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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE MARQUEE GROUP, INC.
(Name of Small Business Issuer in Its Charter)
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<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.)
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888 SEVENTH AVENUE
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
NEW YORK, NEW YORK 10019
(212) 728-2000
(Name, Address and Telephone Number of Agent for Service)
Copies to:
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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
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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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
- --------------------------------- ---------------- ---------------- ------------------ ----------------
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Common Stock, $.01 par value .....8,625,000 Shares $6.125 $52,828,125 $16,009
- --------------------------------- ---------------- ---------------- ------------------ ----------------
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(1) Includes 1,125,000 shares that may be sold pursuant to an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the bid and asked
prices of the Common Stock on July 21, 1997, as reported on the Nasdaq
SmallCap Market.
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 JULY 23, 1997
PROSPECTUS
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[LOGO]
7,500,000 Shares
THE MARQUEE GROUP, INC.
Common Stock
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All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (this "Offering") are being sold by The Marquee
Group, Inc. (the "Company").
The Common Stock of the Company is included in The Nasdaq Stock Market's
SmallCap Market ("Nasdaq SmallCap Market") under the symbol "MRQE" and on the
Boston Stock Exchange under the symbol "MRT." On July 21, 1997, the last
reported sales price of the Common Stock on the Nasdaq SmallCap Market was
$6.125 per share. The Company has applied to the American Stock Exchange (the
"AMEX") to list the Common Stock under the symbol "MRQ" and expects to have
the Common Stock listed thereon prior to the consummation of this Offering.
See "Price Range of Common Stock and Warrants."
On July 23, 1997, the Company commenced an offer (the "Tender Offer") to
purchase for cash up to all (but not less than 3,200,000, representing
approximately 70.8%) of the Company's 4,519,162 outstanding warrants (the
"Warrants"). The consummation of this Offering is conditioned upon the
closing of the Tender Offer and the concurrent closing of the transactions
contemplated by the ProServ Acquisition Agreements (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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Share ..... $ $ $
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Total(3)....... $ $ $
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(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."
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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
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[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
AND OF THE WARRANTS, INCLUDING PURCHASES OF THE COMMON STOCK AND OF THE
WARRANTS TO STABILIZE THE MARKET PRICE, PURCHASES OF THE COMMON STOCK AND OF
THE WARRANTS 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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
AND THE WARRANTS ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
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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 (i) consummation of the Tender Offer and no exercise of
any remaining outstanding Warrants, (ii) no exercise of the outstanding IPO
Unit Options (as defined herein) representing the right to purchase an
aggregate of 670,000 shares of Common Stock, assuming exercise of the
Warrants underlying the IPO Unit Options, (iii) no exercise of the
outstanding options to purchase 237,500 shares of Common Stock which have
been granted under the Company's 1996 Stock Option Plan and (iv) that the
Underwriters' over-allotment option will not be exercised. 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
closing of the Tender Offer and the concurrent closing of the transactions
contemplated by the ProServ Acquisition Agreements. 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
3
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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 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 (each 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.
4
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PENDING ACQUISITIONS
ProServ Acquisition. The Company has recently entered into agreements (the
"ProServ Acquisition Agreements") to acquire approximately 94% of ProServ,
Inc. and ProServ Television, Inc. (collectively, "ProServ") and is currently
negotiating to acquire the remaining minority interests in ProServ
(collectively, the "ProServ Acquisition"). If the Company is unable to
acquire the remaining minority interests in ProServ on satisfactory terms,
the Company intends to obtain full ownership of ProServ through a statutory
merger. 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 pursuant to the ProServ
Acquisition Agreements consists of approximately $10.1 million in cash and
225,000 shares of Common Stock. The Company anticipates purchasing the
remaining minority interests for approximately $609,000. 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, which
was founded in 1986 (the "QBQ Acquisition" and, together with the ProServ
Acquisition, the "Pending Acquisitions"). QBQ has 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 up 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."
5
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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)
and will own and/or manage other international events such as the Canon
Shootout golf tournament.
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 12 clients either engaged in, or seeking exposure in, sports and
entertainment-related industries. For example, the Company advises and
assists in the development of local and regional sports programming for
Americast (a partnership consisting of Ameritech Corporation, BellSouth
Corporation, SBC Communications, Inc., GTE Corporation, Southern New England
Telecommunications and The Walt Disney Company). 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, New York, New York
10019, and its telephone number is (212) 728-2000.
TENDER OFFER
On July 23, 1997, the Company commenced the Tender Offer to purchase up to
all (but not less than 3,200,000, representing approximately 70.8%) of the
4,519,162 outstanding Warrants at a cash purchase price of $2.25 per Warrant.
On July 21, 1997, the last sales price for the Warrants as reported on the
Nasdaq SmallCap Market was $1.875 per Warrant. At the Company's request, its
directors and executive officers have stated that they do not currently
intend to tender their Warrants unless the Company is unable to purchase the
minimum number of Warrants. Notwithstanding the foregoing, such directors and
executive officers may tender or not tender their Warrants at their
discretion. The Company is exploring, through its principal financial
advisor, financing for the Tender Offer. Such financing may take the form
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of a short-term loan or other indebtedness, or the Company may fund the
purchase of the Warrants through the proceeds of this Offering. The Company
anticipates that any indebtedness incurred in financing the Tender Offer will
be repaid with a portion of the net proceeds of this Offering. See "Use of
Proceeds." The Warrants will not be listed on the Boston Stock Exchange
following the consummation of this Offering, and there can be no assurance
that the Warrants will be listed on AMEX or will continue to be quoted on the
Nasdaq SmallCap Market following the closing of the Tender Offer. The
consummation of this Offering is conditioned upon the closing of the Tender
Offer.
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 . 16,910,828 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 fund the indebtedness which may be
incurred to purchase the Warrants or to
purchase Warrants pursuant to the Tender
Offer and for working capital and other
general corporate purposes, including future
acquisitions. See "Use of Proceeds."
Nasdaq SmallCap Market Symbol . MRQE
Boston Stock Exchange Symbol .. MRT
Proposed AMEX Symbol .......... MRQ
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(1) Excludes up to (i) 4,519,162 shares issuable upon the exercise of the
Warrants outstanding prior to 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 underwriters' unit purchase options (the "IPO Unit
Options"), including shares issuable upon exercise of the Warrants
contained therein, (iii) 500,000 shares reserved for issuance under the
Company's 1996 Stock Option Plan, under which options to purchase
237,500 shares are outstanding, (iv) 200,000 shares issuable upon
exercise of an option to be granted to The Sillerman Companies, Inc.
("TSC") for consulting services provided in connection with the Tender
Offer and (v) 1,125,000 shares issuable upon exercise of the
Underwriters' over-allotment option. See "Management--1996 Stock Option
Plan," "Description of Securities" and "Certain Relationships and
Related Transactions--Consulting Agreement."
(2) Assumes a price of $6.00 per share of Common Stock for purposes of
determining the number of shares to be issued in connection with the
QBQ Acquisition. 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) 83,333
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. 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
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SUMMARY CONSOLIDATED FINANCIAL DATA
(amounts in thousands, except share data)
The Summary Consolidated Financial Data of the Company as of March 31,
1997 and for the three months ended March 31, 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
March 31, 1997, for the three months ended March 31, 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."
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YEAR ENDED DECEMBER 31, 1996 THREE MONTHS ENDED MARCH 31,
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PRO FORMA
FOR THE PRO FORMA
RECENT FOR THE PRO FORMA
PRO FORMA ACQUISITIONS, OFFERING FOR THE
FOR THE OFFERING, AND RECENT AS RECENT
AS RECENT AND PROSERV AND PENDING REPORTED ACQUISITIONS(1) HISTORICAL
REPORTED ACQUISITIONS(1) ACQUISITION(2)ACQUISITIONS(3) 1996 1996 1997
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STATEMENT OF
OPERATIONS DATA:
Revenues ........... $ 2,869 $ 15,185 $ 28,573 $ 29,932 $ $ 1,520 $ 1,978
Operating expenses . 2,564 9,486 19,103 19,377 -- 954 943
General and
administrative
expenses........... 2,199 5,843 9,425 10,133 245 1,127 1,788
Restructuring
costs.............. -- -- 565 565 -- -- --
Depreciation and
amortization....... 61 108 1,092 1,479 -- 8 32
Operating loss ..... (1,955) (252) (1,612) (1,622) (245) (569) (785)
Net loss............ (2,411) (914) (2,274) (2,280) (245) (635) (778)
Net loss applicable
to common
stockholders....... $ (2,411) $ (914) $ (2,453) $ (2,459) $ (245) $ (635) $ (778)
Net loss per share
applicable to
common
stockholders....... $ (1.03) $ (0.12) $ (0.16) $ (0.16) $ (0.12) $ (0.31) $ (0.10)
Weighted average
number of shares
of common stock
outstanding(6) .... 2,346,717 7,494,162 15,219,162 15,552,495 2,066,662 2,066,662 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(4) ACQUISITIONS(5)
1997 1997
------------ -------------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues ........... $ 3,347 $ 3,771
Operating expenses . 2,044 2,092
General and
administrative
expenses........... 2,383 2,559
Restructuring
costs.............. -- --
Depreciation and
amortization....... 285 378
Operating loss ..... (1,365) (1,258)
Net loss............ (1,358) (1,245)
Net loss applicable
to common
stockholders....... $ (1,409) $ (1,296)
Net loss per share
applicable to
common
stockholders....... $ (0.09) $ (0.08)
Weighted average
number of shares
of common stock
outstanding(6) .... 15,219,162 15,552,495
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT MARCH 31, 1997
-------------------- ----------------------------------- --
PRO FORMA
FOR THE OFFERING,
TENDER OFFER AND
PENDING
AS REPORTED AS REPORTED ACQUISITIONS(7)
-------------------- ------------- ---------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................................. $7,231 $5,286 $20,258
Current assets ....................... 9,085 7,397 25,987
Total assets ......................... 9,361 8,461 51,088
Current liabilities .................. 1,850 1,750 7,124
Long-term debt ....................... 1,760 1,760 2,825
Common Stock subject to put options
in connection with Pending
Acquisition(8) ...................... -- -- 3,225
Stockholders' equity.................. 5,409 4,524 36,651
</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
$6.00 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
$6.00 per share and (iii) the Pending Acquisitions, as if they had
occurred on January 1, 1996.
(4) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.00 per share and (ii) the ProServ
Acquisition, as if they had occurred on January 1, 1996.
(5) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.00 per share and (ii) the Pending
Acquisitions, as if they had occurred on January 1, 1996.
(6) 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 83,333 QBQ
Escrow Shares. Assumes a price of $6.00 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.
(7) The unaudited pro forma Balance Sheet Data gives effect to the
completion of this Offering at an assumed public offering price of
$6.00 per share of Common Stock and the application of the net proceeds
therefrom to complete the Pending Acquisitions and the Tender Offer,
assuming all Warrants (other than those held by directors and executive
officers of the Company) are tendered at a price of $2.25 per Warrant.
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."
(8) Represents the Company's potential obligation to repurchase 537,499
shares of Common Stock to be issued in connection with the Pending
Acquisitions, of which 62,499 shares are QBQ Escrow Shares. These
shares are not included in stockholders' equity. Assumes a price of
$6.00 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."
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 three months ended March 31, 1997,
the Company had net losses of $2.4 million and $778,000, respectively. On a
pro forma basis, giving effect to the IPO and 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 of $2.4 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 of $1.3 million for the three months ended
March 31, 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 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 on the date of the
Recent Acquisitions 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 $14.0 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. 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. Furthermore, the timing of certain events and the
resulting recognition of
11
<PAGE>
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 "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 could 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 the Tender Offer, 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 28.8% 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."
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 $5.00. 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, this Offering and the Tender Offer (assuming the purchase of
all outstanding Warrants at
12
<PAGE>
a price of $2.25 per Warrant, except those held by executive officers and
directors of the Company). 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 AND REGISTRATION RIGHTS. Upon consummation
of the Tender Offer, this Offering and the Pending Acquisitions (assuming the
purchase in the Tender Offer of all outstanding Warrants except those held by
executive officers and directors of the Company), the Company will have
16,910,828 shares of Common Stock (assuming the issuance of 416,666 shares in
connection with the QBQ Acquisition) and 253,496 Warrants outstanding
(assuming that the directors and executive officers do no tender their
Warrants in the Tender Offer). Of those securities, a total of 5,064,682
shares of Common Stock and no 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. The Company's executive officers and directors, who own
an aggregate of 4,453,496 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 one year after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for options granted
pursuant to the Company's existing stock option plans. 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 $41.3 million (approximately $48.1 million if the Underwriters'
over-allotment is exercised in full), assuming a public offering price of
$6.00 per share. The Company intends to use the net proceeds from this
Offering as follows: (i) approximately $9.8 million (including related fees
and expenses) will be applied to fund the repayment of any indebtedness which
may be incurred to purchase the Warrants in the Tender Offer or to fund the
purchase of Warrants pursuant to the Tender Offer (assuming the purchase of
all outstanding Warrants, except those held by executive officers and
directors of the Company, at a price of $2.25 per Warrant), (ii) approximately
$10.7 million will be applied to fund the cash portion of the ProServ
Acquisition (assuming that the principal stockholder of ProServ does not
elect to receive a $3.0 million promissory note in lieu of cash), (iii)
approximately $1.8 million in outstanding indebtedness of ProServ will be
repaid, (iv) approximately $3.1 million will be applied to fund the cash
portion of the QBQ Acquisition, (v) a $1.5 million nonrecourse loan will be
made to the sole stockholder of QBQ and (vi) approximately $370,000 (of which
$50,000 will be paid to TSC for consulting services exclusive of amounts
previously paid) will be applied to the expenses relating to the Pending
Acquisitions. See "Agreements Relating to the Pending Acquisitions" and
"Certain Relationships and Related Transactions--Consulting Agreement." The
Company intends to use the remaining net proceeds of $14.0 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 AND WARRANTS
The Common Stock and Warrants of the Company are traded in the
over-the-counter market and are quoted on the Nasdaq SmallCap Market under
the symbols "MRQE" and "MRQEW," respectively, and are listed on the Boston
Stock Exchange under the symbols "MRT" and "MRT.WS," respectively. The
Company has filed an application with the AMEX to list the Common Stock and
Warrants under the symbols "MRQ" and "MRQ.WS," respectively. The Company
expects that the Common Stock will be listed on the AMEX prior to the
consummation of this Offering. The Warrants will not be listed on the Boston
Stock Exchange following the consummation of this Offering, and there can be
no assurance that the Warrants will be listed on the AMEX or will continue to
be listed on the Nasdaq SmallCap Market following the completion of the
Tender Offer.
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.
