,554) $(1,337,216)
Europe....................... (843,000) 112,000 35,066 (762,948)
-------------- -------------- ------------ --------------
Total....................... $(2,308,000) $(1,309,000) $ (222,488) $(2,100,164)
============== ============== ============ ==============
Identifiable assets
North America................ $ 4,786,000 $ 5,384,000 $5,598,000
Europe....................... 555,000 1,604,000 1,856,000
-------------- -------------- ------------
Total....................... $ 5,341,000 $ 6,988,000 $7,454,000
============== ============== ============
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
The majority shareholder of the Company has entered into a Purchase and
Sale Agreement dated as of June 25, 1997 with The Marquee Group, Inc.
("Marquee"), pursuant to which he has agreed to sell 70.4% of the outstanding
common stock and 100% of the outstanding preferred stock of ProServ, Inc. and
51% of the outstanding capital stock of ProServ TV, the remainder of which is
owned by ProServ, Inc. Pursuant to the agreement, the aggregate purchase
price is $6.5 million, subject to certain adjustments, and 250,000 shares of
common stock of Marquee. The majority shareholder of the Company has the
option to receive the $6.5 million in cash or $3.5 million in cash and a $3.0
million promissory note payable on January 2, 1998. In June 1997, Marquee
deposited $1.5 million, in escrow,
F-33
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
12. SUBSEQUENT EVENTS (UNAUDITED) (Continued)
as a down payment of the purchase price to secure its obligations under the
purchase agreement. In August 1997, the agreement was amended to permit
Marquee to replace its down payment with a $1.5 million letter of credit
delivered to the majority shareholder of the Company.
Marquee has also entered into a Stock Purchase Agreement dated as of July
2, 1997 (the "Non-Employee Stock Purchase Agreement") with the holder of 250
shares of the Company's common stock, pursuant to which Marquee has agreed to
purchase the shares held for an aggregate purchase price of $3.0 million. The
consummation of the purchase will take place concurrently with the
consummation of the purchase of the majority shareholders' shares.
Marquee has also entered into agreements with William J. Allard, the
president and chief operating officer of the Company, and two other officers
of the Company, pursuant to which Marquee has agreed to purchase an aggregate
of 120 shares of the Company's Common Stock and options to purchase an
aggregate of 70 shares of the Company's Common Stock for an aggregate
purchase price of $1.3 million.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder
of QBQ Entertainment, Inc.
We have audited the accompanying balance sheet of QBQ Entertainment, Inc.
as of December 31, 1996, and the related statements of operations,
stockholder's equity (deficiency) and cash flows for each of the two years in
the period ended December 31, 1996. 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 audits.
We conducted our audits 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 audits provide 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 QBQ Entertainment, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company changed
its method of computing rent expense and depreciation and amortization of
property and equipment in 1995.
David Berdon & Co. LLP
New York, New York
June 13, 1997
F-35
<PAGE>
QBQ ENTERTAINMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................. $323,237 $1,243,145
Accounts receivable........................................ 27,634 39,880
Prepaid expenses .......................................... 6,070 5,189
Loan receivable--stockholder............................... 60,936 33,820
----------------- --------------
TOTAL CURRENT ASSETS...................................... 417,877 1,322,034
PROPERTY AND EQUIPMENT--NET ................................ 82,235 69,391
CASH--RESTRICTED............................................ 17,554 16,287
----------------- --------------
$517,666 $1,407,712
================= ==============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accrued expenses and other liabilities..................... $130,005 $ 84,774
Loan payable--bank......................................... 170,000 --
Clients' deposits payable.................................. 266,610 1,049,651
----------------- --------------
TOTAL CURRENT LIABILITIES................................. 566,615 1,134,425
----------------- --------------
DEFERRED LEASE OBLIGATION................................... 10,736 6,709
----------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIENCY)
Common stock--no par value; 100 shares authorized, issued
and outstanding........................................... 100 100
Additional paid-in capital................................. 900 900
Accumulated earnings (losses).............................. (60,685) 265,578
----------------- --------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIENCY)................... (59,685) 266,578
----------------- --------------
$517,666 $1,407,712
================= ==============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-36
<PAGE>
QBQ ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- -------------------------
1996 1995 1997 1996
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Commissions...................... $1,358,922 $1,495,245 $1,013,115 $ 468,137
------------ ------------ ------------ -----------
EXPENSES
Operating........................ 274,224 299,484 126,963 122,671
General and administrative ...... 930,815 1,071,657 457,246 437,433
Depreciation and amortization ... 38,043 49,398 12,844 28,212
------------ ------------ ------------ -----------
TOTAL EXPENSES.................. 1,243,082 1,420,539 597,053 588,316
------------ ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS .... 115,840 74,706 416,062 (120,179)
------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest income.................. 12,329 13,764 7,863 4,901
Interest expense................. (24,329) (1,797) (5,404) (19,663)
Gain on sale of automobile ..... -- -- 25,000 --
------------ ------------ ------------ -----------
TOTAL OTHER INCOME (EXPENSE) ... (12,000) 11,967 27,459 (14,762)
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ 103,840 86,673 443,521 (134,941)
PROVISION FOR STATE AND
LOCAL INCOME TAXES............... 12,521 15,140 41,680 120
------------ ------------ ------------ -----------
NET INCOME (LOSS)................. $ 91,319 $ 71,533 $ 401,841 $(135,061)
============ ============ ============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-37
<PAGE>
QBQ ENTERTAINMENT, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL ACCUMULATED
NUMBER OF PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (LOSSES) TOTAL
-------------- ------------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1995 as previously
reported................................ 100 $100 $900 $ 193,484 $ 194,484
Prior period adjustments................. -- -- -- (41.410) (41,410)
-------------- ------------ ------------- ----------- -----------
BALANCE--JANUARY 1, 1995 as restated .... 100 100 900 152,074 153,074
Net income for the year ended
December 31, 1995....................... -- -- -- 71,533 71,533
Distribution to stockholder.............. -- -- -- (282,033) (282,033)
-------------- ------------ ------------- ----------- -----------
BALANCE--DECEMBER 31, 1995............... 100 100 900 (58,426) (57,426)
Net income for the year ended
December 31, 1996....................... -- -- -- 91,319 91,319
Distribution to stockholder.............. -- -- -- (93,578) (93,578)
-------------- ------------ ------------- ----------- -----------
BALANCE--DECEMBER 31, 1996............... 100 100 900 (60,685) (59,685)
Net income for the six months ended June
30, 1997 ............................... -- -- -- 401,841 401,841
Distribution to stockholder ............. -- -- -- (75,578) (75,578)
-------------- ------------ ------------- ----------- -----------
BALANCE--JUNE 30, 1997
(Unaudited) ............................ 100 $100 $900 $ 265,578 $ 266,578
============== ============ ============= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-38
<PAGE>
QBQ ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1997 1996
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 91,319 $ 71,533 $ 401,841 $ (135,061)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 38,043 49,398 12,844 28,212
(Gain) on sale of automobile ................... -- -- (25,000) --
Decrease (increase) in:
Accounts receivable............................ 1,639 19,879 (12,246) 16,138
Prepaid expenses .............................. 8,936 (9,556) 881 (3,626)
Increase (decrease) in:
Accrued expenses and other liabilities ........ 37,185 (40,650) (45,231) (21,619)
Clients' deposits payable...................... 222,035 (21,400) 783,041 1,591,665
Deferred lease obligation...................... (6,385) (3,052) (4,027) (2,359)
----------- ----------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........ 392,772 66,152 1,112,103 1,473,350
----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (34,440) (21,682) -- (19,288)
Proceeds from sale of automobile ................. -- -- 25,000 --
(Increase) decrease in loans to stockholder ...... (5,034) (55,902) 27,116 143,029
----------- ----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (39,474) (77,584) 52,116 123,741
----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of loan payable--bank.................. (300,000) -- (170,000) --
(Increase) decrease in restricted cash............ (898) (864) 1,267 (461)
Distributions to stockholder...................... (93,578) (282,033) (75,578) --
Proceeds from loan payable--bank.................. 170,000 300,000 -- --
----------- ----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... (224,476) 17,103 (244,311) (461)
----------- ----------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 128,822 5,671 919,908 1,596,630
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD ... 194,415 188,744 323,237 194,415
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS--
END OF PERIOD.................................... $ 323,237 $ 194,415 $1,243,145 $1,791,045
=========== =========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest ...................................... $ 23,479 $ 379 $ 6,253 $ 10,596
=========== =========== ============ ============
Income taxes .................................. $ 558 $ 64,307 $ 4,104 $ 565
=========== =========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-39
<PAGE>
QBQ ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 1 -- ORGANIZATION
QBQ Entertainment, Inc. (the "Company") was incorporated and commenced
operations in April 1986 as a booking agent in the music and entertainment
industry.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company receives advance deposits, on behalf of its clients, in the
ordinary course of business, to book an artist/entertainer for a future event
(i.e., concert). Commission income is recognized when the event takes place.
The funds held on behalf of the Company's clients are held in a separate bank
account.
(b) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, and accounts receivable. The Company places its cash and cash
equivalents, which at times exceed federally insured amounts, with a major
financial institution.
Commissions earned during 1996 includes approximately $521,000 from two
clients, which represents approximately 38% of revenue earned during the year
ended December 31, 1996. Commissions earned during 1995 includes
approximately $875,000 from three clients, which represents approximately 58%
of revenue earned during the year ended December 31, 1995.
Commissions earned during the six months (unaudited) ended June 30, 1997
includes approximately $534,000 from one client and accounts for
approximately 53% of the commissions earned. Commissions earned during the
six months (unaudited) ended June 30, 1996 includes approximately $369,000
from five clients and account for approximately 79% of the commissions
earned.