The following table sets forth, for the periods indicated, the high and
low closing bid information for the shares of Common Stock and the Warrants
of the Company, as reported by the Nasdaq SmallCap Market. Bid quotations
reflect interdealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
----------------- -----------------
YEAR ENDED DECEMBER 31, 1996 HIGH LOW HIGH LOW
- ----------------------------------------- --------- ------- ------- ---------
<S> <C> <C> <C> <C>
Fourth Quarter (since December 13, 1996) $ 6.00 $6.00 $2.00 $ 2.00
YEAR ENDING DECEMBER 31, 1997
- -----------------------------------------
First Quarter ............................ $ 7.25 $6.00 $2.00 $ 2.00
Second Quarter ........................... 6.375 5.50 2.00 1.25
Third Quarter (through July 21, 1997) ... 6.00 4.50 2.00 1.875
</TABLE>
On July 21, 1997, the last reported sales price of the Common Stock as
reported by the Nasdaq SmallCap Market was $6.125 per share. On July 16,
1997, the Company had 87 and 61 record holders of its Common Stock and
Warrants, respectively. The Company believes that there are over 2,500
beneficial holders of its shares of Common Stock and over 1,300 holders of
the Warrants.
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 March 31, 1997 and (ii) the pro forma capitalization of the
Company at March 31, 1997, giving effect to the consummation of the Pending
Acquisitions and the Tender Offer (assuming the purchase of all outstanding
Warrants, except those held by directors and executive officers of the
Company, at a price of $2.25 per Warrant) and the application of the net
proceeds from this Offering (assuming a public offering price of $6.00 per
share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company). See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------
(IN THOUSANDS)
PRO FORMA FOR
OFFERING, TENDER
OFFER AND PENDING
AS REPORTED ACQUISITIONS
------------- -----------------
<S> <C> <C>
Cash and cash equivalents .................................... $ 5,286 $20,258
============= =================
Acquisition indebtedness, net(1) ............................. $ 1,638 $ 2,704
Loan payable to related party ................................ 122 122
Common Stock subject to put options in connection with
Pending Acquisitions(2)...................................... -- 3,225
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; 16,910,828 pro
forma shares issued and outstanding for Offering and
Pending Acquisitions(3) .................................... 88 164(4)
Additional paid-in capital ................................... 7,664 39,715(4)
Deferred compensation(5) ..................................... (40) (40)
Accumulated deficit .......................................... (3,188) (3,188)
------------- -----------------
Total stockholders' equity ................................... 4,524 36,651
------------- -----------------
Total capitalization........................................ $ 6,284 $42,702
============= =================
</TABLE>
- ------------
(1) 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) and the installment payments payable to the sole stockholder of
QBQ 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."
(2) Represents the Company's potential obligation to repurchase 537,499
shares of Common Stock to be issued in connection with the Pending
Acquisitions, of which 62,499 shares are QBQ Escrow Shares. These
shares are not included in stockholders' equity. Assumes a price of
$6.00 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."
(3) Excludes up to (i) 4,519,162 shares issuable upon the exercise of the
Warrants outstanding prior to 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) 500,000 shares
reserved for issuance under the Company's 1996 Stock Option Plan, under
which options to purchase 237,500 shares are outstanding, (iv) 200,000
shares issuable upon exercise of an option to be granted to TSC for
consulting services provided in connection with the Tender Offer and
(v) 1,125,000 shares issuable upon exercise of the Underwriters'
over-allotment option. See "Management--1996 Stock Option Plan" and
"Description of Securities."
(4) Excludes amounts applicable to Common Stock subject to put options in
connection with Pending Acquisitions.
(5) Represents deferred compensation related to 50,000 shares of Common
Stock issued to an officer in partial consideration of such officer
entering into an employment agreement with the Company. See "Certain
Relationships and Related Transactions--Founders' Stock."
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 three months ended March 31, 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
March 31, 1997 gives effect to the following transactions and adjustments as
if they had occurred as of March 31, 1997: (i) the Pending Acquisitions, (ii)
the completion of this Offering and (iii) the completion of the Tender Offer.
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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. 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.
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
MARQUEE FOR THE
AS RECENT PRO FORMA RECENT PROSERV PRO FORMA
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 10,131 $ 514 (4)
General and administrative
expenses.......................... 2,199 3,644 -- 5,843 4,725 1,143 (4)
Restructuring costs................ -- -- -- -- 565
Depreciation and amortization ..... 61 47 -- 108 276 (708)(5)
----------- ------------- ----------- ------------ ----------- -----------
Operating income (loss)............ (1,955) 1,703 -- (252) (2,309) 949
Interest expense (income).......... 283 (12) $ (98)(2) 369 208 208 (6)
Financing expense ................. 193 -- -- 193 -- --
----------- ------------- ----------- ------------ ----------- -----------
Income (loss) before income taxes . (2,431) 1,715 (98) (814) (2,517) 1,157
Income taxes provision (benefit) .. (20) 341 (221)(3) 100 240 (240)(7)
----------- ------------- ----------- ------------ ----------- -----------
Net income (loss).................. (2,411) 1,374 123 (914) (2,757) 1,397
Accretion of obligation related to
the option issued in connection
with the ProServ Acquisition ..... -- -- -- -- -- (179)(8)
----------- ------------- ----------- ------------ ----------- -----------
Net income (loss) applicable to
common stockholders .............. $ (2,411) $ 1,374 $ 123 $ (914) $(2,757) $ 1,218
=========== ============= =========== ============ =========== ===========
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 ACQUISITION ADJUSTMENTS ACQUISITIONS
<S> <C> <C> <C> <C>
------------------- ----------- ----------- -------------------
Revenues........................... $ 28,573 $1,359 -- $ 29,932
Operating expenses................. 19,103 274 -- 19,377
General and administrative
expenses.......................... 9,425 931 $ 223(9) 10,133
Restructuring costs................ 565 -- 565
Depreciation and amortization ..... 1,092 38 (349)(10) 1,479
------------------- ----------- ----------- -------------------
Operating income (loss)............ (1,612) 116 (126) (1,622)
Interest expense (income).......... 369 12 16 (11) 365
Financing expense ................. 193 -- -- 193
------------------- ----------- ----------- -------------------
Income (loss) before income taxes . (2,174) 104 (110) (2,180)
Income taxes provision (benefit) .. 100 12 (12)(7) 100
------------------- ----------- ----------- -------------------
Net income (loss).................. (2,274) 92 98 (2,280)
Accretion of obligation related to
the option issued in connection
with the ProServ acquisition ..... 179 -- -- 179
------------------- ----------- ----------- -------------------
-- --
Net income (loss) applicable to
common stockholders .............. $ (2,453) $ 92 $ (98) $ (2,459)
=================== =========== =========== ===================
Net loss per share applicable to
common stockholders............... $ (0.16) $ (0.16)
=================== ===================
Weighted average number of shares
of common stock outstanding(12) .. 15,219,162 15,552,495
=================== ===================
</TABLE>
<PAGE>
- ------------
(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 the Dell Stock Purchase Agreement, 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 Pro Forma net loss applicable
to common stockholders per share for the Recent Acquisitions, Offering
and Pending Acquisitions excludes 83,333 QBQ Escrow Shares. Assumes a
price of $6.00 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--QBQ Acquisition" and
"Principal Stockholders--Escrow Shares." Shares of Common Stock
underlying outstanding Warrants or options are not included in the
weighted average number of shares of common stock outstanding.
18
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 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............................ $ 1,978 $ 1,369 -- $ 3,347
Operating expenses.................. 943 1,231 $ 130(1) 2,044
General and administrative
expenses........................... 1,788 884 289(1) 2,383
Depreciation and amortization ...... 32 76 (177)(2) 285
------------- ------------- ------------- ---------------
Operating income (loss)............. (785) (822) 242 (1,365)
Interest (income) expense........... (7) 29 29 (3) (7)
------------- ------------- ------------- ---------------
Income (loss) before income taxes .. (778) (851) 271 (1,358)
Income taxes provision (benefit) ... -- 30 (30)(6) --
------------- ------------- ------------- ---------------
Net income (loss)................... (778) (881) 301 (1,358)
Accretion of obligation related to
the put option issued in
connection with the ProServ
Acquisition........................ -- -- (51)(7) 51
------------- ------------- ------------- ---------------
Net income (loss) applicable to
common stockholders ............... $ (778) $ (881) $ 250 $ (1,409)
============= ============= ============= ===============
Net loss per share applicable to
common stockholders ............... $ (0.10) $ (0.09)
Weighted average number of shares
of common stock outstanding (8) .. 7,494,162 15,219,162
============= ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OFFERING
AND THE
QBQ PRO FORMA PENDING
ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues............................ $ 424 -- $ 3,771
Operating expenses.................. 48 -- 2,092
General and administrative
expenses........................... 224 $ 48(4) 2,559
Depreciation and amortization ...... 6 (87)(2) 378
------------- ------------- ---------------
Operating income (loss)............. 146 (39) (1,258)
Interest (income) expense........... 2 (8)(5) (13)
------------- ------------- ---------------
Income (loss) before income taxes .. 144 (31) (1,245)
Income taxes provision (benefit) ... 6 (6)(6) --
------------- ------------- ---------------
Net income (loss)................... 138 (25) (1,245)
Accretion of obligation related to
the put option issued in
connection with the ProServ
Acquisition........................ -- -- 51
------------- ------------- ---------------
Net income (loss) applicable to
common stockholders ............... $ 138 $ (25) $ (1,296)
============= ============= ===============
Net loss per share applicable to
common stockholders ............... $ (0.08)
Weighted average number of shares
of common stock outstanding (8) .. 15,552,495
===============
</TABLE>
- ------------
(1) To reduce expenses to reflect contractually agreed to reductions in
personnel, officers' salaries and employee benefits and other costs
provided in the Dell Stock Purchase Agreement, but excludes $80 related
to personnel and benefit costs incurred by ProServ in the three-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 ($27) net of imputed
interest expense ($19) 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
the Offering and the Pending Acquisitions excludes approximately 83,333
QBQ Escrow Shares. Assumes a price of $6.00 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--QBQ Acquisition" and "Principal Stockholders--Escrow
Shares."
19
<PAGE>
THE MARQUEE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OFFERING,
TENDER OFFER
MARQUEE PROSERV PRO FORMA AND PROSERV
AS REPORTED ACQUISITION ADJUSTMENTS ACQUISITION
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets................ $ 7,397 $ 4,536 $ 41,300 (1) $30,733
(10,934)(2)
(1,768)(3)
(9,798)(4)
Excess of purchase price over
net assets acquired.......... -- -- 14,168 (2) 14,168
Noncurrent assets............. 1,064 1,687 (300)(2) 2,451
------------- ------------- ------------- ---------------
Total assets................. $ 8,461 $ 6,223 $ 32,668 $47,352
============= ============= ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........... $ 1,750 5,781 550 (2) $ 6,963
(1,118)(3)
Noncurrent liabilities........ 2,187 1,476 (650)(3) 3,013
Common stock subject to put
option ...................... 1,350 (2) 1,350
Stockholders' equity.......... 4,524 (1,034) 41,300 (1) 36,026
1,034 (2)
(9,798) (4)
------------- ------------- ------------- ---------------
Total liabilities and
stockholders' equity........ $ 8,461 $ 6,223 $ 32,668 $47,352
============= ============= ============= ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OFFERING,
TENDER OFFER
QBQ PRO FORMA AND PENDING
ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets................ $ 786 $(3,253)(5) $25,987
(779)(5)
(1,500)(6)
Excess of purchase price over
net assets acquired.......... -- 6,988 (5) 21,156
Noncurrent assets............. 94 1,500 (6) 3,945
(100)(5)
------------- ------------- ---------------
Total assets................. $ 880 $ 2,856 $51,088
============= ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........... $ 838 $ (838)(5) $ 7,124
161 (5)
Noncurrent liabilities........ 9 1,066 (5) 4,088
Common stock subject to put
option ...................... 1,875 (5) 3,225
Stockholders' equity.......... 33 (33)(5) 36,651
625 (5)
------------- ------------- ---------------
Total liabilities and
stockholders' equity........ $ 880 $ 2,856 $51,088
============= ============= ===============
</TABLE>
- ------------
(1) To reflect the estimated net proceeds from this Offering of 7,500,000
shares of Common Stock at $6.00 per share:
<TABLE>
<CAPTION>
<S> <C>
Offering............ $45,000
Less: Fees and
expenses........... 3,700
---------
Net proceeds from
this Offering...... $41,300
=========
</TABLE>
(2) To reflect the acquisition of ProServ and the preliminary allocation of
the purchase price:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash portion of purchase price
Dell Stock Agreement.................................................... $6,500
Non-Employee Stock Purchase Agreement................................... 3,000
Certain Minority Stockholders........................................... 1,214 (a)$10,714
----------
Issuance of 225,000 shares of Common Stock under Dell Stock Agreement
which are subject to a put option....................................... 1,350
Fees and expenses including TSC fees of $300 which will be offset
against amounts previously advanced..................................... 520
Assumption of severance liability........................................ 550
---------
Total acquisition cost................................................ 13,134
Deficiency in net assets acquired........................................ 1,034
---------
Excess of purchase price over net assets acquired........................ $14,168
=========
</TABLE>
- ------------------
(a) Assumes purchase of the remaining minority interests in ProServ
on terms similar to those contained in the Allard Stock
Purchase Agreement.
A deposit of $1,500 was paid to one of the sellers in June 1997 and will
be applied toward the purchase price.
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 $1,768 from the
proceeds of this Offering. See "Use of Proceeds."
(4) To reflect the purchase of 4,265,664 outstanding Warrants (all
outstanding Warrants except those held by executive officers and
directors of the Company) in the Tender Offer (including fees and
expenses of $200 and the issuance of an option to TSC to purchase
200,000 shares of Common Stock at an assumed exercise price of $6.00
per share).
20
<PAGE>
(5) To reflect the acquisition of QBQ and the preliminary allocation of the
purchase price:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash portion of purchase price .................................................. $3,103
Issuance of 416,666 shares (including 83,333 QBQ Escrow Shares) of Common Stock,
of which 312,499 shares are subject to a put option ($1,875) ................... 2,500
Acquisition indebtedness of $1,615 less imputed interest of $388 (current
portion of $161)................................................................ 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 March 31, 1997..................................................... 33
Less: Current assets not acquired................................................ (779)
Add: Current liabilities not acquired............................................ 838 92
------- --------
Excess of purchase price over net assets acquired ............................... $6,988
========
</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 by the Company to the sole
stockholder of QBQ.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Selected Consolidated Financial Data of the Company as of March 31,
1997 and for the three months ended March 31, 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 selected data as of
March 31, 1997, for the three months ended March 31, 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 THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------------
PRO FORMA
FOR THE PRO FORMA
RECENT FOR THE PRO FORMA
PRO FORMA ACQUISITIONS, OFFERING FOR THE
FOR THE OFFERING, AND RECENT AS RECENT
AS RECENT AND PROSERV AND PENDING REPORTED ACQUISITIONS(1) HISTORICAL
REPORTED ACQUISITIONS(1)ACQUISITION(2) ACQUISITIONS(3) 1996 1996 1997
----------- ------------- ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues ........... $ 2,869 $ 15,185 $ 28,573 $ 29,932 $ $ 1,520 $ 1,978
Operating expenses . 2,564 9,486 19,103 19,377 -- 954 943
General and
administrative
expenses........... 2,199 5,843 9,425 10,133 245 1,127 1,788
Restructuring
costs.............. -- -- 565 565 -- -- --
Depreciation and
amortization....... 61 108 1,092 1,479 -- 8 32
Operating loss ..... (1,955) (252) (1,612) (1,622) (245) (569) (785)
Net loss............ (2,411) (914) (2,274) (2,280) (245) (635) (778)
Net loss applicable
to common
stockholders....... $ (2,411) $ (914) $ (2,453) $ (2,459) $ (245) $ (635) $ (778)
Net loss per share
applicable to
common
stockholders....... $ (1.03) $ (0.12) $ (0.16) $ (0.16) $ (0.12) $ (0.31) $ (0.10)
Weighted average
number of shares
of common stock
outstanding(6) .... 2,346,717 7,494,162 15,219,162 15,552,495 2,066,662 2,066,662 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(4) ACQUISITIONS(5)
1997 1997
------------ -------------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues ........... $ 3,347 $ 3,771
Operating expenses . 2,044 2,092
General and
administrative
expenses........... 2,383 2,559
Restructuring
costs.............. -- --
Depreciation and
amortization....... 285 378
Operating loss ..... (1,365) (1,258)
Net loss............ (1,358) (1,245)
Net loss applicable
to common
stockholders....... $ (1,409) $ (1,296)
Net loss per share
applicable to
common
stockholders....... $ (0.09) $ (0.08)
Weighted average
number of shares
of common stock
outstanding(6) .... 15,219,162 15,552,495
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT MARCH 31, 1997
-------------------- ----------------------------------- --
PRO FORMA
FOR THE OFFERING,
TENDER OFFER AND
PENDING
AS REPORTED AS REPORTED ACQUISITIONS(7)
-------------------- ------------- ---------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................................. $7,231 $5,286 $20,258
Current assets ....................... 9,085 7,397 25,987
Total assets ......................... 9,361 8,461 51,088
Current liabilities .................. 1,850 1,750 7,124
Long-term debt ....................... 1,760 1,760 2,825
Common Stock subject to put options
in connection with Pending
Acquisition(8) ...................... -- -- 3,225
Stockholders' equity.................. 5,409 4,524 36,651
</TABLE>
22
<PAGE>
- ------------
(1) Gives effect to the IPO and 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
$6.00 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
$6.00 per share and (iii) the Pending Acquisitions, as if they had
occurred on January 1, 1996.
(4) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.00 per share and (ii) the ProServ
Acquisition, as if they had occurred on January 1, 1996.
(5) Gives effect to (i) the completion of this Offering at an assumed
public offering price of $6.00 per share and (ii) the Pending
Acquisitions, as if they had occurred on January 1, 1996.
(6) 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 83,333 QBQ
Escrow Shares. Assumes a price of $6.00 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.
(7) The unaudited pro forma Balance Sheet Data gives effect to the
completion of this Offering at an assumed public offering price of
$6.00 per share of Common Stock and the application of the net proceeds
therefrom to complete the Pending Acquisitions and the Tender Offer,
assuming all Warrants (other than those held by directors and executive
officers of the Company) are tendered at a price of $2.25 per Warrant.
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."
(8) Represents the Company's potential obligation to repurchase 537,499
shares of Common Stock to be issued in connection with the Pending
Acquisitions, of which 62,499 shares are QBQ Escrow Shares. These
shares are not included in stockholders' equity. Assumes a price of
$6.00 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."
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, as if they had always been members of
the same operating group, respectively. The following discussion also
contains certain forward-looking statements that involve risks and
uncertainties. The Company's future results of operations could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, uncertainties
related to the Company's business and growth strategies, 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.
Commissions from the Company's talent representation services are recognized
as revenue when they become payable to the Company under the terms of the
Company's agreements with its clients. Generally, such commissions are
payable by clients upon their receipt of payments for performance of
services. Commissions on profit or gross receipt participations are recorded
upon the determination of such amounts.
The Company's revenues may vary from quarter to quarter, due to the timing
of certain significant events and the resulting recognition of revenues from
such events. Historically, the fourth quarter produced the highest percentage
of revenues for the year, principally from the Company's management and
marketing of The Breeders' Cup Championship and from representation
agreements with professional hockey players, which results in revenue to the
Company upon the commencement of the National Hockey League season. As a
result of the Company's recent entry into the business of representing
professional football players and the 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. Although the Company
expects that this agreement will be extended for an additional two-year
period, it is scheduled to terminate in December 1997. See "Risk
Factors--Dependence Upon a Limited Number of Clients and Events."
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
24
<PAGE>
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 related to the Company's potential
obligation to repurchase the shares of Common Stock issued in connection with
the ProServ Acquisition. Further, in connection with the issuance of Common
Stock in 1996 to a non-founding officer in partial consideration of such
officer entering into an employment agreement with the Company, the Company
will recognize a non-cash compensation charge of approximately $119,000 over
the 15-month vesting period and, in connection with an advance paid to
another officer in April 1997 pursuant to his employment agreement, the
Company will recognize a compensation charge of $446,000 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 on the date of the Recent Acquisitions 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.
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
For the three months ended March 31, 1997, the Company generated revenues
of approximately $2.0 million, principally related to commissions earned from
talent representation and fees generated through the Company's event
management for The Breeders' Cup Championship. Revenues were also derived
from the Company's production of boxing programs broadcast on ESPN. 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 in the 1997 quarter increased
$458,000, or 30.1%, over the prior quarter, principally as a result of the
television production revenues associated with the ESPN boxing contract and
increased event management and consulting fees related to The Breeders' Cup
Championship. These increases were offset by reductions in consulting
revenues of $276,000 that resulted from a loss of a contract.
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<PAGE>
The Company's revenues on a pro forma basis giving effect to the Recent
and the Pending Acquisitions, as if they had occurred on January 1, 1996,
would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1996 1997
------------ -----------
<S> <C> <C>
Event Management .... $ 266,000 $ 312,000
Television
Production........... 597,000 758,000
Marketing............. 126,000 146,000
Talent
Representation....... 1,588,000 1,749,000
Consulting Services . 509,000 806,000
------------ -----------
Total ............... $3,086,000 $3,771,000
============ ===========
</TABLE>
The increase in revenues of $685,000, or 22.2%, is principally attributable
to increased consulting revenues as a result of its new engagement to assist
in the creation of local sports networks for Americast and increased concert
bookings in 1997.
The Company's operating expenses of approximately $943,000 for the 1997
quarter consisted principally of event and television production costs
related to the costs of The Breeders' Cup Championship and boxing projects as
well as talent agent compensation expense. Operating expenses declined
$11,000 in 1997, as compared to 1996, on a pro forma basis for the Recent
Acquisitions. Pro forma for the Recent Acquisitions and the Pending
Acquisitions, operating expenses in the 1997 quarter declined by $275,000 or
11.6% to $2.1 million, principally as a result of the restructuring program
implemented by ProServ.
General and administrative expenses were approximately $1.8 million for
the three months ended March 31, 1997 as compared to $245,000 for the prior
year period. The increase of $1.6 million was the result of the inclusion of
costs associated with the operations of the Recent Acquisitions after their
acquisition and increased staffing and occupancy costs required to support
the substantial increase in the corporate infrastructure required for the
Company's expanded business operations. General and administrative expenses
in first quarter 1997 increased $661,000 from the 1996 quarter, on a pro
forma basis giving effect to the Recent Acquisitions. This increase, which is
expected to continue in subsequent quarters, is attributable to salary and
occupancy related costs, which the Company has added to support the
substantial increase in its business operations contemplated by the Pending
Acquisitions. On a pro forma basis giving effect to the Recent Acquisitions
and the Pending Acquisitions, general and administrative expenses were $2.6
million and $2.1 million in the 1997 and 1996 quarters, respectively.
ProServ's restructuring program contributed $203,000 in savings in the
current quarter, which were offset by the increases in the Company's general
and administrative expenses mentioned above.
The Company's operating loss for the three months ended March 31, 1997
increased $216,000 to $785,000, as compared to the prior year period on a pro
forma basis giving effect to the Recent Acquisitions, principally as a result
of the increase in general and administrative expenses partially offset by
the increased revenues for the 1997 period. With the inclusion of the
operations of ProServ and QBQ, on a pro forma basis, the 1997 quarter
operating loss of $1.3 million was $469,000 or 27% less than that of the
prior year quarter. 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 $264,000.
The Company's net loss for first quarter 1997 was approximately $778,000
compared to a net loss of $245,000 for the same period in 1996 as a result of
the matters discussed above. On a pro forma basis giving effect to the Recent
Acquisitions, the Company's net loss for the three months ended March 31,
1996 would have been $635,000, and giving effect to the Recent Acquisitions
and Pending Acquisitions, would have been $1.8 million. On a pro forma basis
giving effect to the Recent Acquisitions and the Pending Acquisitions, the
net loss applicable to common stockholders was $1.3 million and $1.8 million
for the three months ended March 31, 1997 and 1996, respectively. The pro
forma net loss applicable to common stockholders includes a charge of $51,000
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.
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<PAGE>
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 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, 1995, 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 for the prior year. The
increase was principally attributable to the Company's management of the
Major League Baseball All-Star Balloting Program 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, 1995, the
Company's revenues would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
31,
---------------------------
1996 1997
------------- -------------
<S> <C> <C>
Event Management .... $11,999,000 $13,590,000
Television
Production........... 3,925,000 2,508,000
Marketing............. 2,664,000 1,474,000
Talent
Representation....... 9,033,000 10,010,000
Consulting Services . 2,311,000 2,046,000
------------- -------------
Total ............... $29,932,000 $29,628,000
============= =============
</TABLE>
On a pro forma basis giving effect to the Recent Acquisitions and Pending
Acquisitions, revenues increased $304,000 in 1996 versus 1995 as a result of
revenues attributable to the operations of the Company prior to the Recent
Acquisitions as well as increases related to the Recent Acquisitions, offset
by a reduction in ProServ's revenues of $4.4 million. Event management
revenue declined approximately $1.6 million, principally as a result of
ProServ's sale of a tennis tournament. ProServ's talent representation
commission fee income also declined in 1996 as a result of 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 Major League Baseball All-Star balloting program and production of ESPN
boxing programs. On a pro forma basis giving effect to the Recent
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 representation of the sponsor of the 1996 Major League
Baseball All-Star balloting program, expenses associated with a client's
advertising campaign, and television production costs associated with ESPN
boxing. After the inclusion of the Pending Acquisitions on a pro forma basis,
as if the Recent and Pending Acquisitions had taken place as of January 1,
1995, operating expenses would have been $19.4 million and $17.3 million for
1996 and 1995, respectively. The increase in pro forma operating expenses of
$2.1 million 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.
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 $2.7 million to $5.8 million in 1996 from $3.1 million in
1995. The increase was principally associated with the increased costs and
expenses associated with the Company's
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<PAGE>
new operations. Pro forma adjustments for 1995 reflect 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 approximated $10.0 million, an increase of $692,000,
or 7.3%, over 1995. The pro forma results for both years reflect adjustments
for cost savings of approximately $1.4 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
effects of the restructuring begun by ProServ in 1996, since they 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. 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 $1.6 million and
the operating income in 1995 would have been $1.2 million. Pro forma
operating income (loss) includes one time charges related to the closing of
ProServ's Paris office of $565,000 in 1996 and $594,000 in 1995 related to
ProServ's loss on a sublease and a legal settlement. Pro forma operating
results for both years 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. On a pro forma basis giving effect to the Recent
Acquisitions and the Pending Acquisitions, operating income declined from
1995 to 1996 due to the "start up costs" associated with the Company and the
reduction in ProServ's revenues discussed above.
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 $2.4 million
in 1996 versus net income applicable to common stockholders of $284,000 in
1995. Such amounts reflect the $179,000 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 $1,363,000 from the Private Placement, which was completed
in August 1996, advances by stockholders aggregating $767,000 and net
proceeds of approximately $15,586,000 from the IPO, which was completed in
December 1996. At March 31, 1997, the Company had working capital of
approximately $5,647,000.
Of the net proceeds of approximately $15,586,000 that the Company received
from the IPO, an aggregate of $9,000,000 was paid to the stockholders of SMTI
and A&A. In addition, the Company has agreed to pay such stockholders
installment payments aggregating $2,500,000 over the four-year period which
commenced April 1, 1997. On April 1, 1997, the Company made the first
installment payment of $500,000 to such stockholders. Further, the agreement
relating to the acquisition of SMTI (the "SMTI Acquisition") provided that
SMTI is to distribute to its stockholders, by means of a dividend, 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 third 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,
pursuant to which it has agreed to acquire approximately 94% of ProServ, and
is currently negotiating to acquire the remaining minority interests in
ProServ. If the Company is unable to acquire the remaining minority interests
in ProServ on satisfactory terms, the Company intends to obtain full
ownership of ProServ through a statutory merger. Pursuant to the Dell Stock
Purchase Agreement, the Company has agreed to purchase
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<PAGE>
70.4% of ProServ for an aggregate purchase price of $6.5 million in cash and
the issuance of 225,000 shares of Common Stock ("Dell Consideration Stock"),
subject to certain put and call options, payable to Mr. Dell, the chief
executive officer and majority stockholder of ProServ. Mr. Dell has the
option to elect to receive in lieu of cash at closing a $3.0 million
promissory note payable on January 2, 1998, secured by an irrevocable letter
of credit. The Dell Acquisition Agreement (as defined herein) 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 $1.7
million in the aggregate). In addition, at any time between the 61st and 90th
day following the second anniversary of the consummation of the transactions
contemplated by the ProServ Acquisition Agreements, the Company may purchase
50% of the Dell Consideration Stock held by Mr. Dell at a price per share of
$7.70 (up to $866,250 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. Pursuant to the Non-Employee Stock Purchase
Agreement and the Allard Stock Purchase Agreement (each as defined herein),
the Company has agreed to purchase an aggregate of 300 shares of the common
stock of ProServ, Inc. and options to purchase an aggregate of 20 shares of
the common stock of ProServ, Inc. for an aggregate purchase price of
approximately $3.6 million. The Company anticipates purchasing the remaining
minority interests for approximately $609,000. The Company has deposited into
escrow an aggregate of $1.5 million in connection with the ProServ
Acquisition, and anticipates depositing an additional $500,000 by August 15,
1997 to extend the date of the ProServ Acquisition to be concurrent with the
consummation of this Offering. See "Agreements Related to the Pending
Acquisitions--ProServ Acquisition."
The Company has also agreed to purchase 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 will be payable in equal annual
installments over eight years, subject to acceleration in certain
circumstances and $615,000 will be payable in annual installments over five
years. In addition, the Company 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 to secure the Company's obligations under the QBQ
Acquisition Agreement (as defined herein). In connection with the QBQ
Acquisition, the Company anticipates entering into an employment agreement
with Mr. Arfa, the chief executive officer and sole stockholder of QBQ, which
will provide for a 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, 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 shall pay QBQ
$1.0 million as liquidated damages (of which $400,000 may be offset against
the cash deposit previously paid by the Company). 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 (but not less than 3,200,000, representing approximately 70.8%) of the
4,519,162 outstanding Warrants at a cash purchase price of $2.25 per Warrant.