(c) Income Taxes
The Company has elected "S" corporation status under the applicable
provisions of the Internal Revenue Code and New York State tax law. The
Company will be treated for federal and New York State income tax purposes
substantially as if it were a partnership while a valid election is in
effect, and the stockholder's respective share in the net income (loss) of
the Company will be reportable on his individual returns. The Company remains
liable for New York City general corporation tax and certain New York State
corporate income taxes.
(d) Property and Equipment
Property and equipment are stated at cost and are being depreciated under
the straight-line method over the estimated useful lives of the related
assets, which range from 3-1/2 to 7 years.
(e) Use of Estimates in Financial Statement Presentation
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 December 31, 1996 and June
30, 1997, and the reported amounts of revenues and expenses during the two
years ended December 31, 1996, and the six months ended June 30, 1997 and
1996. Actual results could differ from those estimates.
(f) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers as
cash equivalents all highly liquid investments with a maturity of three
months or less when purchased.
F-40
<PAGE>
QBQ ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
(g) Accounts Receivable
The Company has deemed all receivables collectible at December 31, 1996
and June 30, 1997 (unaudited) and does not anticipate any additional probable
material losses as at those dates.
NOTE 3 -- PRIOR PERIOD ADJUSTMENTS
The Company has changed its method of accounting in computing rent expense
and depreciation and amortization of property and equipment in 1995 as a
result of the misapplication of accounting principles prior to the year ended
December 31, 1995. Accordingly, accumulated earnings has been reduced by
$41,410 as of January 1, 1995 for the cumulative effect of these prior period
adjustments. The Company has not determined the effect of these changes on
income as previously reported for the year ended December 31, 1994.
NOTE 4 -- LOAN RECEIVABLE -- STOCKHOLDER
At December 31, 1996 and June 30, 1997 (unaudited), $60,936 and $33,820,
respectively, were due from the Company's sole stockholder. These amounts
represent noninterest-bearing demand loans made to the stockholder.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment -net consists of the following at December 31,
1996 and June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.......................... $ 70,770 $ 70,770
Equipment....................................... 170,053 170,053
Automobiles..................................... 108,235 --
Leasehold improvements.......................... 6,138 6,138
-------------- -----------
355,196 246,961
Less, accumulated depreciation and
amortization................................... 272,961 177,570
-------------- -----------
$ 82,235 $ 69,391
============== ===========
</TABLE>
NOTE 6 -- LOAN PAYABLE -- BANK
Loan payable -bank at December 31, 1996, amounting to $170,000,
represents borrowings by the Company under a $300,000 unsecured grid demand
promissory loan agreement ("grid loan"). These borrowings were repaid by the
Company during the six months ended June 30, 1997.
Interest charged under the grid loan is payable monthly at the rate of 1%
above the bank's reference rate. Interest expense on the grid loan amounted
to $24,329 and $1,797 for the years ended December 31, 1996 and 1995,
respectively, and $5,404 and $19,663 for the six months (unaudited) ended
June 30, 1997 and 1996, respectively.
All borrowings under the grid loan are guaranteed by the Company's
stockholder.
F-41
<PAGE>
QBQ ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)
NOTE 7 -- LEASE COMMITMENT
The Company occupies premises for its office facilities under a
noncancelable operating lease agreement which commenced on May 15, 1993 and
expires on May 14, 1998. Minimum lease payments required under the terms of
such lease agreement at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997.... $65,625
1998.... 21,875
---------
Total... $87,500
=========
</TABLE>
The lease also requires payment of additional sums under escalation
clauses. Rent expense, which is reflected on a straight-line basis over the
term of the lease, amounted to $51,948 for the years ended December 31, 1996
and 1995, and $25,956 for the six months (unaudited) ended June 30, 1997 and
1996. Obligations of $10,736 and $6,709, representing pro-rata future
payments, are reflected in the accompanying December 31, 1996 and June 30,
1997 (unaudited) balance sheets, respectively.
The Company is contingently liable for a standby letter of credit, in the
sum of $15,156, given to its landlord in lieu of a security deposit. This
letter of credit is secured by a certificate of deposit that matures on April
14, 1998.
NOTE 8 -- RETIREMENT PLANS
The Company has two defined contribution plans, a profit sharing plan and
a money purchase plan, both of which cover all eligible employees.
Contributions to the profit-sharing plan are based on 0% to 15% of eligible
employees' annual salaries. Contributions to the money purchase plans are
based on 5% of eligible employees' annual salaries. Costs of the plans
charged to operations for the years ended December 31, 1996 and 1995 amounted
to $74,951 and $67,165, respectively, and $37,476 and $33,582 for the six
months (unaudited) ended June 30, 1997 and 1996, respectively.
NOTE 9 -- SUBSEQUENT EVENTS
(a) On July 3, 1997, the Company received approximately $2,959,000 from a
promoter on behalf of one of the Company's clients as an advance deposit for
a series of concerts beginning in March 1998. The Company has placed this
deposit into an interest-bearing escrow account, in which the promoter is
entitled to the interest earned.
(b) In July 1997, the Company entered into an agreement with The Marquee
Group, Inc. and Subsidiaries ("Purchaser") to sell substantially all its
assets for an aggregate purchase price of $7.2 million, of which $3.1 million
is payable at closing, $1.6 million is payable over eight years and $2.5
million is payable in shares of common stock of the Purchaser.
F-42
<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 IN CONNECTION WITH THE OFFER MADE BY 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 ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary................................. 3
Risk Factors ...................................... 10
Use of Proceeds ................................... 14
Price Range of Common Stock ....................... 15
Dividend Policy ................................... 15
Capitalization .................................... 16
Unaudited Pro Forma Condensed Combined Financial
Statements ....................................... 17
Selected Consolidated Financial Data .............. 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 24
Business .......................................... 32
Agreements Related to the Pending Acquisitions ... 43
Management ........................................ 46
Principal Stockholders ............................ 52
Certain Relationships and Related Transactions .... 55
Description of Securities ......................... 60
Shares Eligible for Future Sale ................... 63
Underwriting ...................................... 65
Legal Matters ..................................... 66
Experts ........................................... 66
Available Information ............................. 66
Index to Financial Statements...................... F-1
</TABLE>
7,500,000 Shares
THE MARQUEE GROUP, INC.
[THE MARQUEE GROUP, INC. LOGO]
Common Stock
P R O S P E C T U S
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
, 1997
1
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal administrative or
investigative (other than an action by or in the right of such corporation)
by reason of the fact that such person is or was an officer or director of
such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided that he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses which he actually and reasonably
incurred in connection therewith.
The Company's Certificate of Incorporation provides that no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the
fact that he is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, partner,
trustee, employee, agent or other similar function of another company,
partnership, joint venture, trust employee benefit plan or other enterprise.
Such right of indemnification includes the right to be paid by the Company
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the DGCL. If a claim for
indemnification or advancement of expenses is not paid in full by the Company
within 60 days after a written claim has been received by the Company, the
claimant may, at any time thereafter, bring suit against the Company to
recover the unpaid amount of the claim and, if successful in whole or in
part, expenses of prosecuting such claim.
The By-laws of the Company provide that the Company shall indemnify its
officers and directors to the fullest extent permitted under the DGCL. The
By-laws further provide that expenses incurred by a director in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director (or was serving at the Company's request as a director or
officer of another corporation) shall be paid by the Company in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director to repay such amount if it
ultimately shall be determined that such director is not entitled to be
indemnified by the Company as authorized by relevant sections of the DGCL.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for
indemnification of the Company's officers and directors by the Underwriters
named therein against certain liabilities, including liabilities under the
Securities Act, that arise out of, among other things, an untrue statement or
alleged untrue statement contained in the Prospectus contained in this
Registration Statement or the omission or alleged omission of a material fact
required to be stated in the Prospectus, but only to the extent that such
misstatement or omission was made in reliance upon and in conformity with
written information furnished to the Company by the Underwriters for use in
the Prospectus.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the best estimate of the Company as to its
anticipated expenses and costs (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby (except for the SEC
Registration Fee and the NASD Filing Fee, all amounts are estimates):
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
SEC Registration Fee ............... $ 16,009.00
NASD Filing Fee .................... 5,782.81
AMEX Listing Fee ................... 7,500.00
Printing and Engraving Expenses ... 150,000.00
Accounting Fees and Expenses ...... 125,000.00
Legal Fees and Expenses ............ 250,000.00
Blue Sky Fees and Expenses ......... 10,000.00
Transfer Agent's Fees and Expenses 2,000.00
Miscellaneous Expenses ............. 56,208.19
-------------
Total............................. $622,500.00
=============
</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 Company has sold and issued the following unregistered securities:
In July 1995 and August 1995, respectively, the Company sold 1,292,308 and
646,154 shares of Common Stock to TSC and Robert M. Gutkowski, respectively,
both of whom were accredited investors, for an aggregate purchase price of
$19,980. In May 1996, the Company sold 50,000 shares of Common Stock to
Martin C. Ehrlich, the Company's Senior Vice-President of Programming for a
purchase price of $500. Also, as part of the consideration paid in connection
with the consummation of the SMTI Acquisition and the A&A Acquisition, in
December 1996 the Company issued to each of Messrs. Trager, Letis and
Kaminsky 646,154 shares of Common Stock, and issued 323,076 shares of Common
Stock to Mr. Oppenheim.
In August 1996, the Company issued $2,000,000 in aggregate principal
amount of debentures to nine accredited investors (including TSC and Messrs.
Gutkowski, Trager, Letis, Oppenheim and Kaminsky) for an aggregate purchase
price of $2,000,000, of which $445,103 was purchased through the cancellation
of promissory notes. The IPO 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 the 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 were automatically converted into
666,662 IPO Units (resulting in a conversion rate of $3.00 per IPO Unit) each
IPO Unit consisting of one share of Common Stock and one Warrant.
In August 1997, the Company granted to Huff an immediately exercisable
option to purchase 100,000 shares of 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 Bridge Financing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In September 1997, the Company granted to TSC an option to purchase
200,000 shares of Common Stock at a price per share of $7.00. This option was
granted in connection with consulting services provided by TSC in connection
with the Tender Offer. See "Certain Relationships and Related
Transactions--Consulting Agreement."
II-2
<PAGE>
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 equal to the lower of $6.40 or the offering price per share in this
Offering. This option was granted in partial consideration for Mr.
Sillerman's personal guarantee of $500,000 as collateral for a letter of
credit deposited by the Company in connection with the Dell Stock Purchase
Agreement. See "Certain Relationships and Related Transactions--ProServ
Acquisition."
All of the above transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof. The sale of securities was
without the use of an underwriter, and the certificates evidencing the shares
bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933,
as amended.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
<S> <C>
**1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant (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 Registrant (incorporated by reference to Exhibit 3.2
to Amendment No. l to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on October 25, 1996).
**5.1 Opinion of Baker & McKenzie.
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to
the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on
October 25, 1996).
10.2 Employment Agreement, dated as of March 21, 1996, between The Marquee Group, Inc. and
Robert M. Gutkowski (incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on September 3,
1996).
10.3 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Michael Trager (incorporated by reference to Exhibit 10.3 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.4 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Michael Letis (incorporated by reference to Exhibit 10.4 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.5 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Arthur Kaminsky (incorporated by reference to Exhibit 10.5 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.6 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Louis J. Oppenheim (incorporated by reference to Exhibit 10.6 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.7A Shareholders' Agreement, dated as of March 21, 1996, by and among The Sillerman Companies,
Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager, Michael
Letis and The Marquee Group, Inc. (incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on
September 3, 1996).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
**10.7B Form of Amendment No. 1 to the Shareholders' Agreement, by and among The Sillerman
Companies, Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager
and Michael Letis.
10.8 Escrow Agreement, dated as of August 15, 1996, by and between The Marquee Group, Inc.,
Continental Stock Transfer & Trust Company, The Sillerman Companies, Inc., Robert M.
Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager and Michael Letis
(incorporated by reference to Exhibit 10.8 to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on September 3, 1996).
10.8A Amendment No. 1 to Escrow Agreement (incorporated by reference to Exhibit 10.8A to the
Annual Report on Form 10-KSB for the year ended December 31, 1996).
10.8B Amendment No. 2 to Escrow Agreement (incorporated by reference to Exhibit 10.8B to the
Annual Report on Form 10-KSB for the year ended December 31, 1996).
10.9 Financial Consulting Agreement, dated August 1, 1996, between The Marquee Group, Inc. and
Sillerman Communications Management Corporation (incorporated by reference to Exhibit 10.9
to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission
on September 3, 1996).
10.10 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The
Marquee Group, Inc., Athletes and Artists, Inc., Arthur C. Kaminsky, Louis J. Oppenheim,
Robert M. Gutkowski and The Sillerman Companies, Inc (incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-KSB for the year ended December 31, 1996).
10.11 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The
Marquee Group, Inc., Sports Marketing & Television International, Inc., Michael Trager,
Michael Letis, Robert M. Gutkowski and The Sillerman Companies, Inc. (incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-KSB for the year ended December
31, 1996).
10.12 Marketing Agreement, dated as of July 29, 1994, by and between Sports Marketing &
Television International, Inc. and Breeders' Cup Limited (incorporated by reference to
Exhibit 10.12 of Amendment No. 1 to the Registration Statement on Form SB-2 (Reg. No.
333-11287) filed with the Commission on October 25, 1996). Portions of this agreement are
subject to confidential treatment.
10.13 Subscription Agreement, dated August 15, 1996, between The Marquee Group, Inc. and Robert
Gutkowski (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-KSB
for the year ended December 31, 1996). The Registrant has entered into substantially
similar agreements with other parties.
10.13A Amendment to Subscription Agreement (incorporated by reference to Exhibit 10.13A to the
Annual Report on Form 10-KSB for the year ended December 31, 1996). The Registrant has
entered into substantially similar agreements with other parties.
10.14 Promissory Note from The Marquee Group, Inc. to Robert M. Gutkowski (incorporated by
reference to Exhibit 10.14 of Amendment No. I to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on October 25, 1996).
10.15 Underwriting Agreement, dated December 5, 1996, between The Marquee Group, Inc. and Royce
Investment Group, Inc. (incorporated by reference to Exhibit 10.15 to the Annual Report on
Form 10-KSB for the year ended December 31, 1996).
10.16 Agreement, dated as of November 26, 1996, between The Marquee Group, Inc. and Unlimited
Paramount Network (incorporated by reference to Exhibit 10.16 to the Quarterly Report on
Form 10-QSB for the period ended March 31, 1997).
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
10.17 Warrant Agreement, dated as of December 5, 1996, among The Marquee Group, Inc.,
Continental Stock Transfer & Trust Company, Royce Investment Group, Inc. and Continental
Broker-Dealer Corporation (incorporated by reference to Exhibit 4.1 to the Annual Report
on Form 10-KSB for the year ended December 31, 1996).
10.18 Unit Purchase Option, dated December 11, 1996, issued by The Marquee Group, Inc. to Royce
Investment Group, Inc (incorporated by reference to Exhibit 4.2 to the Annual Report on
Form 10-KSB for the year ended December 31, 1996).
*10.19 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.
**10.19A 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.
*10.20 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.
*10.21 Non-Employee Stock Purchase Agreement dated July 2, 1997.
**10.22 Agreement, dated as of July 18, 1997, by and between William Allard and the Company.
**10.22A Amendment to Agreement, dated as of September 9, 1997, by and between William Allard and
the Company.
*10.23 Assignment and Assumption Agreement by and between Sillerman Communications Management
Corporation and The Sillerman Companies, Inc.
**10.24 Agreement, dated September 12, 1997, between Jeff Knapple and The Marquee
Group, Inc.
**10.25 Agreement, dated September 12, 1997, between Ivan Blumberg and The Marquee Group, Inc.
10.26 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)(1) to Schedule 13E-3/A filed with the Commission on August
26, 1997).
10.27 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).
**21.1 List of subsidiaries of the Registrant.
**23.1 Consent of Baker & McKenzie--Included in Exhibit 5.1.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Coopers & Lybrand L.L.P.
**23.4 Consent of David Berdon & Co., LLP
*23.5 Consent of Donald L. Dell.
*23.6 Consent of William J. Allard.
*24.1 Power of Attorney.
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
II-5
<PAGE>
ITEM 28. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the
Securities 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.
(2) 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 under Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it 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-6
<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 Amendment
No. 1 to Registration Statement to be signed on its behalf by the
undersigned, in the city of New York, State of New York, on September 15,
1997.
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-------------------------------
Name: Robert M. Gutkowski
Title: President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------- ------------------------------------------ ---------------------
<S> <C> <C>
/s/ Robert M. Gutkowski
--------------------------- President, Chief Executive Officer and
Robert M. Gutkowski Director (principal executive officer) September 15, 1997
*
---------------------------
Robert F.X. Sillerman Chairman September 15, 1997
*
---------------------------
Arthur Kaminsky Executive Vice President and Director September 15, 1997
*
---------------------------
Michael Letis Executive Vice President and Director September 15, 1997
*
---------------------------
Louis J. Oppenheim Executive Vice President and Director September 15, 1997
*
---------------------------
Michael Trager Executive Vice President and Director September 15, 1997
*
--------------------------- Chief Financial Officer (principal
Jan E. Chason financial and accounting officer) September 15, 1997
*
---------------------------
Howard J. Tytel Director September 15, 1997
*
---------------------------
Arthur R. Barron Director September 15, 1997
*
---------------------------
Myles W. Schumer Director September 15, 1997
</TABLE>
*By /s/ Robert M. Gutkowski
Robert M. Gutkowski
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
<S> <C> <C>
**1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant (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 Registrant (incorporated by reference to Exhibit 3.2
to Amendment No. l to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on October 25, 1996).
**5.1 Opinion of Baker & McKenzie.
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to
the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on
October 25, 1996).
10.2 Employment Agreement, dated as of March 21, 1996, between The Marquee Group, Inc. and
Robert M. Gutkowski (incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on September 3,
1996).
10.3 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Michael Trager (incorporated by reference to Exhibit 10.3 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.4 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Michael Letis (incorporated by reference to Exhibit 10.4 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.5 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Arthur Kaminsky (incorporated by reference to Exhibit 10.5 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.6 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and
Louis J. Oppenheim (incorporated by reference to Exhibit 10.6 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.7A Shareholders' Agreement, dated as of March 21, 1996, by and among The Sillerman Companies,
Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager, Michael
Letis and The Marquee Group, Inc. (incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on
September 3, 1996).
**10.7B Form of Amendment No. 1 to the Shareholders' Agreement, by and among The Sillerman
Companies, Inc., Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager
and Michael Letis.
10.8 Escrow Agreement, dated as of August 15, 1996, by and between The Marquee Group, Inc.,
Continental Stock Transfer & Trust Company, The Sillerman Companies, Inc., Robert M.
Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager and Michael Letis
(incorporated by reference to Exhibit 10.8 to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on September 3, 1996).
10.8A Amendment No. 1 to Escrow Agreement (incorporated by reference to Exhibit 10.8A to the
Annual Report on Form 10-KSB for the year ended December 31, 1996).
10.8B Amendment No. 2 to Escrow Agreement (incorporated by reference to Exhibit 10.8B to the
Annual Report on Form 10-KSB for the year ended December 31, 1996).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
10.9 Financial Consulting Agreement, dated August 1, 1996, between The Marquee Group, Inc. and
Sillerman Communications Management Corporation (incorporated by reference to Exhibit 10.9
to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission
on September 3, 1996).
10.10 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The
Marquee Group, Inc., Athletes and Artists, Inc., Arthur C. Kaminsky, Louis J. Oppenheim,
Robert M. Gutkowski and The Sillerman Companies, Inc (incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-KSB for the year ended December 31, 1996).