The Company is exploring, through its principal financial advisor, financing
for the Tender Offer. Such financing may take the form of a short-term loan
or other indebtedness, or the
29
<PAGE>
Company may fund the purchase of the Warrants through the proceeds from this
Offering. The Company anticipates that any indebtedness incurred in financing
the Tender Offer will be repaid with a portion of the net proceeds of this
Offering. Assuming a price of $2.25 per Warrant, the aggregate consideration
for Warrants tendered in the Tender Offer and related expenses could range
from $7.4 million (with the tender of 70.8% of the outstanding Warrants) to
approximately $9.8 million (with the tender of all of the outstanding
Warrants not held by directors or executive officers of the Company). At the
Company's request, its directors and executive officers have stated that they
do not currently intend to tender their Warrants unless the Company is unable
to purchase the minimum number of Warrants. Notwithstanding the foregoing,
such directors and executive officers may tender or not tender their Warrants
at their discretion. The consummation of this Offering is conditioned upon
the closing of the Tender Offer.
The net proceeds from this Offering are estimated to be approximately
$41.3 million, of which approximately $17.4 million will be paid in
connection with the Pending Acquisitions and approximately $9.8 million will
be paid in connection with the Tender Offer (assuming the tender of all
Warrants not held by directors or executive officers of the Company) or to
repay any indebtedness which may be incurred to purchase such Warrants. The
timing and consummation of the Pending Acquisitions and the Tender Offer 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 or the
Tender Offer will be consummated. However, the consummation of this Offering
is conditioned upon the closing of the Tender Offer and 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. 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 "Agreements Related to
the Pending 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 QBQ
Acquisition. See "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.
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, the exact amount of which
will be negotiated between the parties to the consulting agreement. 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
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<PAGE>
immediately exercisable option to purchase 200,000 shares of Common Stock at
a price per share equal to the closing price of the Common Stock on the date
of consummation of the Tender Offer. 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 $1.0 million to furnish its new office space, complete
leasehold improvements and install television edit facilities.
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.
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<PAGE>
PENDING ACQUISITIONS
ProServ Acquisition. The Company has recently entered into the ProServ
Acquisition Agreements to acquire approximately 94% of ProServ, Inc. and
ProServ Television, Inc. and is currently negotiating to acquire the
remaining minority interests in ProServ. If the Company is unable to acquire
the remaining minority interests in ProServ on satisfactory terms, the
Company intends to obtain full ownership of ProServ through a statutory
merger. 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 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 $10.1 million in cash and 225,000 shares of Common Stock. The
Company anticipates purchasing the remaining minority interests for
approximately $609,000. 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, which was founded in 1986. QBQ has 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 up 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:
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<PAGE>
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 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
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<PAGE>
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."
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."
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<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, 1984
racing television production
and marketing
The Hambletonian ..................... Harness horse racing Television production 1985
and marketing
Legg Mason Tennis Classic ............ Tennis Event management and 1969
marketing
AT&T Challenge* ...................... Tennis Event management, 1986
television production
and marketing
U.S. Open Tennis Championship ....... Tennis Television marketing 1989
French Open Tennis Championship ..... Tennis Television marketing 1991
Isuzu Celebrity Golf Championship* .. Golf Event management 1991
and marketing
Canon Shootout ....................... Golf Event management, 1991
television production
and marketing
NCAA Championships ................... Collegiate sports Television marketing 1993
Major League Baseball ................ Baseball Marketing 1993
ESPN Boxing .......................... Boxing Television production 1996
ESPN-Subaru American Outback ......... Wilderness television Television production 1996
series
The PBA Tour ......................... Bowling Television production 1996
and marketing
U.S. Open Professional Figure Skating
Championship ........................ Figure skating Television production 1996
and marketing
More Than a Game...................... Sports television Television Production 1997
series
Lifetime Sports Presents ............. Women's sports Television production 1997
television series
</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. The Company expects 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."
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<PAGE>
The Hambletonian. Since April 1995, the Company has acted as the exclusive
television agent for The Hambletonian, a premier event in harness 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.
Canon 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 expires in
December 1997.
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 expires 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 on similar terms, or at all.
Major League Baseball. Since September 1993, the Company has represented
Major League Baseball Properties, Inc. in its negotiations with current and
potential corporate sponsors. The Company also creates and manages
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.
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
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<PAGE>
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.
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 sports magazine show featuring athletes and sports
personalities who present examples of the positive side of sports. The
episodes are scheduled to begin to air 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 in 1997.
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."
37
<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, 5 authors and 8 television producers and directors,
including:
SELECTED ATHLETES
<TABLE>
<CAPTION>
<S> <C> <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* Nick Van Exel*
MEN'S TENNIS WOMEN'S TENNIS GOLF
Alex Corretja* Amanda Coetzer* Per-Ulrik Johansson*
Stefan Edberg* Lindsay Lee* Olle Karlsson*
Greg Rusedski* Gabriela Sabatini*
Stan Smith* Naoko Sawamatsu*
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.
In July 1997, in anticipation 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, a company that books tours and appearances for a variety of
musicians, entertainers and groups, was founded in 1986. 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>
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
38
<PAGE>
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, 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.
Upon consummation of the ProServ Acquisition, the Company will provide the
following consulting services:
Americast. Ameritech Corporation, BellSouth Corporation, GTE Corporation,
SBC Communications, Inc., Southern New England Telecommunications and The
Walt Disney Company have entered into a joint venture doing business as
Americast, which will provide traditional and interactive television services
to consumers in the United States. Since October 1996, the Company has
consulted with Americast in identifying programming partners, negotiating
rights agreements, producing sports programming and marketing these efforts
to potential subscribers and sponsors. The Company is also assisting
Americast in developing local sports networks which will produce
professional, college and high school sporting events and interactive sports
programming. Currently, such sports networks are planned for Columbus, Ohio;
New Orleans, Louisiana; Clearwater, Florida; Detroit, Michigan; and Hartford
and New Haven, Connecticut. The Company's agreement with Americast expires in
June 1998.
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.
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.
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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.
EMPLOYEES
As of July 1, 1997, the Company had approximately 47 full-time employees,
none of whom were covered by a collective bargaining agreement. The Company
considers its relations with its employees to
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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
120 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 1101 Wilson Boulevard,
Arlington, Virginia. ProServ also leases office space in New York, New York;
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 Heaven Corporation
in 1993 in the Circuit Court of Cook County, Illinois, No. 93 L 8902, naming
Michael Jordan, David Falk and ProServ as defendants. The plaintiff alleges
that Mr. Jordan breached a contract to act in a motion picture and that Mr.
Falk (a former employee of ProServ) and ProServ tortiously interfered with
Mr. Jordan's contractual relations with the plaintiff. The plaintiff seeks
unspecified damages in excess of $1.0 million on both counts, and also seeks
unspecified punitive damages against Mr. Falk and ProServ. Each of the
defendants has filed a motion for summary judgment, requesting the dismissal
of the complaint. Upon consummation of the ProServ Acquisition, the Company
intends to defend the case vigorously.
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.
There can be no assurance that one or both of the foregoing cases 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.
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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 recently entered into the ProServ Acquisition Agreements,
which will allow it to acquire approximately 94% of ProServ, and is currently
negotiating to acquire the remaining minority interests in ProServ. If the
Company is unable to acquire the remaining minority interests in ProServ on
satisfactory terms, the Company intends to obtain full ownership of ProServ
through a statutory merger. The ProServ Acquisition Agreements consist of the
Dell Stock Purchase Agreement, the Non-Employee Stock Purchase Agreement and
the Allard Stock Purchase Agreement (each as defined herein).
Dell Stock Purchase Agreement. The Company has entered into a Purchase and
Sale Agreement dated as of June 25, 1997 (the "Dell Stock Purchase
Agreement") among ProServ, Inc., ProServ Television, Inc. and Donald L. Dell,
the principal stockholder of such companies, 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 225,000 shares of Common Stock. Mr. Dell has the option to
receive the $6.5 million 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 deposited $1.5 million of the purchase price into escrow
to secure its obligations under the Dell Stock Purchase Agreement, which
amount will be forfeited to Mr. Dell in the event that the consummation of
the purchase of Mr. Dell's shares is not consummated by September 15, 1997.
If, on or before August 15, 1997, the Company anticipates that the
consummation of the purchase of Mr. Dell's shares will not be consummated by
September 15, 1997, the Company may deposit an additional $500,000 into
escrow to secure its obligations under the agreement, in which event 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 within the specified time periods for any reason other than certain
breaches by Mr. Dell or ProServ, Mr. Dell may cause the Company to forfeit
any amounts deposited, 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. 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
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per share equal to $7.70 (up to approximately $1.7 million in the aggregate).
In the event the Company does not have enough cash to 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 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 $866,250 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. The Company has also entered into an
agreement dated as of July 2, 1997 (the "Non-Employee Stock Purchase
Agreement") with a non-employee stockholder, pursuant to which the Company
has agreed to purchase 250 shares (or 20.0%) of the 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 an agreement dated as of July
18, 1997 (the "Allard Stock Purchase Agreement") with William J. Allard, the
president and chief operating officer of ProServ. Pursuant to the Allard
Stock Purchase Agreement, the Company has agreed to purchase Mr. Allard's
interest in ProServ, consisting of 50 shares (or 4.0%) of the common stock of
ProServ, Inc. and options to purchase 20 shares of the common stock of
ProServ, for an aggregate purchase price of $605,000. Upon the consummation
of the transactions contemplated by the Allard Stock Purchase Agreement, the
Company intends to enter into an employment agreement with Mr. Allard and to
appoint him to the Company's Board of Directors.
Further Negotiations. The Company is currently negotiating with two
officers of ProServ to purchase the remaining 70 shares (or 5.6%) of the
common stock of ProServ, Inc. and options to purchase 50 shares of the common
stock of ProServ, Inc., which are held by such officers. If the Company is
able to acquire such officers' shares and options on terms satisfactory to
the Company, the Company intends to enter into employment agreements with
such officers. If the Company is unable to acquire such officers' shares and
options on satisfactory terms, the Company intends to obtain full ownership
of ProServ, Inc. through a statutory merger.
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 transactions contemplated by the ProServ Acquisition
Agreements.
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
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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 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.
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 Marquee
Music and 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 is terminated for certain reasons, the
$1.0 million in deferred payments will become immediately due and payable
unless Mr. Arfa receives an offer of comparable employment.
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."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company:
<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 50 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.
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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.
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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
$100,000 during the year ended December 31, 1996.
47
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------- ----------------------
SECURITIES UNDERLYING
NAME SALARY ($) 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>
- ------------
(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, 2001
Arthur C. Kaminsky . 20,000 8.7% $6.25 October 1, 2001
Michael Letis ....... 20,000 8.7% $6.25 October 1, 2001
Louis J. Oppenheim . 10,000 4.3% $6.25 October 1, 2001
Michael Trager....... 20,000 8.7% $6.25 October 1, 2001
</TABLE>
The table below sets forth information with respect to the exercise of
stock options and SARs by the Named Executive Officers during the year ended
December 31, 1996 and the value at December 31, 1996 of unexercised stock
options and SARs held by the Named Executive Officers.
48
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT FY-END AT FY-END
ON REALIZED (#) EXERCISABLE/ ($) 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.
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 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
anticipates entering into two additional employment agreements with
current executive officers of ProServ. See "Agreements Related to the Pending
Acquisitions."
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.
49
<PAGE>
1996 STOCK OPTION PLAN
The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 Stock Option Plan. The Stock Option Plan, which
provides for grants of non-qualified and incentive stock options to purchase
up to 500,000 shares of Common Stock to eligible employees and consultants,
is designed to attract and retain the best available personnel for the
positions of substantial responsibility, to provide additional incentive to
key employees, officers, and consultants of the Company and its subsidiaries
and to promote the success of the Company's business.
In October 1996, options to purchase an aggregate of 230,000 shares of
Common Stock were granted under the Stock Option Plan. Of such options, 14
employees of the Company received 100,000 options with an exercise price of
$5.00 per share, and the Company's executive officers and directors received
130,000 options with an exercise price of $6.25 per share. All of these
options vest in 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.
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.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock, including the IPO Escrow Shares, as of July 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 OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING, AFTER THE OFFERING, TENDER
TENDER OFFER AND PENDING OFFER AND PENDING
ACQUISITIONS ACQUISITIONS(1)
--------------------------- ---------------------------
NAME(2) NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman(3)(4) ................ 1,369,230 15.6% 1,569,230 9.2%
Robert M. Gutkowski(4)(5) .................. 684,615 7.8 684,615 4.0
Arthur C. Kaminsky(4)(6) ................... 684,615 7.8 684,615 4.0
Michael Letis(4)(7) ........................ 684,615 7.8 684,615 4.0
Michael Trager(4)(8) ....................... 684,615 7.8 684,615 4.0
Louis J. Oppenheim(4)(9) ................... 342,306 3.9 342,306 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) ......................... -- -- 265,000 1.6
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) ......................... 4,456,996 50.8% 4,946,996 28.8%
</TABLE>
- ------------
* Less than 1%.
(1) Assumes (i) no exercise of the Underwriters' over-allotment option,
(ii) a price per share of Common Stock of $6.00 for purposes of
determining the number of shares of Common Stock issued in
connection with the QBQ Acquisition and (iii) the purchase in the
Tender Offer of all Warrants other than those held by directors and
executive officers of the Company at a price of $2.25 per Warrant.
(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. 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 40,000 shares of Common
Stock issuable upon the exercise of options which 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 to be granted to TSC in
connection with the Tender Offer, which will be exercisable on the
date of grant. See "Certain Relationships and Related
Transactions--Consulting Agreement."
(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. 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 20,000 shares of Common Stock issuable upon the exercise of
options which are not exercisable within 60 days.
51
<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. 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 20,000 shares of Common Stock issuable upon the exercise of
options which 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. 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 20,000 shares of Common Stock issuable upon the exercise of
options which 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. 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 20,000 shares of Common Stock issuable upon the exercise of
options which 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. 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 10,000 shares of Common Stock issuable upon the exercise of
options which 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 which
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 but do not
include (i) 249,996 shares issuable upon exercise of an equal number
of Warrants, which Warrants are not exercisable until December 5,
1997, or (ii) 137,500 shares of Common Stock issuable upon the
exercise of options which 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 of Common Stock to be granted to TSC in connection with the
Tender Offer, which will be exercisable on the date of grant and
(ii) options to purchase 65,000 shares to be issued in connection
with the Pending Acquisitions. See "Agreements Related to the
Pending Acquisitions" and "Certain Relationships and
Related Transactions--Consulting Agreement."
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 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
52
<PAGE>
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 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."
53
<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 will receive an immediately exercisable
option to purchase 200,000 shares of Common Stock at a price per share equal
to the closing price of the Common Stock on the date of consummation of the
Tender Offer. 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.
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
54
<PAGE>
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.
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.
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.
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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 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
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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 third 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 and William J. Allard. Upon
the consummation of the 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, and Mr. Allard will
continue to serve as president and chief operating officer of ProServ and
will become a director of 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.
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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 July 16, 1997, there are 8,769,162 shares of Common Stock
outstanding, and after this Offering and the Pending Acquisitions there will
be 16,910,828 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and that 416,666 shares will be issued in
connection with the QBQ Acquisition). In addition, the Company will have
923,496 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) upon consummation of the Tender
Offer (assuming the tender of all of the outstanding Warrants not held by
directors and executive officers of the Company), and 230,000 shares of
Common Stock reserved for issuance upon the exercise of options pursuant to
the 1996 Stock Option Plan. The holders of 4,449,996 shares of Common Stock
have entered into a shareholders' 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
As of July 16, 1997, there were 4,519,162 Warrants outstanding. 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.
On July 23, 1997, the Company commenced the Tender Offer to purchase up to
all (but not less than 3,200,000, representing approximately 70.8%) of the
4,519,162 outstanding Warrants at a cash purchase price of $2.25 per Warrant.
On July 21, 1997, the last sales price of the Warrants as reported on the
Nasdaq SmallCap Market was $1.875 per Warrant. The Company is exploring,
through its principal financial advisor, financing for the Tender Offer. Such
financing may take the form of a short-term loan or other
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indebtedness, or the Company may fund the purchase of the Warrants through
the proceeds of this Offering. The Company anticipates that any indebtedness
incurred in financing the Tender Offer will be repaid with a portion of the
net proceeds of this Offering. See "Use of Proceeds."At the Company's
request, its directors and executive officers have stated that they do not
intend to tender their Warrants unless the Company is unable to purchase the
minimum number of Warrants. Notwithstanding the foregoing, such directors and
executive officers may tender or not tender their Warrants at their
discretion. The consummation of this Offering is conditioned upon the closing
of the Tender Offer.
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)
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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 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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Pending Acquisitions and this Offering, the Company
will have outstanding 16,910,828 shares of Common Stock, assuming the
issuance of 416,666 shares in connection with the QBQ Acquisition and
assuming no exercise of Warrants or options. Of these shares, a total of
5,064,682 shares and 3,852,500 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"). However, the Company has
commenced the Tender Offer to acquire up to all (but in no event less than
3,200,000, representing approximately 70.8%) of the Warrants. At the
Company's request, its directors and executive officers have stated that they
do not intend to tender their Warrants unless the Company is unable to
purchase the minimum number of Warrants. Notwithstanding the foregoing, such
directors and executive officers may tender or not tender their Warrants at
their discretion. The remaining 3,704,480 shares will be "restricted
securities" as that term is defined in Rule 144. In addition, 4,453,496
shares (including certain of the foregoing restricted securities) and 253,496
Warrants are subject to the Lock-Up Agreements, as discussed below.
In December 1997, an aggregate of 3,062,813 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
225,000 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 416,666 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 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 officers and
directors, owning, in the aggregate, 4,453,496 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
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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 one year after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except for options granted pursuant to the
Company's existing stock option plans. 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 83,333 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 4,519,162 shares of Common
Stock, prior to the Tender Offer, and (ii) IPO Options representing the right
to purchase an aggregate of 670,000 shares of Common Stock, assuming exercise
of the underlying Warrants. In addition, in connection with the Tender Offer,
TSC will receive an immediately exercisable option to purchase 200,000 shares
of Common Stock at a price per share equal to the closing price of the Common
Stock on the date of consummation of the Tender Offer. 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.
In August 1997, the Company's stockholders are scheduled to vote on the
adoption of the Company's 1997 Stock Option Plan, which would allow the
granting of options to purchase up to 300,000 shares of Common Stock.
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 or are anticipated to be reserved for issuance under
the 1996 Stock Option Plan and the 1997 Stock Option Plan, 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.
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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 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, for a period of 365 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 this Offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq SmallCap
Market may engage (if the Common Stock and the Warrants are still included
for quotation in the Nasdaq SmallCap Market) in passive market making
transactions in the Common Stock and the Warrants on the Nasdaq SmallCap
Market in accordance with Rule 103 of Regulation M under the Securities Act
during the business day prior to the pricing of the Offering before the
commencement of offers of sales of the Common Stock. Passive market makers
must comply with applicable volume and price limitations and must be
identified as such. In general, a passive
63
<PAGE>
market maker must display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are lowered below
the passive market maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded.
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
and the Warrants. 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 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
and the Warrants 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.
64
<PAGE>
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.
65
<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 March 31, 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 three months ended
March 31, 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 three months ended
March 31, 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 three months ended
March 31, 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 March 31, 1997 (unaudited) F-18
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 and for
the three months ended March 31, 1997 and 1996 (unaudited) F-19
Consolidated Statements of Stockholders' Equity/(Deficit) for the years ended December 31,
1996 and 1995 and for the three months ended March 31, 1997 (unaudited) F-20
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 and for
the three months ended March 31, 1997 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 March 31, 1997 (unaudited) F-36
Statements of Operations for the years ended December 31, 1996 and 1995 and for the three
months ended March 31, 1997 and 1996 (unaudited) F-37
Statements of Stockholder's Equity (Deficiency) for the years ended December 31, 1996 and
1995 and the three months ended March 31, 1997 (unaudited) F-38
Statements of Cash Flows for the years ended December 31, 1996 and 1995 and for the three
months ended March 31, 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 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 7,230,526 $ 5,285,934
Accounts receivable......................................... 1,295,894 1,344,426
Due from related parties.................................... 138,699 75,250
Due from Celebrity Golf Championship, LLC................... 169,100 --
Prepaid expenses and other current assets................... 250,363 691,750
----------------- --------------
Total current assets......................................... 9,084,582 7,397,360
Property and equipment, net.................................. 218,604 506,109
Deferred advisory costs...................................... -- 400,000
Other assets................................................. 57,612 157,812
----------------- --------------
Total assets................................................. $ 9,360,798 $ 8,461,281
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................... $ 866,442 $ 1,035,668
Income taxes payable........................................ 268,250 --
Distribution payable to stockholders........................ 382,311 382,311
Acquisition indebtedness--current portion................... 332,500 332,500
----------------- --------------
Total current liabilities.................................... 1,849,503 1,750,479
Loan payable to officer/stockholder.......................... 121,615 121,615
Acquisition indebtedness--stockholders....................... 1,637,500 1,637,500
Other liabilities............................................ 343,000 427,750
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) (39,586)
Accumulated deficit......................................... (2,410,377) (3,188,240)
----------------- --------------
5,409,180 4,523,937
----------------- --------------
Total liabilities and stockholders' equity................... $ 9,360,798 $ 8,461,281
================= ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD THREE MONTHS ENDED
FROM JULY 11, 1995 MARCH 31,
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 $ -- $1,978,407 $ --
Operating expenses.................. 2,563,682 -- 943,156 --
General and administrative
expenses........................... 2,259,760 -- 1,819,884 244,846
----------------- ------------------ ------------ ------------
Loss from operations................ (1,954,654) -- (784,633) (244,846)
Interest expense (income)........... 283,222 -- (6,770) --
Financing expense................... 192,501 -- -- --
----------------- ------------------ ------------ ------------
Loss before income taxes............ (2,430,377) -- (777,863) (244,846)
Income tax benefit.................. 20,000 -- -- --
----------------- ------------------ ------------ ------------
Net loss............................ $ (2,410,377) $ -- $ (777,863) $ (244,846)
================= ================== ============ ============
Net loss per share.................. $ (1.03) $ -- $ (.10) $ (.12)
================= ================== ============ ============
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................. -- -- -- 23,748 -- 23,748
Net loss for the three months
ended March 31, 1997......... -- -- -- -- (777,863) (777,863)
----------- --------- --------------- -------------- -------------- --------------
Balance--March 31, 1997
(unaudited).................. 8,769,162 $87,692 $ 7,664,071 $ (39,586) $(3,188,240) $ 4,523,937
=========== ========= =============== ============== ============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM THREE MONTHS ENDED
JULY 11, 1995 MARCH 31,
YEAR ENDED (INCEPTION) TO --------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995 1997 1996
----------------- ----------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(2,410,377) $ -- $ (777,863) $(244,846)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation............................ 5,620 -- 8,156 --
Non-cash compensation................... 55,416 -- 23,748 --
Deferred income taxes................... (40,000) -- -- --
Changes in operating assets and
liabilities:
Accounts receivable.................... 974,169 -- (48,532) --
Due from related parties............... (67,810) -- 63,449 --
Due from Celebrity Golf Championship,
LLC .................................. -- -- 169,100 --
Prepaids and other current assets ..... (178,318) -- (441,387) --
Accounts payable and accrued
liabilities........................... (192,630) -- 169,226 50,819
Income taxes payable................... 20,250 -- (268,250) --
Other liabilities ..................... -- -- 14,800 --
----------------- ----------------- ------------- ------------
Net cash used in operating activities .... (1,833,680) -- (1,087,553) (194,027)
----------------- ----------------- ------------- ------------
INVESTING ACTIVITIES
Purchase of fixed assets.................. (122,422) -- (295,661) --
Other assets.............................. (44,760) -- (100,200) --
----------------- ----------------- ------------- ------------
Net cash used in investing activities .... (167,182) -- (395,861) --
----------------- ----------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from loans payable to related
parties.................................. 766,718 -- 69,950 225,000
Repayments of loans payable to related
parties.................................. (200,000) -- -- --
Proceeds from private placement........... 1,554,897 -- -- --
Issuance of common stock, net of offering
costs.................................... 15,586,026 19,980 (131,128) 500
Distribution to Subsidiary stockholders .. (9,000,000) -- -- --
Cash acquired through acquisition of
Subsidiaries............................. 503,767 -- -- --
Deferred advisory costs .................. -- -- (400,000) --
----------------- ----------------- ------------- ------------
Net cash provided by financing
activities............................... 9,211,408 19,980 (461,178) 225,500
Increase (decrease) in cash and cash
equivalents.............................. 7,210,546 19,980 (1,944,592) 31,473
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 $ 5,285,934 $ 51,453
================= ================= ============= ============
</TABLE>
F-6
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM THREE MONTHS ENDED
JULY 11, 1995 MARCH 31,
YEAR ENDED (INCEPTION) TO -----------------------
DECEMBER 31, 1996 DECEMBER 31, 1995 1997 1996
----------------- ----------------- ----------- -----------
(UNAUDITED) (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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 March 31, 1997 and for the three
months ended March 31, 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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 March 31, 1997 and December 31, 1996, approximately 79% and 90%,
respectively, of the Company's cash and cash equivalents is 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
F-9
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.................... $118,172 $121,123
Leasehold improvements.................... 79,413 372,123
Vehicles.................................. 26,639 26,639
-------------- -----------
224,224 519,885
Accumulated depreciation and
amortization............................. 5,620 13,776
-------------- -----------
$218,604 $506,109
============== ===========
</TABLE>
3. RELATED PARTY TRANSACTIONS
At March 31, 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.
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.
F-10
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
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 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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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
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.
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
F-13
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
8. STOCK OPTION PLAN (Continued)
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, $12,000, and $74,000, respectively, for the year
ended December 31, 1996, for the three months ended March 31, 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.
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.
F-14
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (Continued)
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 to SCMC the sum of $400,000 as an
advance against investment advisory services to be provided in connection
with certain identified acquisition opportunities.
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 and July 1997, the Company entered into agreements to acquire
approximately 94% of the capital stock of ProServ, Inc. and ProServ
Television, Inc. for an aggregate purchase price of $10,100,000 in cash, and
the issuance of 225,000 shares of common stock. The Company anticipates
acquiring the remaining minority interest in ProServ for an aggregate
purchase price of $609,000.
In July 1997, the Company entered into an agreement to acquire
substantially all the assets of QBQ Entertainment, Inc. for an aggregate
purchase price of $3.1 million in cash, $1.6 million payable over eight years
and $2.5 million payable in shares of common stock, of which shares relating
to up to $500,000 are subject to an escrow agreement.
F-15
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
11. SUBSEQUENT EVENTS (UNAUDITED) (Continued)
In July 1997, the Company commenced a tender offer to purchase up to all
(but not less than 3,200,000, representing 70.8%) of the 4,519,162
outstanding warrants at a cash purchase price of $2.25 per warrant.
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 for
Underwriter's over-allotment. The proceeds of the proposed stock offering
will be used to fund the cash portion of the acquisitions described above,
certain debt, the tender offer, working capital and other general corporate
purposes.