10.11 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The
Marquee Group, Inc., Sports Marketing & Television International, Inc., Michael Trager,
Michael Letis, Robert M. Gutkowski and The Sillerman Companies, Inc. (incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-KSB for the year ended December
31, 1996).
10.12 Marketing Agreement, dated as of July 29, 1994, by and between Sports Marketing &
Television International, Inc. and Breeders' Cup Limited (incorporated by reference to
Exhibit 10.12 of Amendment No. 1 to the Registration Statement on Form SB-2 (Reg. No.
333-11287) filed with the Commission on October 25, 1996). Portions of this agreement are
subject to confidential treatment.
10.13 Subscription Agreement, dated August 15, 1996, between The Marquee Group, Inc. and Robert
Gutkowski (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-KSB
for the year ended December 31, 1996). The Registrant has entered into substantially
similar agreements with other parties.
10.13A Amendment to Subscription Agreement (incorporated by reference to Exhibit 10.13A to the
Annual Report on Form 10-KSB for the year ended December 31, 1996). The Registrant has
entered into substantially similar agreements with other parties.
10.14 Promissory Note from The Marquee Group, Inc. to Robert M. Gutkowski (incorporated by
reference to Exhibit 10.14 of Amendment No. I to the Registration Statement on Form SB-2
(Reg. No. 333-11287) filed with the Commission on October 25, 1996).
10.15 Underwriting Agreement, dated December 5, 1996, between The Marquee Group, Inc. and Royce
Investment Group, Inc. (incorporated by reference to Exhibit 10.15 to the Annual Report on
Form 10-KSB for the year ended December 31, 1996).
10.16 Agreement, dated as of November 26, 1996, between The Marquee Group, Inc. and Unlimited
Paramount Network (incorporated by reference to Exhibit 10.16 to the Quarterly Report on
Form 10-QSB for the period ended March 31, 1997).
10.17 Warrant Agreement, dated as of December 5, 1996, among The Marquee Group, Inc.,
Continental Stock Transfer & Trust Company, Royce Investment Group, Inc. and Continental
Broker-Dealer Corporation (incorporated by reference to Exhibit 4.1 to the Annual Report
on Form 10-KSB for the year ended December 31, 1996).
10.18 Unit Purchase Option, dated December 11, 1996, issued by The Marquee Group, Inc. to Royce
Investment Group, Inc (incorporated by reference to Exhibit 4.2 to the Annual Report on
Form 10-KSB for the year ended December 31, 1996).
*10.19 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.
**10.19A 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.
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
*10.20 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.
*10.21 Non-Employee Stock Purchase Agreement dated July 2, 1997.
**10.22 Agreement, dated as of July 18, 1997, by and between William Allard and the Company.
**10.22A Amendment to Agreement, dated as of September 9, 1997, by and between William Allard and
the Company.
*10.23 Assignment and Assumption Agreement by and between Sillerman Communications Management
Corporation and The Sillerman Companies, Inc.
**10.24 Agreement, dated September 12, 1997, between Jeff Knapple and The Marquee
Group, Inc.
**10.25 Agreement, dated September 12, 1997, between Ivan Blumberg and The Marquee Group, Inc.
10.26 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)(1) to Schedule 13E-3/A filed with the Commission on August
26, 1997).
10.27 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).
**21.1 List of subsidiaries of the Registrant.
**23.1 Consent of Baker & McKenzie--Included in Exhibit 5.1.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Coopers & Lybrand L.L.P.
**23.4 Consent of David Berdon & Co., LLP
*23.5 Consent of Donald L. Dell.
*23.6 Consent of William J. Allard.
*24.1 Power of Attorney.
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
<PAGE>
The Marquee Group, Inc.
7,500,000 Shares
Common Stock
UNDERWRITING AGREEMENT
________ ___, 1997
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
The Marquee Group, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth
below.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of 7,500,000 shares (the "Firm Securities") of the Company's Common Stock, par
value $.01 per share ("Common Stock"). The Company also proposes to issue and
sell to the several Underwriters not more than 1,125,000 additional shares of
Common Stock if requested by the Representatives as provided in Section 3 of
this Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such option are referred to herein as the "Option
Securities", and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities".
Simultaneously with closing on the Firm Securities by the
Underwriters, the Company will acquire the Acquired Subsidiaries (as
hereinafter defined), the consideration for which will be a combination of cash
and shares of the Company's Common Stock as described in the Registration
Statement (as hereinafter defined).
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) A registration statement on Form S-1 (File No. 333-_________) with
respect to the Securities, including a prospectus subject to completion, has
been filed by the Company with
<PAGE>
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if the Company relies on
Rule 434 under the Act, a Term Sheet (as hereinafter defined) relating to the
Securities, that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act or (B) if the Company
does not rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted
by Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B)
of this sentence as have been provided to and approved by the Representatives
prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by the Representatives prior to the execution of this Agreement.
The Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in
the Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement;
2
<PAGE>
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (both as
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph (b) do
not apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement has not been declared effective (i) the Company
has filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries, as hereinafter defined, has been duly organized and is validly
existing as a corporation in good standing under the laws of its respective
jurisdiction of incorporation and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its respective properties or
the conduct of its respective business requires such qualification, except
where the failure to be so qualified does
3
<PAGE>
not amount to a material liability or disability to the Company, its
subsidiaries and the Acquired Subsidiaries, taken as a whole. The "Acquired
Subsidiaries" shall mean the companies set forth on Schedule 3 hereto,
specifically ProServ, Inc. and its affiliated entities (collectively,
"ProServ") and QBQ Entertainment, Inc. ("QBQ").
(e) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries has full power (corporate and other) to own or lease its
respective properties and conduct its respective business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
power (corporate and other) to enter into this Agreement and to carry out all
the terms and provisions hereof to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries and each of the Acquired Subsidiaries have been duly authorized
and validly issued, and are fully paid and nonassessable. The issued shares of
capital stock of each of the Company's subsidiaries are owned beneficially by
the Company free and clear of any security interests, liens, encumbrances,
equities or claims. Upon the acquisition of the Acquired Subsidiaries (which
will occur simultaneously with the closing on the Firm Securities by the
Underwriters), the issued shares of capital stock of the Acquired Subsidiaries
will be owned beneficially by the Company free and clear of any security
interests, liens, encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no
holder of securities of the Company has any right which has not been fully
exercised or waived to require the Company to register the offer or sale of any
securities owned by such holder under the Act in the public offering
contemplated by this agreement.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company, any of its
subsidiaries or the Acquired Subsidiaries convertible into or exchangeable for
any capital stock of the Company or any such subsidiary, (B) warrants, rights
or options to subscribe for or purchase from the Company or any such subsidiary
any such capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary to issue
any shares of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
4
<PAGE>
(j) The consolidated financial statements of the Company and its
consolidated subsidiaries, the consolidated financial statements of ProServ and
the financial statements of QBQ, included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company
and its consolidated subsidiaries, ProServ and QBQ and the results of
operations and changes in financial condition as of the dates and periods
therein specified. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved (except as otherwise noted therein). The selected
financial data set forth under the caption "Selected Consolidated Financial
Data" in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) fairly present, on the basis stated in the
Prospectus (or such Preliminary Prospectus), the information included therein.
The pro forma financial data included in the Registration Statement and the
Prospectus present fairly the information shown therein, comply in all material
respects with the requirements of the Act and the rules and regulations
thereunder with respect to pro forma financial statements, have been properly
complied on the pro forma basis described therein and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(k) Ernst & Young LLP, who have certified certain financial statements
of the Company and its consolidated subsidiaries, ProServ and QBQ and delivered
their report with respect to such audited financial statements included in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), are independent public
accountants as required by the Act and the applicable rules and regulations
thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company, and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms.
(m) No legal or governmental proceedings are pending to which the
Company, any of its subsidiaries or any of the Acquired Subsidiaries is a party
or to which the property of the Company, any of its subsidiaries or any of the
Acquired Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
and no such proceedings have been threatened against the Company, any of its
subsidiaries or any of the Acquired Subsidiaries or with respect to any of
their respective properties; and no contract or other document is required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described therein (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) or
filed as required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained, such as may be
5
<PAGE>
required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company, any of its
subsidiaries or any of the Acquired Subsidiaries is a party or by which the
Company, any of its subsidiaries or any of the Acquired Subsidiaries or any of
their respective properties are bound, or the charter documents or by-laws of
the Company, any of its subsidiaries or any of the Acquired Subsidiaries, or
any statute or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Company, any
of its subsidiaries or any of the Acquired Subsidiaries.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus, neither the Company,
any of its subsidiaries nor any of the Acquired Subsidiaries has sustained any
material loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental proceeding
and there has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth, or results of the
operations of the Company, any of its subsidiaries or any of the Acquired
Subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(p) No transaction has occurred between or among the Company and any
of its officers or directors or any affiliate or affiliates of any such officer
or director that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(q) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of,
the Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(r) The Company has not distributed and, prior to the later of (i) the
Firm Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or other materials, if any permitted by the
Act.
(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (1) the Company,
its subsidiaries and the Acquired Subsidiaries have not incurred any material
liability or obligation, direct or contingent, nor entered into any
6
<PAGE>
material transaction not in the ordinary course of business; (2) the Company,
its subsidiaries and the Acquired Subsidiaries have not purchased any of their
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on their capital stock; and (3) there has not been any
material change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries or any of the Acquired Subsidiaries,
except in each case as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(t) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries has good and marketable title in fee simple to all items of real
property and marketable title to all personal property owned by it, in each
case free and clear of any security interests, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not interfere with the use made or proposed
to be made of such property by the Company or such subsidiary, and any real
property and buildings held under lease by the Company or any such subsidiary
are held under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or such subsidiary, in each
case except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) No labor dispute with the employees of the Company, any of its
subsidiaries or any of the Acquired Subsidiaries exists or is threatened or
imminent that could result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company, its subsidiaries or any of the Acquired
Subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company, its subsidiaries and the Acquired Subsidiaries own or
possess adequate and enforceable rights to use all material patents, patent
applications, trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by them in
connection with their respective businesses, and neither the Company nor any
such subsidiary has received any notice of infringement of or conflict with
asserted rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company, its subsidiaries and the Acquired Subsidiaries,
except as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus). None of the
Company, its subsidiaries and the Acquired Subsidiaries has received any notice
of infringement of any of the foregoing items of such intellectual property by
any third party, and the Company, its subsidiaries and the Acquired
Subsidiaries knows of any basis therefore.
(w) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries is insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the business in which it is engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not
7
<PAGE>
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company, its subsidiaries and the Acquired
Subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(x) The Company, its subsidiaries and the Acquired Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company, its
subsidiaries and the Acquired Subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(y) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and this transaction will not cause the
Company to become an investment company subject to registration under such Act.
(z) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries has filed all foreign, federal, state and local tax returns that
are required to be filed or has requested extensions thereof (except in any
case in which the failure so to file would not have a material adverse effect
on the Company and its subsidiaries or any of the Acquired Subsidiaries, as the
case may be) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(aa) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter
as to the matters covered thereby.
(bb) The Company has obtained signed agreements as described in
Section 7(f) hereof from each person who is a director or officer of the
Company or who owns ______________ shares of Common Stock.
(cc) The Company, each of its subsidiaries and each of the Acquired
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (1) transactions are executed in accordance
with management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (3) access to assets is permitted only in accordance with
management's general
8
<PAGE>
or specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(dd) No default exists, and no event has occurred which, with notice
or lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company, any of
its subsidiaries or any of the Acquired Subsidiaries is a party or by which the
Company, any of its subsidiaries or any of the Acquired Subsidiaries or any of
their respective properties is bound or may be affected in any material adverse
respect with regard to property, business or operations of the Company, its
subsidiaries and the Acquired Subsidiaries.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $________ per share, the number of Firm Securities set forth opposite
the name of such Underwriter in Schedule 1 hereto. One or more certificates in
definitive form for the Firm Securities that the several Underwriters have
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Representatives request upon notice to
the Company at least 48 hours prior to the Firm Closing Date, shall be
delivered by or on behalf of the Company to the Representatives for the
respective accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in same-day funds
(the "Wired Funds") to the account of the Company. Such delivery of and payment
for the Firm Securities shall be made at the offices of Morgan, Lewis & Bockius
LLP, 101 Park Avenue, New York, New York 10178 at 9:30 A.M., New York time, on
__________, 1997, or at such other place, time or date as the Representatives
and the Company may agree upon or as the Representatives may determine pursuant
to Section 9 hereof, such time and date of delivery against payment being
herein referred to as the "Firm Closing Date". The Company will make such
certificate or certificates for the Firm Securities available for checking and
packaging by the Representatives at the offices in New York, New York of the
Company's transfer agent or registrar or of Prudential Securities Incorporated
at least 24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of
this Section 3. The option granted hereby may be exercised as to all or any
part of the Option Securities from time to time within [thirty] days after the
date of the Prospectus (or, if such [30th] day shall be a Saturday or Sunday or
a holiday, on the next business day thereafter when the New York Stock Exchange
is open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate
9
<PAGE>
number of Option Securities as to which the several Underwriters are then
exercising the option and the date and time for delivery of and payment for
such Option Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
five business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representatives and
Company may agree upon or as the Representatives may determine pursuant to
Section 9 hereof, is herein called the "Option Closing Date" with respect to
such Option Securities. Upon exercise of the option as provided herein, the
Company shall become obligated to sell to each of the several Underwriters,
and, subject to the terms and conditions herein set forth, each of the
Underwriters (severally and not jointly) shall become obligated to purchase
from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on
the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3, except that reference
therein to the Firm Securities and the Firm Closing Date shall be deemed, for
purposes of this paragraph (b), to refer to such Option Securities and Option
Closing Date, respectively.
(c) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Securities does not
constitute closing of a purchase and sale of the Securities. Only execution and
delivery of a receipt for Securities by the Underwriters indicates completion
of the closing of a purchase of the Securities from the Company. Furthermore,
in the event that the Underwriters wire funds to the Company prior to the
completion of the closing of a purchase of Securities, the Company hereby
acknowledges that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company will not be entitled to the
wired funds and shall return the wired funds to the Underwriters as soon as
practicable (by wire transfer of same-day funds) upon demand. In the event that
the closing of a purchase of Securities is not completed and the wire funds are
not returned by the Company to the Underwriters on the same day the wired funds
were received by the Company, the Company agrees to pay to the Underwriters in
respect of each day the wire funds are not returned by it, in same-day funds,
interest on the amount of such wire funds in an amount representing the
Underwriters' cost of financing as reasonably determined by Prudential
Securities Incorporated.
(d) It is understood that either of you, individually and not as one
of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations
hereunder.
4. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
10
<PAGE>
5. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and of the Prospectus, as then amended or supplemented, and (ii) will not file
with the Commission the prospectus, Term Sheet or the amendment referred to in
the second sentence of Section 2(a) hereof, any amendment or supplement to such
Prospectus, Term Sheet or any amendment to the Registration Statement or any
Rule 462(b) Registration Statement of which the Representatives previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representatives shall not have
given their consent. The Company will prepare and file with the Commission, in
accordance with the rules and regulations of the Commission, promptly upon
request by the Representatives or counsel for the Underwriters, any amendments
to the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of the
Securities by the several Underwriters, and will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective by
the Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, (iii) the institution, threatening or
contemplation of any proceeding for any such purpose or (iv) any request made
by the Commission for amending the Original Registration Statement or any Rule
462(b) Registration Statement, for amending or supplementing the Prospectus or
for additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the
11
<PAGE>
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as
a prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably request;
without limiting the application of clause (iii) of this sentence, the Company,
not later than (A) 6:00 PM, New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 10:00
A.M., New York City time, on such date or (B) 2:00 PM, New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City time, on
such date, will deliver to the Underwriters, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally available
to its securityholders and to the Representatives a consolidated earnings
statement of the Company and its subsidiaries that satisfies the provisions of
Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or
12
<PAGE>
exchangeable or exercisable for, shares of Common Stock for a period of 365
days after the date hereof, except pursuant to this Agreement and except for
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(j) The Company will deliver the agreements described in Section 7(f)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to
the effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on
the date of this Agreement and (ii) the time confirmations are sent or given,
as specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly authorized for
listing on the American Stock Exchange (the "AMEX") prior to the Firm Closing
Date. The Company will ensure that the Securities remain included for quotation
on the AMEX, the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") and the Boston Stock Exchange following the Firm Closing Date.
(n) The Company will: (i) use its best efforts to satisfy all
conditions to the consummation of the acquisition of the Acquired Subsidiaries
as set forth in the agreements related thereto, (ii) use its best efforts to
cause each other party to such agreements to satisfy all conditions to the
consummation of the acquisition of the Acquired Subsidiaries, and (iii)
promptly notify the Representatives of the occurrence of any event which may
result in the non-consummation of the acquisition of the Acquired Subsidiaries
on the Firm Closing Date.
6. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of
13
<PAGE>
documents with respect to the transactions, including any costs of printing the
registration statement originally filed with respect to the Securities and any
amendment thereto, any Rule 462(b) Registration Statement, any Preliminary
Prospectus and the Prospectus and any amendment or supplement thereto, this
Agreement and any blue sky memoranda, (ii) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (iii) the
fees and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) preparation, issuance and delivery to
the Underwriters of any certificates evidencing the Securities, including
transfer agent's and registrar's fees, (v) the qualification of the Securities
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vi) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Securities, (vii) any listing of the Securities on the AMEX,
(viii) any meetings with prospective investors in the Securities (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters) [and (ix) advertising relating to the offering of the
Securities (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters)]. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 11 hereof or because
of any failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder other than by reason of a default by any of the Underwriters, the
Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including counsel fees and disbursements) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company (including those representations
and warranties which relate to the Company's subsidiaries and the Acquired
Subsidiaries) contained herein as of the date hereof and as of the Firm Closing
Date, as if made on and as of the Firm Closing Date, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof, to
the performance by the Company of its covenants and agreements hereunder and to
the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been filed
with the Commission and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2), or with respect to the Original Registration
Statement, or such later time and date as shall have been consented to by the
14
<PAGE>
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Representatives, shall be contemplated by
the Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Baker & McKenzie, counsel for the Company, to the effect that:
(i) the Company, each of its subsidiaries and the Acquired
Subsidiaries has been duly organized and is validly existing as a
corporation in good standing under the laws of its respective
jurisdiction of incorporation and is duly qualified to transact
business as a foreign corporation and is in good standing under the
laws of all other jurisdictions where the ownership or leasing of its
respective properties or the conduct of its respective business
requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company, its subsidiaries and the Acquired Subsidiaries, taken as a
whole;
(ii) the Company, each of its subsidiaries and each of the
Acquired Subsidiaries has corporate power to own or lease its
respective properties and conduct its respective businesses as
described in the Registration Statement and the Prospectus, and the
Company has corporate power to enter into this Agreement and to carry
out all the terms and provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned beneficially by the
Company free and clear of any perfected security interests or, to the
best knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims; the issued shares of capital stock
of each of the Acquired Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and, upon the
acquisition of the Acquired Subsidiaries (which will occur
simultaneously with the closing on the Firm Securities by the
Underwriters), will be owned beneficially by the Company free and
clear of any perfected security interests or, to the best knowledge of
such counsel, any other security interests, liens, encumbrances,
equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued
in compliance with all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities; the
Firm Securities have been duly authorized by all necessary corporate
action of the Company and, when issued and delivered to and paid for
by the
15
<PAGE>
Underwriters pursuant to this Agreement, will be validly issued, fully
paid and nonassessable; the Securities have been duly authorized for
listing on the AMEX and remain included for trading on the Nasdaq
National Market and the Boston Stock Exchange; no holders of
outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the
Securities; and no holders of securities of the Company are entitled
to have such securities registered under the Registration Statement;
(v) the statements set forth under the headings "Risk
Factors--Shares Eligible for Future Sale and Registration Rights;"
"Description of Securities;" and "Shares Eligible for Future Sale" in
the Prospectus, insofar as such statements purport to summarize
certain provisions of the capital stock of the Company, provide a fair
summary of such provisions; and the statements set forth under the
headings "Risk Factors--Possible Adverse Effects of Authorization of
Preferred Stock;" "Business--Legal Proceedings;" "--Agreements Related
to the Pending Acquisitions;" "--Employment Agreements;" "--1996 Stock
Option Plan;" and "Certain Relationships and Related Transactions" in
the Prospectus, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, provide a
fair summary of such legal matters, documents and proceedings;
(vi) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company;
(vii) (A) no legal or governmental proceedings are pending
to which the Company, any of its subsidiaries or any of the Acquired
Subsidiaries is a party or to which the property of the Company, any
of its subsidiaries or any of the Acquired Subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge
of such counsel, no such proceedings have been threatened against the
Company, any of its subsidiaries or any of the Acquired Subsidiaries
or with respect to any of their respective properties and (B) no
contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement that is not described therein or filed
as required;
(viii) the issuance, offering and sale of the Securities to
the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement
and the consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained and such as may be required under state securities
or blue sky laws, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company,
any of its subsidiaries or any of the Acquired Subsidiaries is a party
or by which the Company, any of its subsidiaries or any of the
Acquired Subsidiaries or any of their respective properties are bound,
or the charter documents or by-laws of the Company, any of its
16
<PAGE>
subsidiaries or any of the Acquired Subsidiaries, or any statute or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and
applicable to the Company, any of its subsidiaries or any of the
Acquired Subsidiaries;
(ix) the Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been
made in the manner and within the time period required by Rules 434
and 424(b); and no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and
no proceedings for that purpose have been instituted or threatened or,
to the best knowledge of such counsel, are contemplated by the
Commission; and
(x) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than
the financial statements and other financial information contained
therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of
the Act and the rules and regulations of the Commission thereunder.
(xi) if the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in Rule
434, from the prospectus included in the Registration Statement at the
time of its effectiveness or an effective post-effective amendment
thereto (including such information that is permitted to be omitted
pursuant to Rule 430A).
(xii) The Company, each of its subsidiaries and each of the
Acquired Subsidiaries has good and marketable title in fee simple to
all items of real property and marketable title to all personal
property owned by it, in each case free and clear of any security
interests, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of
such property and do not interfere with the use made or proposed to be
made of such property by the Company or such subsidiary, and any real
property and buildings held under lease by the Company or any such
subsidiary are held under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the
Company or such subsidiary, in each case except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xiii) The Company, its subsidiaries and the Acquired
Subsidiaries own or possess adequate and enforceable rights to use all
material patents, patent applications, trademarks, service marks,
trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with
their respective businesses, and, to the best of such counsel's
knowledge, neither the Company nor any such subsidiary has received
any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a
17
<PAGE>
material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company,
its subsidiaries and the Acquired Subsidiaries, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). To the best of
such counsel's knowledge, none of the Company, its subsidiaries and
the Acquired Subsidiaries has received any notice of infringement of
any of the foregoing items of such intellectual property by any third
party, and the Company, its subsidiaries and the Acquired Subsidiaries
knows of any basis therefore.
(xiv) The Company, its subsidiaries and the Acquired
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company, its subsidiaries and the Acquired
Subsidiaries, except as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xv) To the best of such counsel's knowledge, there are no
holders of securities of the Company, who, by reason of the filing of
the Registration Statement, have the right (and have not waived such
right) to request the Company to register under the Act, or to include
in the Registration Statement, securities held by them.
(xvi) No default exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default in
the due performance and observance of any term, covenant or condition
of any indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company, any of its subsidiaries or any of the
Acquired Subsidiaries is a party or by which the Company, any of its
subsidiaries or any of the Acquired Subsidiaries or any of their
respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the
Company, its subsidiaries and the Acquired Subsidiaries.
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and the Acquired Subsidiaries and public officials.
18
<PAGE>
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New
York, counsel for the Underwriters, with respect to the issuance and sale of
the Firm Securities, the Registration Statement and the Prospectus, and such
other related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such matters.
(d) The Representatives shall have received from Ernst & Young LLP a
letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the
Act and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules and pro forma financial statements examined
by them and included in the Registration Statement and the Prospectus
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(iii) on the basis of their limited review in accordance
with standards established by the American Institute of Certified
Public Accountants of any interim unaudited consolidated condensed
financial statements of the Company and its consolidated subsidiaries,
the consolidated financial statements of ProServ and the financial
statements of QBQ as indicated in their reports included in the
Registration Statement and the Prospectus, a reading of the minute
books of the shareholders, the board of directors and any committees
thereof of the Company, each of its consolidated subsidiaries and each
of the Acquired Subsidiaries, and inquiries of certain officials of
the Company, its consolidated subsidiaries and the Acquired
Subsidiaries who have responsibility for financial and accounting
matters, nothing came to their attention that caused them to believe
that:
(A) the unaudited consolidated condensed financial statements of the
Company, and its consolidated subsidiaries, the consolidated financial
statements of ProServ and the financial statements of QBQ included in
the Registration Statement and the Prospectus do not comply in form in
all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration
Statement and the Prospectus;
(B) at a specific date not more than five business days prior to the
date of such letter, there were any changes in the capital stock or
long-term debt of the Company
19
<PAGE>
and its consolidated subsidiaries or any of the Acquired Subsidiaries
or any decreases in net current assets or stockholders' equity of the
Company and its consolidated subsidiaries or any of the Acquired
Subsidiaries, in each case compared with amounts shown on the June 30,
1997 unaudited consolidated balance sheets of such companies included
in the Registration Statement and the Prospectus, or for the period
from July 1, 1997 to such specified date there were any decreases, in
sales, net revenues, net income before income taxes or total or per
share amounts of net income of the Company and its consolidated
subsidiaries or any of the Acquired Subsidiaries, except in all
instances for changes, decreases or increases set forth in such
letter;
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and the
Acquired Subsidiaries and are included in the Registration Statement
and the Prospectus, and have compared such amounts, percentages and
financial information with such records of the Company and its
consolidated subsidiaries and the Acquired Subsidiaries with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation;
(v) on the basis of a reading of the unaudited pro forma
consolidated condensed financial statements included in the
Registration Statement and the Prospectus, carrying out certain
specified procedures that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph
(v), inquiries of certain officials of the Company and its
consolidated subsidiaries and the Acquired Subsidiaries who have
responsibility for financial and accounting matters and proving the
arithmetic accuracy of the application of the pro forma adjustments to
the historical amounts in the unaudited pro forma consolidated
condensed financial statements, nothing came to their attention that
caused them to believe that the unaudited pro forma consolidated
condensed financial statements do not comply in form in all material
respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such
statements.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery of
the Securities as contemplated by the Registration Statement, as amended as of
the date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
20
<PAGE>
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company to the effect that:
(i) the representations and warranties of the Company
(including those representations and warranties which relate to the
Company's subsidiaries and the Acquired Subsidiaries) in this
Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented
as of the Firm Closing Date, does not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company has
performed all covenants and agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Firm Closing
Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and
no proceedings for that purpose have been instituted or threatened or,
to the best of the Company's knowledge, are contemplated by the
Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries nor any of the
Acquired Subsidiaries has sustained any material loss or interference
with their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects,
net worth or results of operations of the Company, any of its
subsidiaries or any of the Acquired Subsidiaries, except in each case
as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(iv) the acquisition of each of the Acquired Subsidiaries
shall have been completed upon the terms set forth in the Prospectus
simultaneously with the closing of the purchase of the Firm Securities
by the Underwriters.
(f) The Representatives shall have received from each person who is a
director or officer of the Company (or who will become a director or officer of
the Company upon consummation of the acquisition of the Acquired Subsidiaries)
or who owns _______ shares of Common Stock an agreement to the effect that such
person will not, directly or indirectly, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of an option to purchase or other sale or disposition)
of any shares of Common Stock or
21
<PAGE>
any securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 365 days after the date of this Agreement.