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, MARCH 31, 1997
-------------- --------------
1996 (UNAUDITED)
--------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 168,295 $ 925,320
Restricted cash....................................... -- 207,955
Accounts receivable, net.............................. 3,241,184 3,222,084
Prepaid expenses and other current assets............. 158,364 180,212
-------------- --------------
Total current assets................................... 3,567,843 4,535,571
Property and equipment, net ........................... 468,444 462,491
Noncurrent accounts receivable......................... 1,228,206 1,182,305
Other assets........................................... 76,426 42,827
-------------- --------------
Total assets........................................... $ 5,340,919 $ 6,223,194
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable...................... $ 900,000 $ 1,117,500
Accounts payable...................................... 1,104,623 1,979,139
Accrued expenses...................................... 1,003,968 620,736
Income tax payable.................................... 48,290 78,310
Production rights payable............................. 42,741 80,433
Accounts payable--clients............................. -- 207,955
Deferred revenue...................................... 659,386 1,438,246
Deferred income taxes................................. 259,000 259,000
-------------- --------------
Total current liabilities.............................. 4,018,008 5,781,319
Notes payable.......................................... 650,000 650,000
Deferred rent.......................................... 875,778 826,252
-------------- --------------
Total liabilities...................................... 5,543,786 7,257,571
-------------- --------------
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) (285,834)
Accumulated deficit................................... (4,232,051) (5,113,512)
Cumulative translation adjustment..................... 197,611 192,027
-------------- --------------
Total stockholders' deficit............................ (202,867) (1,034,377)
-------------- --------------
Total liabilities and stockholders' deficit............ $ 5,340,919 $ 6,223,194
============== ==============
</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>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------- --------------------------
1996 1995 1997 1996
-------------- -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue....................... $13,387,810 $17,792,247 $1,369,260 $ 1,449,768
Operating expenses...................... 10,130,353 11,926,379 1,231,404 1,495,116
General and administrative expenses .... 5,000,927 6,581,388 959,949 1,162,012
Restructuring costs..................... 565,000 -- -- --
Legal settlement........................ -- 300,000 -- --
Loss on sublease........................ -- 293,832 -- --
-------------- -------------- ------------ -------------
Loss from operations.................... (2,308,470) (1,309,352) (822,093) (1,207,360)
Interest expense, net................... 208,691 190,967 29,348 46,825
Equity in loss of joint venture......... -- (6,927) -- --
Gain on sale of joint venture interest -- 67,763 -- --
-------------- -------------- ------------ -------------
Loss before income taxes................ (2,517,161) (1,439,483) (851,441) (1,254,185)
Provision (benefit) for income taxes ... 239,824 (1,126) 30,020 (23,000)
-------------- -------------- ------------ -------------
Net loss................................ $(2,756,985) $(1,438,357) $ (881,461) $(1,231,185)
============== ============== ============ =============
</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 ADJUSTMENT 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 -- -- 95,391
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.................. -- -- -- -- -- (881,461) -- (881,461)
Amortization of unearned
compensation............. -- -- -- -- 55,535 -- -- 55,535
Foreign currency
translation adjustment .. -- -- -- -- -- -- (5,584) (5,584)
----------- ---------------------- ---------------------- ---------------------- -----------
Balance, March 31, 1997
(unaudited).............. $600,000 $1,250 $3,571,692 $ -- $(285,834) $(5,113,512) $192,027 $(1,034,377)
=========== ====================== ====================== ====================== ===========
</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 THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
---------------------------
1996 1995 1997 1996
-------------- -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $(2,756,985) $(1,438,357) $(881,461) $(1,231,185)
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Depreciation ............................................... 181,048 152,349 20,723 28,947
Deferred income taxes ...................................... 77,000 (288,119) -- --
Provision for bad debts .................................... 537,820 385,616 -- --
Amortization of unearned compensation ...................... 95,393 164,937 55,535 22,000
Equity in loss of investee ................................. -- 6,927 -- --
Gain on distribution from joint venture .................... -- (67,763) -- --
Realized gain on sale of marketable securities ............ -- (4,511) -- --
Changes in assets and liabilities:
Restricted cash ........................................... (332,999) (31,886) (208,220) 83,150
Accounts receivable ....................................... (256,278) 466,686 20,150 (27,555)
Income tax receivable ..................................... 83,175 143,959 -- --
Prepaid expenses and other current assets ................. 233,664 (74,220) (21,848) (15,000)
Noncurrent accounts receivable ............................ 410,016 445,949 45,901 102,504
Other assets .............................................. (6,202) 37,275 33,599 (1,550)
Accounts payable .......................................... (702,583) 212,128 866,055 112,958
Accrued expenses .......................................... 21,551 35,000 (383,232) 10,000
Income tax payable ........................................ (47,869) 96,159 30,020 (23,000)
Production rights payable ................................. (12,573) (522,327) 37,692 45,000
Deferred revenue .......................................... (211,276) (1,109,279) 778,860 735,675
Deferred rent ............................................. (172,879) 263,036 (49,526) (43,200)
Accounts payable-clients .................................. 332,999 31,886 208,220 (83,150)
-------------- -------------- ------------ --------------
Net cash (used in) provided by operating activities ..... (2,526,978) (1,094,555) 552,468 315,594
-------------- -------------- ------------ --------------
Cash flows from investing activities:
Proceeds from sale of marketable securities ................. -- 216,590 -- --
Purchases of property and equipment.......................... (74,297) (142,609) (14,770) (19,000)
Investment in joint venture ................................. (10,836) (89,164) -- (10,836)
-------------- -------------- ------------ --------------
Net cash used in investing activities .................... (85,133) (15,183) (14,770) (29,836)
-------------- -------------- ------------ --------------
Cash flows from financing activities:
Proceeds from issuance of capital stock ..................... 3,000,000 -- -- --
Proceeds from notes payable ................................. 1,250,000 2,460,000 217,500 200,000
Payments on notes payable ................................... (1,800,000) (1,822,500) -- --
-------------- -------------- ------------ --------------
Net cash provided by financing activities ................ 2,450,000 637,500 217,500 200,000
-------------- -------------- ------------ --------------
Effect of exchange rate changes on cash and cash equivalents 47,626 30,090 1,827 12,221
-------------- -------------- ------------ --------------
Increase (decrease) in cash and cash equivalents ............ (114,485) (442,148) 757,025 497,979
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 $ 925,320 $ 780,759
============== ============== ============ ==============
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 $ 29,348 $ 46,825
============== ============== ============ ==============
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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 and March 31, 1997, there is 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 9)
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.
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
F-22
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 $569,738 at December 31, 1996 and March 31, 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 and March 31, 1997
because of the relatively short maturity of these instruments. The carrying
value of noncurrent receivables approximates fair value as of December 31,
1996 and March 31, 1997 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 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.
F-23
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 March 31, 1997 and for the three
months ended March 31, 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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Office equipment ................................ $ 1,651,915 $ 1,666,685
Leasehold improvements .......................... 264,639 264,639
Tape library .................................... 229,813 229,813
-------------- -------------
2,146,367 2,161,137
Less: accumulated depreciation and amortization (1,677,923) (1,698,646)
-------------- -------------
$ 468,444 $ 462,491
============== =============
</TABLE>
Depreciation and amortization expense was $181,048 and $152,349 for the
years ended December 31, 1996 and 1995, respectively and $20,723 and $28,947
for the three months ended March 31, 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 $854,000 as of December 31, 1996 and March 31,
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 $18,000 and $30,000 for the three months ended March 31, 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:
<TABLE>
<CAPTION>
<S> <C>
1997.................. $ 482,559
1998.................. 534,836
1999.................. 52,695
2000.................. 11,724
2001.................. 12,566
Thereafter............ 616,385
-----------
1,710,765
Less: current
portion.............. (482,559)
-----------
Total................ $1,228,206
===========
</TABLE>
F-25
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Lines of credit....... $1,450,000 $ 1,667,500
Term notes payable ... 100,000 100,000
-------------- -------------
Total notes payable . 1,550,000 1,767,500
Less: current
portion.............. (900,000) (1,117,500)
-------------- -------------
Noncurrent portion .. $ 650,000 $ 650,000
============== =============
</TABLE>
LINES OF CREDIT
The Company maintains three lines of credit providing an aggregate working
capital facility of $1,850,000, of which $1,450,000 and $1,467,500 was
outstanding as of December 31, 1996 and March 31, 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
$717,500 at December 31, 1996 and March 31, 1997, respectively. Interest
payments are due monthly on these facilities at the bank's prime rate (8.25%
at December 31, 1996 and March 31, 1997, respectively). 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, all of which was
outstanding, as of December 31, 1996 and March 31, 1997. 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 March 31, 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 Company. The line contains certain
restrictive covenants,
F-26
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
4. NOTES PAYABLE (Continued)
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 March 31, 1997.
Interest payments are due monthly at the bank's prime rate (8.50% at December
31, 1996 and March 31, 1997) plus 50%, and this line expires July 31, 1997.
This line is collateralized by the majority shareholder's primary residence.
The Company and the majority shareholder are currently in negotiations with
this financial institution regarding the extension of this line of credit.
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 8.75% and 8.45% for the three months ended
March 31, 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 and March 31, 1997). 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 expires on July 31, 1997. The term notes payable agreement
contain 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>
YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
---------------------- ---------------------
1996 1995 1997 1996
---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal .. $123,116 $ 220,340 $27,000 $(20,000)
State...... 39,708 41,313 3,020 (3,000)
Foreign.... -- 25,340 -- --
---------- ----------- --------- -----------
162,824 286,993 30,020 (23,000)
---------- ----------- --------- -----------
Deferred
Federal.... -- (276,119) -- --
State...... -- (12,000) -- --
Foreign.... 77,000 -- -- --
---------- ----------- --------- -----------
77,000 (288,119) -- --
---------- ----------- --------- -----------
Total..... $239,824 $ (1,126) $30,020 $(23,000)
========== =========== ========= ===========
</TABLE>
F-27
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- -------------------------
1996 1995 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(Benefit) provision based upon Federal
statutory rate of 34%................... $ (855,835) $(489,424) $(289,490) $(426,423)
State tax provision--ProServ TV.......... 20,000 28,432 3,000 (2,400)
IRS contingency (see Note 7)............. -- 57,000 -- --
Increase in deferred tax asset valuation
allowance............................... 1,054,000 312,000 320,000 400,000
French tax audit (see Note 7)............ 77,000 -- -- --
Other.................................... (55,341) 90,866 (3,490) 5,823
------------ ------------ ------------ ------------
$ 239,824 $ (1,126) $ 30,020 $ (23,000)
============ ============ ============ ============
</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, MARCH 31,
1996 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards.................... $ 1,244,000 $ 1,564,000
AMT credit carryforwards......... 109,000 109,000
Deferred rent.................... 333,000 320,000
Accrued liabilities.............. 302,000 300,000
Foreign tax credit
carryforwards.................... 360,000 360,000
-------------- -------------
2,348,000 2,653,000
Less: valuation allowance........ (1,726,000) (2,046,000)
-------------- -------------
Total deferred tax assets........ 622,000 607,000
-------------- -------------
Deferred tax liabilities:
Property and equipment........... (80,000) (80,000)
Accounts receivable.............. (535,000) (520,000)
IRS contingency.................. (182,000) (182,000)
French Tax Audit................. (77,000) (77,000)
Other............................ (7,000) (7,000)
-------------- -------------
Total deferred tax liabilities .. (881,000) (866,000)
-------------- -------------
Net deferred tax liability ...... $ (259,000) $ (259,000)
============== =============
</TABLE>
As of December 31, 1996 and March 31, 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
March 31, 1997. The $1,054,000 increase in the valuation allowance at
December 31, 1996 relates primarily to the Company's net operating loss
carryforwards generated during 1996.
F-28
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 $40,806 and $39,935, was $128,593 and
$183,546 for the three months ended March 31, 1997 and 1996, respectively.
F-29
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (Continued)
OTHER CONTRACTUAL COMMITMENTS
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 non-cash charge, was $95,393 and $164,937 for the years
ended December 31, 1996 and 1995, 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 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).
Subsequent to December 31, 1996, an employment agreement with a second key
officer was revised. This revised employment agreement included the grant of
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.
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 March 31, 1997.
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
F-30
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (Continued)
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 March 31, 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 March 31, 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 $27,000 and $132,000 for
the three months ended March 31, 1997 and 1996, respectively.
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
F-31
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
10. INVESTMENT IN JOINT VENTURE (Continued)
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 three month period ended March 31, 1997
was approximately $72,000 and $43,000, 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 MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
10. INVESTMENT IN JOINT VENTURE (Continued)
Summarized unaudited financial information of the joint venture are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- ------------------------
1996 1995 1997 1996
------------- ------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Operating revenues....... $ 910,000 $ 505,000 $ 557,000 $ 146,000
Operating expenses....... (1,090,000) (609,000) 665,000 (220,000)
------------- ------------- ------------ -----------
Net loss................. $ (180,000) $ (104,000) $ (108,000) $ (74,000)
============= ============= ============ ===========
BALANCE SHEET
Total assets............. $ 1,266,000 $1,031,000
Total liabilities ....... (301,000) (231,000)
------------- ------------
Shareholders' equity .... $ 965,000 $ 800,000
============= ============
</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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------- ---------------------------
1996 1995 1997 1996
-------------- -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue
North America................ $10,910,000 $14,551,000 $1,031,000 $ 1,125,000
Europe....................... 2,478,000 3,241,000 338,000 329,000
-------------- -------------- ------------ --------------
Total....................... $13,388,000 $17,792,000 $1,369,000 $ 1,449,000
============== ============== ============ ==============
(Loss) income from operations
North America................ $(1,465,000) $(1,421,000) $ (866,000) $ (918,000)
Europe....................... (843,000) 112,000 14,000 (336,000)
-------------- -------------- ------------ --------------
Total....................... $(2,308,000) $(1,309,000) $ (852,000) $(1,254,000)
============== ============== ============ ==============
Identifiable assets
North America................ $ 4,786,000 $ 5,384,000 $4,234,000
Europe....................... 555,000 1,604,000 1,989,000
-------------- -------------- ------------
Total....................... $ 5,341,000 $ 6,988,000 $6,223,000
============== ============== ============
</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 225,000 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. Marquee has deposited
$1.5 million of the purchase price in escrow to secure its obligations under
the purchase agreement.
F-33
<PAGE>
PROSERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND 1996 IS UNAUDITED)
12. SUBSEQUENT EVENTS (UNAUDITED) (Continued)
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.
On July 18, 1997, Marquee entered into an agreement with one of the
Company's stockholders to purchase his 50 shares of the Company's common
stock and options to purchase 20 shares of the Company's common stock for an
aggregate purchase price of $605,000 in cash.
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 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................. $323,237 $731,362
Accounts receivable........................................ 27,634 22,613
Prepaid expenses .......................................... 6,070 6,081
Loan receivable--stockholder............................... 60,936 25,439
----------------- --------------
TOTAL CURRENT ASSETS...................................... 417,877 785,495
PROPERTY AND EQUIPMENT--NET ................................ 82,235 76,040
CASH--RESTRICTED............................................ 17,554 17,772
----------------- --------------
$517,666 $879,307
================= ==============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accrued expenses and other liabilities..................... $130,005 $ 42,720
Loan payable--bank......................................... 170,000 170,000
Clients' deposits payable.................................. 266,610 624,828
----------------- --------------
TOTAL CURRENT LIABILITIES................................. 566,615 837,548
----------------- --------------
DEFERRED LEASE OBLIGATION................................... 10,736 8,722
----------------- --------------
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) 32,037
----------------- --------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIENCY)................... (59,685) 33,037
----------------- --------------
$517,666 $879,307
================= ==============
</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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ----------------------
1996 1995 1997 1996
------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Commissions.................. $1,358,922 $1,495,245 $423,552 $ 116,041
------------ ------------ ---------- -----------
EXPENSES
Operating.................... 274,224 299,484 48,115 47,825
General and administrative .. 930,815 1,071,657 223,597 210,057
Depreciation and
amortization................ 38,043 49,398 6,195 12,218
------------ ------------ ---------- -----------
TOTAL EXPENSES.............. 1,243,082 1,420,539 277,907 270,100
------------ ------------ ---------- -----------
INCOME (LOSS) FROM
OPERATIONS................... 115,840 74,706 145,645 (154,059)
------------ ------------ ---------- -----------
OTHER INCOME (EXPENSE)
Interest income.............. 12,329 13,764 2,470 1,394
Interest expense............. (24,329) (1,797) (3,940) (7,158)
------------ ------------ ---------- -----------
TOTAL OTHER INCOME
(EXPENSE).................. (12,000) 11,967 (1,470) (5,764)
------------ ------------ ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES........................ 103,840 86,673 144,175 (159,823)
PROVISION FOR STATE AND
LOCAL INCOME TAXES........... 12,521 15,140 5,875 120
------------ ------------ ---------- -----------
NET INCOME (LOSS)............. $ 91,319 $ 71,533 $138,300 $(159,943)
============ ============ ========== ===========
</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 YEAR ENDED DECEMBER 31, 1996
AND THE THREE MONTHS ENDED MARCH 31, 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 three months ended
March 31, 1997....................... -- -- -- 138,300 138,300
Distribution to stockholder........... -- -- -- (45,578) (45,578)
-------------- ------------ ------------- ----------- -----------
BALANCE--MARCH 31, 1997 (Unaudited) .. $100 $100 $900 $ 32,037 $ 33,037
============== ============ ============= =========== ===========
</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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- -----------------------
1996 1995 1997 1996
----------- ----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 91,319 $ 71,533 $138,300 $(159,943)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 38,043 49,398 6,195 12,218
Decrease (increase) in:
Accounts receivable............................ 1,639 19,879 5,021 27,649
Prepaid expenses .............................. 8,936 (9,556) (11) (4,869)
Increase (decrease) in:
Accrued expenses and other liabilities ........ 37,185 (40,650) (87,285) 9,432
Clients' deposits payable...................... 222,035 (21,400) 358,218 4,275
Deferred lease obligation...................... (6,385) (3,052) (2,014) (762)
----------- ----------- ---------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... 392,772 66,152 418,424 (112,000)
----------- ----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (34,440) (21,682) -- (558)
(Increase) decrease in loans to stockholder ...... (5,034) (55,902) 35,497 47,550
----------- ----------- ---------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (39,474) (77,584) 35,497 46,992
----------- ----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of loan payable--bank.................. (300,000) -- -- --
(Increase) in restricted cash..................... (898) (864) (218) (244)
Distributions to stockholder...................... (93,578) (282,033) (45,578) --
Proceeds from loan payable--bank.................. 170,000 300,000 -- --
----------- ----------- ---------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... (224,476) 17,103 (45,796) (244)
----------- ----------- ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 128,822 5,671 408,125 (65,252)
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 $731,362 $ 129,163
=========== =========== ========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest ...................................... $ 23,479 $ 379 $ 1,966 $ 3,351
=========== =========== ========== ============
Income taxes .................................. $ 558 $ 64,307 $ 924 $ 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 AT MARCH 31, 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 three months (unaudited) ended March 31 1997
includes approximately $392,000 from two clients and accounts for
approximately 93% of the quarterly commissions earned. Commissions earned
during the three months (unaudited) ended March 31, 1996 includes
approximately $92,000 from four clients and account for approximately 79% of
quarterly 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
March 31, 1997, and the reported amounts of revenues and expenses during the
two years ended December 31, 1996, and the three months ended March 31, 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 AT MARCH 31, 1997 AND 1996 IS UNAUDITED)
(g) Accounts Receivable
The Company has deemed all receivables collectible at December 31, 1996
and March 31, 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 March 31, 1997 (unaudited), $60,936 and $25,439,
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 March 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.......................... $ 70,770 $ 70,770
Equipment....................................... 170,053 170,053
Automobiles..................................... 108,235 108,235
Leasehold improvements.......................... 6,138 6,138
-------------- -----------
355,196 355,196
Less, accumulated depreciation and
amortization................................... 272,961 279,156
-------------- -----------
$ 82,235 $ 76,040
============== ===========
</TABLE>
NOTE 6 -- LOAN PAYABLE -- BANK
Loan payable -bank at December 31, 1996 and March 31, 1997 (unaudited),
amounting to $170,000, represents borrowings by the Company under a $300,000
unsecured grid demand promissory loan agreement ("grid loan").