(g) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
(h) Prior to the commencement of the offering of the Securities, the
Securities shall have been approved for listing on the AMEX.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by
the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other
document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange
(each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application a material fact required to be stated therein or
necessary to make the statements therein not misleading or
22
<PAGE>
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or any Application in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein; and provided, further, that the Company will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) and (e) of this Agreement]. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of all of the Underwriters and
such controlling persons from all liability arising out of such claim, action,
suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or necessary to make the
statements therein not misleading, in each case to the extent, but only
23
<PAGE>
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representatives specifically for use therein: and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Representatives in
the case of paragraph (a) of this Section 8, representing the indemnified
parties under such paragraph (a) who are parties to such action or actions) or
(ii) the indemnifying party does not promptly retain counsel satisfactory to
the indemnified party or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect
24
<PAGE>
thereof), each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of the
Securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section II (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the
25
<PAGE>
Representatives), but if no such arrangements are made by the Firm Closing Date
or the related Option Closing Date, as the case may be, the other Underwriters
shall be obligated severally in proportion to their respective commitments
hereunder to purchase the Firm Securities or Option Securities that such
defaulting Underwriter or Underwriters agreed but failed to purchase. If one or
more Underwriters so default with respect to an aggregate number of Securities
that is more than ten percent of the aggregate number of Firm Securities or
Option Securities, as the case may be, to be purchased by all of the
Underwriters at such time hereunder, and if arrangements satisfactory to the
Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as
provided in Section 10 hereof. In the event of any default by one or more
Underwriters as described in this Section 9, the Representatives shall have the
right to postpone the Firm Closing Date or the Option Closing Date, as the case
may be, established as provided in Section 3 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purchase and delivery of the Firm Securities
or Option Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company (including those
which relate to the Company's subsidiaries and the Acquired Subsidiaries), its
officers and the several Underwriters set forth in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made by or on behalf
of the Company, any of its officers or directors, any Underwriter or any
controlling person referred to in Section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date
or the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder at or
prior thereto or, if at or prior to the Firm Closing Date or such Option
Closing Date, respectively,
(i) the Company, any of its subsidiaries or any of the
Acquired Subsidiaries shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding or
there shall have been any material adverse change, or any development
involving a prospective material adverse change (including without
limitation a change in management or control of the Company), in the
condition (financial or otherwise), business prospects, net worth or
results of operations
26
<PAGE>
of the Company, its subsidiaries and the Acquired Subsidiaries, except
in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended
by the Commission or the AMEX or trading in securities generally on
the New York Stock Exchange or Boston Stock Exchange or Nasdaq
National Market shall have been suspended or minimum or maximum prices
shall have been established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended
as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b) and 8 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to the Company
at The Marquee Group, Inc., 888 Seventh Avenue, 37th Floor, New York, New York
10019.
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities
27
<PAGE>
of the Company contained in Section 8 of this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
28
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
each of the several Underwriters.
Very truly yours,
THE MARQUEE GROUP, INC.
By
---------------------------
[Name]
[Title]
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
By PRUDENTIAL SECURITIES INCORPORATED
By
-------------------------------
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
29
<PAGE>
SCHEDULE 1
UNDERWRITERS
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Prudential Securities Incorporated........................
(insert names of other Representatives)
[insert names of other Underwriters
alphabetically by bracket or in other
order determined by Prudential
Securities Incorporated -
Equity Transactions Group]
------------
Total...............................
30
<PAGE>
SCHEDULE 2
SUBSIDIARIES
Name Jurisdiction of Incorporation
- ---- -----------------------------
31
<PAGE>
SCHEDULE 3
ACQUIRED SUBSIDIARIES
Name Jurisdiction of Incorporation
- ---- -----------------------------
32
<PAGE>
September 15, 1997
The Marquee Group, Inc.
888 Seventh Avenue, 37th 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. 333-31879 (the "Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, covering 7,500,000 shares of Common Stock, $.01 par value per
share (the "Common Stock"), of the Company and up to an additional 1,125,000
shares of Common Stock (collectively, the "Offering Shares") that the
underwriters named in the Registration Statement have an option to purchase
from the Company solely to cover over-allotments.
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 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 to matters of fact
which have not been independently established, we have relied upon
representations of officers of the Company.
<PAGE>
The Marquee Group, Inc.
September 15, 1997
Page 2
Based upon the foregoing examination, and the information thus
supplied, it is our opinion that the Offering Shares have been validly
authorized and will, when sold as contemplated by the Registration Statement,
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,
BAKER & McKENZIE
AB/HMB/GFB
<PAGE>
AMENDMENT NO. 1 TO SHAREHOLDERS AGREEMENT
AMENDMENT NO. 1 TO SHAREHOLDERS AGREEMENT, dated as of September 9,
1997, by and among The Sillerman Companies, Inc., a Delaware corporation
("TSC"), Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael
Trager, Michael Letis and The Marquee Group, Inc., a Delaware corporation (the
"Company").
WHEREAS, the undersigned entered into a Shareholders' Agreement, dated
March 21, 1996 (the "Shareholders' Agreement");
WHEREAS, pursuant to Section 3.01(a) of the Shareholders' Agreement,
the Company has increased to nine the number of directors constituting the
Board of Directors of the Company (the "Board");
WHEREAS, the Company has entered into agreements to purchase the
shares of ProServ Inc. and ProServ Television, Inc. (the "ProServ Agreements");
and
WHEREAS, the undersigned desire, upon consummation of the transactions
contemplated by the ProServ Agreements to increase to eleven the number of
directors constituting the Board.
NOW, THEREFORE, intending to be legally bound, the undersigned hereby
agree as follows:
Section 3.01(a) of the Shareholders' Agreement is hereby amended to
read in its entirety as follows:
"(a) Number of Directors. The management of the Company
shall be entrusted to a Board of Directors currently consisting of
nine (9) members, which number may be increased to eleven (11) upon
the consummation of the Company's acquisition of a controlling
interest in ProServ, Inc. Thereafter, the parties hereto agree that
they will not take any action to increase or decrease the number of
Directors."
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
to Shareholders' Agreement as of the date first above written.
THE SILLERMAN COMPANIES, INC.
By:
--------------------------- -------------------------
Howard J. Tytel Michael Letis
--------------------------- -------------------------
Robert M. Gutkowski Arthur Kaminsky
--------------------------- -------------------------
Michael Trager Louis J. Oppenheim
THE MARQUEE GROUP, INC.
By:
----------------------------
Jan E. Chason
Chief Financial Officer and Treasurer
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
This Amendment to Purchase and Sale Agreement is made and entered into this
19th day of August, 1997, by and among PROSERV, INC., a Delaware Corporation
("ProServ"), PROSERV TELEVISION, INC., a Delaware corporation ("TV", and
collectively with ProServ, the "Companies"), DONALD L. DELL, an individual
residing at 12200 Stone Creek Road, Potomac, Maryland 20854 (the "Seller"), and
THE MARQUEE GROUP, INC., a Delaware corporation (the "Buyer", and collectively
with ProServ, TV and Seller, the "Parties"). All initially capitalized terms
not otherwise defined herein shall have the same meanings as in he Agreement
(defined below) or the Escrow Agreement (as defined in the Agreement);
WHEREAS, the Parties executed that certain Purchase and Sale Agreement
dated June 25, 1997 (the "Agreement"), pursuant to which Seller agreed to sell
to Buyer the shares of stock described in the Agreement;
WHEREAS, the Parties wish to amend the Agreement to evidence certain
agreements between the Parties related to the consummation of the transfer of
stock from Seller to Buyer.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements contained in this amendment and in the Agreement, the Parties
agree as follows:
1. Pursuant to Section 3.1 of the Agreement, the Closing Date is
extended to a date to be selected by the Buyer upon three days written notice
to the Seller, but in no event later than October 15, 1997.
2. The Buyer will no later than August 22, 1998 substitute a Letter
of Credit in the form annexed hereto as Exhibit 1 (the "Buyer's Letter of
Credit") in the amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000.00), applied for by Buyer, and extended by The Chase Manhattan Bank
in favor of Seller, for the Escrow Amount provided for in Section 1(b) of the
Escrow Agreement. At the closing of the transactions contemplated by the
Agreement, the Buyer's Letter of Credit shall be surrendered by the Seller to
the Buyer.
3. A. Buyer shall not deposit the additional FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) as provided for in section 2.3(b) of the Agreement. The
Escrow Amount shall be released to the Buyer by the Escrow Agent simultaneously
with the delivery to the Seller of the Buyer's Letter of Credit. Simultaneously
with the release of the Escrow Amount, the Buyer and the Seller shall take such
actions as shall be necessary to terminate the Escrow Agreement. All
appropriate charges of the Escrow Agent shall be deducted from the Escrow
Amount before distribution to the Buyer and shall otherwise be paid in equal
shares by Buyer and Seller.
B. Buyer and Seller shall, simultaneously with the execution and
delivery hereof, also execute and deliver to the Escrow Agent joint
instructions in the form of Exhibit 2
<PAGE>
hereto directing the Escrow Agent to liquidate the Escrow Amount and to wire
the Escrow Amount, net of any deductions for fees and expenses of the Escrow
Agent, to the Buyer, whereupon the Escrow Agreement and the Escrow shall
terminate in accordance with its terms.
C. Buyer, as the beneficiary of all net earnings with respect to
the Escrow Amount, shall be responsible for any taxes of any jurisdiction with
respect thereto and, in connection therewith, shall promptly file with the
Escrow Agent an executed Form W-9 setting forth its tax identification number.
This undertaking shall survive the termination of the Escrow Agreement.
4. The Purchase Price, pursuant to section 2.1 of the Agreement, shall
be increased to include an additional 25,000 shares of Buyer's Class A Common
Stock, thus raising the total Consideration Stock to 250,000 shares.
5. The values and amounts contemplated in Article 18 of the Agreement
shall be deemed to be modified accordingly, at the same per share value, to
reflect the increase in the Consideration Stock.
6. This amendment contains the entire understanding of the Parties
hereto with respect to the matters addressed in the amendment of the Agreement.
All other provisions of the Agreement, as amended, remain unchanged. As
required by Section 19.4 of the Agreement, all amendments to the Agreement are
evidenced by an instrument in writing signed by the Parties hereto and the
Parties confirm that any future amendments to the Agreement must also be
evidenced by a written instrument signed by the Parties.
7. This amendment may be executed by facsimile signatures and in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8. The Parties will take such actions and execute such documents as
shall be reasonably necessary or appropriate to implement this amendment.
IN WITNESS WHEREOF, the parties hereto have executed this amendment as
of the date first above written.
Companies:
----------
PROSERV, INC.
By: /s/ Donald L. Dell
-------------------------------
Name:
Title:
<PAGE>
PROSERV TELEVISION, INC.
By: /s/ Donald L. Dell
-------------------------------
Name: Donald L. Dell
Title: CEO & Chairman
Seller:
-------
/s/ Donald L. Dell
----------------------------------
Donald L. Dell
Buyer:
------
THE MARQUEE GROUP, INC.