Interest 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 $3,940 and
$7,158 for the three months (unaudited) ended March 31, 1997 and 1996,
respectively.
The grid loan has been guaranteed by the Company's stockholder.
In April 1997, $70,000 of the loan payable was repaid by the Company with
the remaining $100,000 repaid in May 1997.
F-41
<PAGE>
QBQ ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
(INFORMATION AT MARCH 31, 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 $12,987 for the three months (unaudited) ended March 31, 1997
and 1996. Obligations of $10,736 and $8,722, representing pro-rata future
payments, are reflected in the accompanying December 31, 1996 and March 31,
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 matured April
14, 1997.
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 $18,738 and $16,791 for the three
months (unaudited) ended March 31, 1997 and 1996, respectively.
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 and Warrants ......... 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 .......................................... 31
Agreements Related to the Pending Acquisitions ... 42
Management ........................................ 45
Principal Stockholders ............................ 51
Certain Relationships and Related Transactions .... 54
Description of Securities ......................... 58
Shares Eligible for Future Sale ................... 61
Underwriting ...................................... 63
Legal Matters ..................................... 64
Experts ........................................... 64
Available Information ............................. 65
Index to Financial Statements...................... F-1
</TABLE>
7,500,000 Shares
THE MARQUEE GROUP, INC.
[LOGO]
Common Stock
P R O S P E C T U S
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
, 1997
<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 ........................ 5,093.75
AMEX Listing Fees ...................... *
Printing and Engraving Expenses ....... *
Accounting Fees and Expenses ........... *
Legal Fees and Expenses ................ *
Blue Sky Fees and Expenses ............. *
Transfer Agent's Fees and Expenses .... *
Miscellaneous Expenses ................. *
--------------
Total................................. $*
==============
</TABLE>
- ------------
* To be filed by amendment.
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, 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.
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.
II-2
<PAGE>
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).
**10.7B Amendment No. 1 to the Shareholders' Agreement, dated as of July , 1997, 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).
II-3
<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.
*10.20 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.
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
*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.
*10.23 Assignment and Assumption Agreement by and between Sillerman Communications Management
Corporation and The Sillerman Companies, Inc.
**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--Included on the signature page.
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
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-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
city of New York, State of New York, on July 23, 1997.
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-------------------------------
Name: Robert M. Gutkowski
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature to this
Registration Statement appears below hereby appoints Robert M. Gutkowski or
Kraig G. Fox as his attorney-in-fact and agent to sign on his behalf,
individually and in the capacities stated below, and to file (i) any and all
amendments and post-effective amendments to this Registration Statement and
(ii) any registration statement relating to the same offering pursuant to
Rule 462(b) under the Securities Act, which amendment or amendments or
registration statement may make such changes and additions as such
attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------- ------------------------------------------ -----------------
<S> <C> <C>
/s/ Robert M. Gutkowski
----------------------------- President, Chief Executive Officer and
Robert M. Gutkowski Director (principal executive officer) July 23, 1997
/s/ Robert F.X. Sillerman
-----------------------------
Robert F.X. Sillerman Chairman July 23, 1997
/s/ Arthur Kaminsky
-----------------------------
Arthur Kaminsky Executive Vice President and Director July 23, 1997
/s/ Michael Letis
-----------------------------
Michael Letis Executive Vice President and Director July 23, 1997
/s/ Louis J. Oppenheim
-----------------------------
Louis J. Oppenheim Executive Vice President and Director July 15, 1997
/s/ Michael Trager
-----------------------------
Michael Trager Executive Vice President and Director July 23, 1997
/s/ Jan E. Chason
----------------------------- Chief Financial Officer (principal
Jan E. Chason financial and accounting officer) July 23, 1997
/s/ Howard J. Tytel
-----------------------------
Howard J. Tytel Director July 23, 1997
/s/ Arthur R. Barron
-----------------------------
Arthur R. Barron Director July 23, 1997
/s/ Myles W. Schumer
-----------------------------
Myles W. Schumer Director July 23, 1997
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
-------------
<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).
**10.7B Amendment No. 1 to the Shareholders' Agreement, dated as of July , 1997, 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.
*10.20 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.
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
*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.
*10.23 Assignment and Assumption Agreement by and between Sillerman Communications Management
Corporation and The Sillerman Companies, Inc.
**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--Included on the signature page.
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT (the "Agreement"), is made and
entered into as of the 25 day of June, 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 Stoney Creek Road, Potomac, Maryland
20854 (the "Seller"), and THE MARQUEE GROUP, INC., a Delaware corporation (the
"Buyer");
WHEREAS, the Seller owns beneficially and of record 880 shares of
voting common stock of ProServ (the "ProServ Common") representing 82.24% of
the voting common stock of ProServ on a fully-diluted basis (exclusive of the
Foreign Company Shares (as defined below)), 600 shares of non-voting preferred
stock of ProServ (the "ProServ Preferred") representing 100% of the preferred
stock of ProServ, and 510 shares of voting common stock of TV (the "TV Common")
representing 51% of the capital stock of TV (collectively, the "Shares"); and
WHEREAS, the Seller desires to sell to the Buyer and the Buyer desires
to purchase from the Seller all of the Shares;
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and upon the terms and
subject to the conditions hereinafter set forth, the parties hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE
-----------------
1.1 Purchase and Sale of Shares of the Companies. On the Closing Date
(as defined in Section 3.1), the Seller shall sell to the Buyer, and the Buyer
shall purchase from the Seller, the
<PAGE>
Shares for the Purchase Price (as defined in Section 2.1) specified herein. At
the Closing (as defined in Section 3.1), the Seller shall deliver to the Buyer
certificates representing all of the Shares which are required to be delivered
or are otherwise deliverable by the Seller pursuant hereto, duly endorsed in
blank for transfer or accompanied by duly executed stock powers assigning such
Shares in blank, and the Buyer shall deliver to the Seller the Purchase Price.
ARTICLE 2
CONSIDERATION
-------------
2.1 Purchase Price. The aggregate consideration (the "Purchase Price")
for the Shares shall be (i) SIX MILLION FIVE HUNDRED THOUSAND DOLLARS
($6,500,000.00) (the "Consideration Cash") and (ii) 225,000 shares of the
Buyer's Class A Common Stock as constituted on the date hereof (adjusted for
any stock splits, reverse stock splits, stock dividends and the like occurring
prior to the Closing) (the "Consideration Stock").
2.2 Payment.
(a) At the Closing, the Buyer shall pay to the Seller the
Consideration Cash, less the Cash Deposit (as defined below) and any investment
earnings (as described below) earned thereon held by the Escrow Agent (as
defined below) pursuant to the Escrow Agreement (as defined below), and the
Consideration Stock. Payment shall be made by wire transfer in immediately
available funds in accordance with the instructions of the Seller. At the
Closing, the parties to this Agreement shall direct the Escrow Agent to deliver
the Cash Deposit to the Seller together with investment earnings on the Cash
Deposit.
(b) The Seller may, at his sole discretion, elect to receive at
the Closing (i) the entire amount of the Consideration Cash, which includes
FIVE MILLION DOLLARS ($5,000,000.00) in immediately available funds and the
Cash Deposit, together with any investment earnings which shall be applied
against the $5,000,000.00, pursuant to the Escrow Agreement or (ii)
2
<PAGE>
a promissory note (the "Promissory Note") in the amount of THREE MILLION
DOLLARS ($3,000,000.00), payable on January 2, 1998, and secured by an
irrevocable standby letter of credit reasonably satisfactory to the Seller
issued by a nationally recognized bank having assets in excess of ONE BILLION
DOLLARS ($1,000,000,000.00), cash in the amount of TWO MILLION DOLLARS
($2,000,000.00) in immediately available funds, and the Cash Deposit, together
with any investment earnings which shall be applied against the $2,000,000.00,
pursuant to the Escrow Agreement. In the event that the Seller elects to
receive at the Closing the Promissory Note as a portion of the Consideration
Cash, the Seller shall provide the Buyer with a written notice at least five
(5) days prior to the Closing Date of such election.
2.3 Escrow Account.
(a) On the date of this Agreement, the Buyer shall deposit the sum
of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00) by wire transfer
in immediately available funds into an escrow account (the "Cash Deposit") with
an escrow agent (the "Escrow Agent") selected by the Seller which may be a bank
with capital and surplus of not less than ONE BILLION DOLLARS
($1,000,000,000.00) or an accounting, brokerage, or law firm of not less than
fifty (50) professionals (the "Escrow Agent"). The Cash Deposit shall be held
in escrow in accordance with the terms of an escrow agreement (the "Escrow
Agreement") among the parties to this Agreement and the Escrow Agent in the
form attached hereto as Exhibit A. The Cash Deposit shall be invested by the
Escrow Agent in obligations issued by or guaranteed by the full faith and
credit of the United States government and having maturity terms consistent
with the closing terms herein .
(b) If the Closing (as defined below) has not occurred on or prior
to August 15, 1997, and if at that time the Buyer wishes to extend the deadline
for the Closing as set forth in Article 3 from September 15, 1997, to October
15, 1997, then the Buyer shall, in consideration thereof, not later than the
close of regular business on August 15, 1997 (i) deposit with the Escrow Agent
in immediately available funds an additional FIVE HUNDRED THOUSAND DOLLARS
($500,000), which amount shall thereafter be considered for all purposes as
part of the Cash Deposit, and (ii) deliver prompt written notice of such
additional deposit to the Seller.
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<PAGE>
(c) In the event that the Buyer fails to close timely the
transactions contemplated herein pursuant to Article 3 (time being of the
essence for these purposes)for any reason other than due to a failure by the
Seller or the Companies to satisfy any material condition precedent contained
in Article 12, the Seller shall have the option to receive the Cash Deposit,
together with any investment earnings, as liquidated damages. In addition, the
Seller shall be indemnified and held harmless by the Buyer for all demands,
claims, actions, suits, proceedings, costs, losses, damages, liabilities and
expenses related to (i) legal fees and expenses incurred by the Seller in
negotiating and documenting the transactions contemplated in this Agreement and
all agreements referred to herein (including the Employment Agreement and the
Registration Rights Agreement) and (ii) legal fees and expenses, if any,
incurred in collecting the Cash Deposit, together with any investment earnings,
arising out of such failure to close by the Buyer as specified in Article 3.
(d) In the event that the Buyer fails to close the transactions
contemplated herein pursuant to Article 3 because of the failure by the Seller
or the Companies to satisfy any material condition precedent contained in
Article 12, the Cash Deposit, together with any investment earnings, shall be
returned to the Buyer.
2.4 Stock Legend. In addition to any legend imposed by applicable
state securities laws, or the certificate of incorporation of the Buyer, all
stock issued by Buyer pursuant to this Agreement shall bear a restrictive
legend stating substantially as follows; provided, however, that Buyer will, or
will cause its transfer agent to, remove such part (or all) of such legend from
each certificate representing stock issued pursuant to this Agreement promptly
following the elimination of the restriction referenced thereby :
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
4
<PAGE>
SECURITIES ACT OF 1933 OR THE OPINION OF COUNSEL TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. FURTHERMORE, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
HOLDING PERIODS, "CALL" AND "PUT" PROVISIONS SET FORTH IN THAT
CERTAIN STOCK PURCHASE AGREEMENT BY AND AMONG PROSERV, INC.,
PROSERV TELEVISION, INC., DONALD L. DELL, AND THE MARQUEE GROUP,
INC., DATED AS OF JUNE 25, 1997 (THE "AGREEMENT").
ARTICLE 3
CLOSING
-------
3.1 Closing. Except as otherwise mutually agreed upon by the Seller
and the Buyer, the consummation of the transactions contemplated herein (the
"Closing") shall occur no later than September 15, 1997; provided, however,
that upon compliance by the Buyer with the provisions of Section 2.3(b), the
Buyer may extend such date to not later than October 15, 1997. The date on
which the Closing actually occurs and the transactions contemplated herein
become effective is hereinafter referred to as the "Closing Date."
The Closing shall be held at the Buyer's offices in New York City
or at such other place in New York City as the Buyer shall designate on a date
prior to the applicable deadline selected by the Buyer, subject to the
reasonable consent of the Seller.
ARTICLE 4
GOVERNMENTAL CONSENTS
---------------------
5
<PAGE>
4.1 The Companies have all governmental consents necessary for the
transactions contemplated in this Agreement and for the conduct of business by
the Companies in the manner in which it is presently being conducted except
where the absence of such consent would not have a material adverse effect on
the Company or its Subsidiaries ("Material Adverse Effect") or prevent or
prohibit the transactions contemplated in this Agreement..