By: /s/ Robert F.X. Sillerman
-------------------------------
Name: Robert F.X. Sillerman
Title: Chairman
<PAGE>
THE MARQUEE GROUP, INC.
888 Seventh Avenue
New York, New York 10019
Mr. William Allard July 18, 1997
c/o ProServ, Inc.
1101 Wilson Boulevard, Suite 1800
Arlington, VA 22209
Dear Bill:
As you know, we have been in active negotiations concerning your
employment by The Marquee Group ("Marquee") in anticipation of Marquee's
purchase of ProServ, Inc. Although we have now reached agreement, it appears
that we will not have sufficient time to revise and finalize your Employment
Agreement prior to the filing of our securities documents. Accordingly, by our
signatures below, you and we agree that the following are the principal terms
and conditions of your employment by Marquee and for the purchase of your
shares in ProServ. This letter will serve as a binding agreement between us
unless and until it is supplemented by a formal Employment Agreement. Unless
defined in this letter, capitalized terms below follow the definitions in the
draft Employment Agreement which we sent to you on July 1, 1997 (the "July 1
Draft")).
Term.
The term of your employment will commence on the Effective Date and
terminate on December 31, 2000. Neither party will have a contractual right to
an Extension Term.
Title and Duties.
You will serve as "President and Chief Operating Officer" of ProServ. You
will report directly to the CEO of Marquee. You will also serve as a "Managing
Director" of ProServ, and you will be a member of the Marquee board of
directors. As Chief Operating Officer, your duties will include operating
control, including authority over hiring and firing, budget development and
control, event planning and commitments, promotional matters, new venues, and
administrative matters.
Compensation.
(a) Your base compensation will be $300,000 per year. (Your base
compensation will be paid pro rata over the stub year in calendar
1997).
(b) Your bonus formula will be:
<PAGE>
Robert M. Gutkowski
Page 2
(i) $100,000 for each fiscal year (i.e., January 1-December 31) in which
ProServ achieves either 75% of its budgeted Operating Income ("BOI")
or 90% of its budgeted Revenue;
(ii) $150,000 for each fiscal year in which ProServ achieves either 90% of
its BOI or 100% of its budgeted Revenue;
(iii) $200,000 for each fiscal year in which ProServ achieves either 100%
of its BOI or 110% of its budgeted Revenue;
(iv) 10% of all Operating Income about 110% or BOI.
1997 Bonus.
You will receive, on December 31, 1997, a bonus of $25,000 for your
performance for calendar/fiscal 1997.
Options.
You will receive the following stock options for Marquee's Class A Common
Stock:
(i) On the Effective Date, stock options for 25,000 shares;
(ii) On each anniversary of the Effective Date, stock options for 25,000
shares;
(iii) Within 60 days after each fiscal year, if ProServ has achieved 90%
of its BOI during that fiscal year or 100% of budgeted Revenue, stock
options to purchase 5,000 shares;
(iv) Within 60 days after each fiscal year, if ProServ has achieved 100%
of its BOI during that fiscal year or 110% of budgeted Revenue, stock
options to purchase 5,000 shares (in addition to the 5,000 shares for
90% of BOI).
All stock options will be issued pursuant to a qualified plan, bear an exercise
price based upon the closing price of Marquee's stock on the date of issuance,
shall vest on the date of issuance, and shall be exercisable for 10 years.
<PAGE>
Robert M. Gutkowski
Page 3
Sale of ProServ Stock.
You agree to sell and we agree to purchase, on or before the Effective
Date, all of your stock and stock options in ProServ, for the purchase price of
$605,040, payable in cash.
Noncompetition Covenants.
You and we agree that the Restrictive Covenants, as drafted in Section 8
of the July 1 Draft, shall not apply if (i) your employment is terminated
without cause, or (ii) your employment agreement expires without renewal. If
your employment is terminated during the term for cause, the Company may, but
shall not be obligated to trigger a one-year covenant by you, under the terms
of Section 8(b) of the July 1 Draft. If the Company opts to bind you to these
covenants, it will pay you $150,000 in consideration for your compliance with
those covenants.
Severance.
If your employment is terminated without cause, the Company will pay you
the greater of (i) the balance of the obligations owed to you under this letter
or your employment agreement, or (ii) one year's base compensation, provided
however, that if you receive severance compensation from the Company relating
to the period after December 31, 2000, and you obtain other employment, any
amounts earned by you after December 31, 2000 will be credited against the such
severance payments. (If you are terminated without cause, you will in all events
receive full payment of obligations owed to you through December 31, 2000
without set-off). If your employment is terminated with cause, you will not be
entitled to this severance minimum.
Cause for Termination.
The Company shall have the right to terminate your employment for "Cause"
only under the terms of Sections 9(a)(B), (D) and (E) of the July 1 Draft.
(Sections 9(A) and (C) of Section 9(a) shall not apply to your employment,
and, if and when we execute a final Employment Agreement, they will be
deleted).
<PAGE>
Robert M. Gutkowski
Page 4
Other Benefits.
You will receive such other benefits as are provided from time-to-time to
senior executives of the Company.
We look forward to a long and profitable association with you.
Sincerely,
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski,
------------------------
Robert M. Gutkowski,
President
Agreed and accepted this 19th day of July, 1997:
/s/ William Allard
- ------------------------
William Allard
<PAGE>
THE MARQUEE GROUP, INC.
888 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
September 9, 1997
Mr. William Allard
c/o ProServ, Inc.
1101 Wilson Boulevard, Suite 1800
Arlington, Virginia 22209
Dear Bill:
This letter amendment ("Amendment") will confirm the understanding between
yourself and The Marquee Group, Inc. ("Marquee") regarding the sale of all of
your equity interests, whether now vested or vesting in the future (your
"Interests"), of ProServ, Inc. and all of its direct and indirect
subsidiaries (collectively, "ProServ") to Marquee. Accordingly, by executing
this agreement you hereby agree that that certain Letter Agreement dated July
18, 1997, by and between yourself and Marquee (the "Agreement") is hereby
amended with regard to the purchase price of your Interests in ProServ.
You hereby agree to sell and Marquee hereby agrees to purchase, on or before
the Effective Date (as defined in the Agreement), all of your Interests in
ProServ, currently consisting of 50 shares of stock of ProServ and stock
options to acquire an additional 50 shares of stock of ProServ, for a
purchase price of $643,150.
Sincerely,
THE MARQUEE GROUP INC.
By: /s/ Robert M. Gutkowski
---------------------------------
Robert M. Gutkowski
President
Agreed and accepted this 9th day of September, 1997
/s/ William Allard
- -------------------------
William Allard
<PAGE>
THE MARQUEE GROUP, INC.
888 Seventh Avenue
New York, New York 10019
September 12, 1997
Mr. Jeff Knapple
c/o ProServ, Inc.
1101 Wilson Boulevard, Suite 1800
Arlington, Virginia 22209
Dear Jeff:
This letter agreement will confirm the understanding between yourself and
The Marquee Group, Inc. ("Marquee") regarding the sale of all of your equity
interests, whether now vested or vesting in the future (your "Interests"), of
ProServ, Inc. and all of its direct and indirect subsidiaries (collectively,
"ProServ") to Marquee.
Pursuant to the terms hereof, you hereby agree to sell and marquee hereby
agrees to purchase, on or before the closing date of Marquee's acquisition
of ProServ, all of your Interests in ProServ, currently consisting of 20
shares of stock of ProServ and stock options to acquire an additional 20
shares of stock ProServ, for a purchase price of $257,260.
Sincerely,
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-----------------------
Robert M. Gutkowski
President
Agreed and accepted this 12th day of September, 1997
/s/ Jeff Knapple
- ----------------------
Jeff Knapple
<PAGE>
THE MARQUEE GROUP, INC.
888 Seventh Avenue
New York, New York 10019
September 12, 1997
Mr. Ivan G. Blumberg
c/o ProServ, Inc.
1101 Wilson Boulevard, Suite 1800
Arlington, Virginia 22209
Dear Ivan:
This letter agreement will confirm the understanding between yourself and
The Marquee Group, Inc. ("Marquee") regarding the sale of all of your equity
interests, whether now vested or vesting in the future (your "Interests"), of
ProServ, Inc. and all of its direct and indirect subsidiaries (collectively,
"ProServ") to Marquee.
Pursuant to the terms hereof, you hereby agree to sell and Marquee hereby
agrees to purchase, on or before the closing date of Marquee's acquisition of
ProServ, all of your Interests in ProServ, currently consisting of 50 shares
of stock of ProServ, for a purchase price of $386,200.
Sincerely,
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
------------------------
Robert M. Gutkowski
President
Agreed and accepted this 12th day of September, 1997
/s/ Ivan G. Blumberg
- ----------------------
Ivan G. Blumberg
<PAGE>
LIST OF SUBSIDIARIES
OF THE MARQUEE GROUP, INC.
1. Athletes and Artists, Inc. (a New York corporation)
2. Sports Marketing & Television, Inc. (a Connecticut corporation)
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts"
and to the use of our report dated February 14, 1997, 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
September 5, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
(File No. 333-31879) of our report dated June 25, 1997, on our audits of the
consolidated financial statements of ProServ, Inc. and Subsidiaries. We also
consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------------
COOPERS & LYBRAND L.L.P.
Washington, D.C.
September 15, 1997
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the reference to our firm under the caption "EXPERTS"
in the Prospectus forming a part of this Registration Statement on Amendment
No. 1 to Form SB-2 of The Marquee Group, Inc., a Delaware corporation, and to
the incorporation of our report, dated June 13, 1997 on the financial
statements of QBQ Entertainment, Inc., a New York corporation, as of
December 31, 1996 and for the years ended December 31, 1995 and 1996.
/s/ David Berdon & Co. LLP
--------------------------------
DAVID BERDON & CO. LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
September 12, 1997