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SELLER
--------------------------------------------------------------
Each of the Companies (in each case, the "Company") together with
the Seller, hereby represent and warrant to the Buyer as follows. As used in
this Article, the phrase "to the Companies' knowledge" shall include only what
is (or, with the exercise of reasonable diligence of such persons in the
conduct of their respective offices, should be) known by any of the following
persons: the Seller, William Allard, Jeff Knapple, Ivan Blumberg, Stephanie
Vardavas, Douglas Porter and (as to TV only) Dennis Spencer.
5.1 Corporate Organization.
(a) Schedule 5.1 of the Disclosure Schedule sets forth the name
and jurisdiction of the Company and its direct and indirect subsidiaries, (the
"Subsidiaries"). Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, has all requisite corporate
or other power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of the
business conducted by it makes such qualification necessary except where the
failure to so qualify or to be in good standing would not have a Material
Adverse Effect. Except as set forth in Schedule 5.1 of the Disclosure Schedule,
all of the issued and outstanding capital stock of each Subsidiary of the
Company is owned, directly or indirectly, by the
6
<PAGE>
Company free and clear of any liens, claims, charges, options, rights of first
refusal, pledges, security interests, mortgages, indentures, or other
encumbrances or third party rights of any kind, written or oral, and is validly
issued, fully paid and nonassessable.
(b) Schedule 5.1 of the Disclosure Schedule contains a complete
and correct Certificate of Incorporation and By-Laws of the Company and of each
of its Subsidiaries other than ProServ Financial Services, Inc., which is
currently a shell corporation.
5.2 Capitalization. The authorized capital stock of the Company is as
set forth on Schedule 5.2 of the Disclosure Schedule. All issued and
outstanding shares of the Company are duly authorized, validly issued and
outstanding, fully paid and nonassessable and not subject to any unwaived
preemptive or appraisal rights. Other than as set forth on Schedule 5.2, there
is outstanding no security, option, warrant, right, call, subscription,
agreement, commitment or understanding of any nature whatsoever, fixed or
contingent, that directly or indirectly (i) calls for the issuance, sale,
pledge or other disposition of any capital stock of the Company or any
securities convertible into, or other rights to acquire, any of the capital
stock of the Company; or (ii) obligates the Company to grant, offer or enter
into any of the foregoing; or (iii) relates to the voting or control of such
capital stock, securities or rights. No person has any right to require the
Company to register any of its securities under the Securities Act of 1933, as
amended (the "Securities Act"); or (iv) grants to any person or entity the
right to receive from any of the Companies any payment, whether in securities,
cash, or kind, the amount of which payment is a function of the value of any
class of the stock of the Company. Schedule 5.2 sets forth the name and address
of each holder of the stock of the Company and the class of such securities and
the number of such securities held by such holder. In addition, Schedule 5.2
sets forth a list of the agreements between the holders of the stock of the
Company relating to such stock, and a copy of each such shareholder agreement,
if any, is attached to Schedule 5.2.
5.3 Subsidiaries of the Company. Except as set forth in Schedule 5.1
or 5.3 of the Disclosure Schedule, the Company does not own, directly or
indirectly, any capital stock of any corporation or have any direct or indirect
equity or ownership interest in any corporation,
7
<PAGE>
business trust, firm, association, partnership, joint venture, entity or
organization.
5.4 Authorization. The Company has full power and authority to enter
into this Agreement and (subject to the approval of transactions contemplated
herein by the Seller of the Company in accordance with applicable law) to carry
out the transactions contemplated herein. The Board of Directors and
shareholders of the Company holding a majority in interest of the voting stock
thereof have approved this Agreement and the transactions contemplated herein,
and have authorized the execution and delivery of this Agreement, and no other
corporate proceedings on the part of the Company are necessary to consummate
the transactions contemplated herein. This Agreement has been duly and validly
executed and delivered by the Company and (assuming this Agreement is a legal,
valid and binding obligation of the Buyer) constitutes a legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
5.5 No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein will (with or
without notice or the passage of time, or both): (a) violate any provision of
the Certificate of Incorporation or By-Laws of the Company or of any
Subsidiary; (b) except as set forth in Schedule 5.5 of the Disclosure Schedule,
violate, conflict with, constitute a default under, permit the termination of,
cause the acceleration of the maturity of, or result in the creation or
imposition of any lien upon the properties or assets of the Company or any of
its Subsidiaries pursuant to the provisions of, any agreement, lease, document,
instrument, debt or obligation to which the Company or any of its Subsidiaries
is bound; or (c) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental agency or body by which the
Company or any of its Subsidiaries is bound or to which the Company or any of
its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries
has received notice that it is in violation of any statute, law, judgment,
decree, order, regulation or rule relating to or affecting the operation,
conduct or ownership of the properties or business of the Company or any of its
Subsidiaries.
5.6 Permits; Compliance. Except as set forth in Schedule 5.6 of the
Disclosure
8
<PAGE>
Schedule, each Company and its Subsidiaries (i) is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the "Company Permits") except where the absence
of such Company Permits would not have a Material Adverse Effect, and (ii)
there is no action, proceeding or investigation pending or threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in violation, which violation would have a
Material Adverse Effect, of (a) any law applicable to the Company or any of its
Subsidiaries or which any of their respective properties is bound by or subject
to or (b) any of the Company Permits, and neither the Company nor any of their
Subsidiaries has received notice with respect to any such violation. The
Company has provided the Buyer with copies of any currently pending written
notifications which any of its Subsidiaries has received from any governmental
entity with respect to violations of applicable laws.
5.7 Reports and Financial Statements. Schedule 5.7 of the Disclosure
Schedule contains true and complete copies of the Company's (i) Audited Balance
Sheet and Income Statement for the years ended December 31, 1994 and December
31, 1995 (ii) unaudited balance sheet and income statements for the year ended
December 31, 1996, and (iii) internally prepared unaudited quarterly combined
financial statements for the period ending March 31, 1997 (collectively, the
"Financial Statements"). Within seven (7) calendar days following the date
hereof, ProServ will add to Schedule 5.7 of the Disclosure Schedule Audited
Balance Sheets and Income Statements for the year ended December 31, 1996,
which statements will not reflect any material difference from the unaudited
statements for such year except as agreed to by the Buyer, and which statements
shall thereafter be considered for all purposes as part of the Financial
Statements. The Financial Statements were prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and fairly present the
financial position of the Company and/or its Subsidiaries, as the case may be,
as at the dates thereof and the results of their operations and changes in
financial position for the periods then ended subject, in the case of the
unaudited interim financial statements, to the absence
9
<PAGE>
of footnotes thereto, normal year-end audit adjustments and any other
adjustments described therein which would not have a Material Adverse Effect.
The Company has delivered to the Buyer copies of all the management letters
from the Company's independent auditors to the Company's Board of Directors or
officers regarding accounting and procedures or other matters concerning the
financial operations of the Company during the past five (5) years.
5.8 Absence of Certain Changes or Events. Except as disclosed in
Schedule 5.8 of the Disclosure Schedule or as permitted after the date hereof
pursuant to Section 9.1, since April 30, 1997, the Company and its Subsidiaries
have conducted their respective businesses only in a manner consistent with
usual and customary industry practice and there has not been: (i) any material
adverse change in the business, operations or financial conditions of the
Company or any of its Subsidiaries; provided, however that operating losses in
the ordinary course of business shall not in of themselves be deemed to be a
material adverse change or to have a Material Adverse Effect; (ii) any entry
into any commitment or transaction expected to provide revenues to or
obligations of the Companies in excess of $100,000 (including, without
limitation, any borrowing or capital expenditures); (iii) any material damage,
destruction or loss (not covered by insurance) with respect to any assets of
the Company or any of its Subsidiaries involving cost or loss (not covered by
insurance) in excess of $100,000 in the aggregate; (iv) any change by the
Company or its Subsidiaries in their accounting methods, principles or
practices (except as required to remain in compliance with GAAP); (v) any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of Stock or the shares of Stock of, or other equity interests
in, any subsidiary of the Company or any redemption, purchase or other
acquisition of any of the Company's securities or any of the securities of any
Subsidiary; (vi) any increase in the benefits under, or the establishment or
amendment of, any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without limitation, the
granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan, or any
increase in the compensation payable or to become payable to directors,
officers or employees of the Company or its Subsidiaries; (vii) any
10
<PAGE>
disposition of any property of the Company or any Subsidiary with fair market
value in excess of $100,000; (viii) any waiver or compromise by the Company or
any of its Subsidiaries of a valuable right or a material debt owed to it; (ix)
any notice, written or oral, to the Company materially adversely modifying any
relationship and/or failure to renew any representation or production
agreements with projected revenues or obligations in excess of $100,000 or (x)
any agreement or commitment by the Company or any of its Subsidiaries to do all
of the foregoing.
5.9 Undisclosed Liabilities. Except as set forth in Schedule 5.9 of
the Disclosure Schedule, the Company and its Subsidiaries have no
non-contingent indebtedness, liabilities or obligations which would be required
to be reflected on a balance sheet or the footnotes thereto in accordance with
GAAP including those to any Stockholder or any affiliate of any Stockholder (as
such term is defined in Rule 144 under the Securities Act) except indebtedness,
liabilities and obligations: (a) reflected or reserved against on the balance
sheet of the Company and its Subsidiaries for the four (4) months ended April
30, 1997 (the "Balance Sheet"), including the notes thereto; or (b) incurred
since the date of the Balance Sheet consistent with usual and customary
industry practice.
5.10 Title to Properties. Except as set forth in Schedule 5.10 of the
Disclosure Schedule, the Company or one or more of its Subsidiaries has good
and marketable title to, or a valid leasehold interest in, all of their
properties and assets (real, personal or mixed), including without limitation,
all of their properties and assets, reflected on the Balance Sheet or acquired
since the date of the Balance Sheet, except for properties and assets sold or
disposed of since the date of the Balance Sheet consistent with usual and
customary industry practice. The properties and assets to be held by the
Companies and their respective Subsidiaries are all such properties and assets
used and necessary to conduct in all material respects the business and
operations of the Companies as now conducted.
5.11 Real Property.
(a) The Company and its Subsidiaries own no real property in fee.
11
<PAGE>
Schedule 5.11 of the Disclosure Schedule contains a list and brief description
of all real property leased by the Company and its Subsidiaries (including a
brief description of the use to which such property is being employed and the
termination date or notice requirement with respect to termination, annual
rental and renewal or purchase options) (the "Real Property"). Schedule 5.11 of
the Disclosure Schedule also lists all title insurance policies with respect to
the Real Property leased by the Company and its Subsidiaries and all guarantees
of such leases given by the Company and its Subsidiaries or any other person or
entity. Complete and correct copies of all such leases, title insurance
policies and guarantees have been delivered by the Company to the Buyer as of
the date hereof;
(b) Schedule 5.11(b) of the Disclosure Schedule includes evidence
of cancellation/termination of the lease agreement for ProServ's European
office located at 20 Rue de Billancourt, Boulogne-Billancourt, Paris, France.
No landlord has asserted any claim arising from such cancellation/termination,
and no notice of default or breach on the part of the Company has been received
by the Company or its Subsidiaries or their respective agents from the landlord
thereunder;
(c) Neither the Company nor any Subsidiary has received any
notice of a pending or contemplated annexation or condemnation or similar
proceedings affecting, or which may affect, all or any portion of the Real
Property;
(d) Except as otherwise noted on Schedule 5.11, (a) the leases
described on Schedule 5.11 (d) are valid and subsisting and in full force and
effect, have not been amended, modified or supplemented and the tenants,
licensees or occupants thereunder are in actual possession, (b) no landlord has
asserted any claim which would in any way affect the relevant tenant's right of
use, possession or occupancy, (c) there are no pending summary proceedings or
other legal actions for eviction of any such tenant, (d) no notice of default
or breach on the part of the tenant under any of the leases has been received
by the Company or its Subsidiaries or their respective agents from the landlord
thereunder, (e) all decorating, repairs, alterations and other work required to
be performed by the tenant under each of the leases has been performed, and (f)
except as set forth in Schedule 5.22 of the Disclosure Schedule, no consent is
necessary from any of the landlords with regard to the transactions
contemplated in this Agreement. No landlord under any
12
<PAGE>
of the leases has any right or option to terminate the lease for any reason
other than a default thereunder by the applicable tenant of the Real Property
and no landlord has a "put" option with regard to any such Real Property. The
copies of the leases delivered to the Buyer together with all other agreements
disclosed hereunder constitute the sole agreements binding upon the Company
with respect to the Real Property. The rents set forth in Schedule 5.11(d) of
the Disclosure Schedule are the actual rents, income and charges presently
being paid by the Company and its Subsidiaries under the leases. No security
deposits have been paid by any tenants of the Real Property, except as set
forth on Schedule 5.11(d) hereto;
(e) Except as set forth on Schedule 5.11(e) of the Disclosure
Schedule, there are no commissions or other compensation now or hereafter
payable to any broker or other agent under any written or oral agreement or
understanding with such broker or agent in relation to any of the leases to
which either the Company or its Subsidiaries are a party or any extension
thereof.
(f) To the Companies' knowledge all certificates, permits and
licenses from any governmental authority having jurisdiction over the Real
Property that are necessary to permit the lawful use and operation of the
buildings and improvements on or constituting the Real Property as they
presently exist have been obtained, and are now, and will continue to be at all
times before the Closing Date, in full force and effect, and, the Companies
have received no notice of any pending threat of modification, cancellation,
termination or expiration of any such certificate, permit, approval or license;
to the Companies' knowledge no buildings or improvements located on or
constituting the Real Property depend on any dedication, variance, subdivision,
special exception or other special governmental approval for their continuing
legality under all current applicable governmental laws, regulations and
ordinances;
(g) The Company has received no notice of any violation of any
restriction, condition or agreement contained in any instrument affecting the
Real Property and the Companies have received no notices of default from any
third party who shall be benefited by any such restriction, condition or
agreements;
(h) There are no charges, complaints, actions, proceedings or
investigations pending or (to the actual knowledge of the Companies) threatened
against or involving the Company or any of its Subsidiaries with respect to the
Real Property;
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(i) The Companies and their respective Subsidiaries have not
received any notice from any insurance company which has issued a policy with
respect to the Real Property or from any landlord of the Real Property
requesting performance of any structural or other repairs or alterations to the
Real Property;
(j) There are no, and on the Closing Date there will be no,
mechanics', materialmen's or similar liens against the Real Property or any
portion thereof arising by, through or under the Company or any Subsidiary,
except for work performed with the prior written consent of the Buyer;
(k) The Companies have received no notice of any violations of
any federal, state or municipal laws, ordinances with regard to any portion of
the Real Property;
(l) Each of the Companies and their respective Subsidiaries is
not a foreign person within the meaning of Section 1445 of the Internal Revenue
Code of 1986, as amended. At the Closing, each of the Company and its
Subsidiaries shall deliver an executed certificate in the applicable form set
forth in Treasury Regulation Section 1.1445-2(b)(2);
(m) Each of the Company and its Subsidiaries has no actual
knowledge of any assessment (for real estate taxes, sewer, water, or other
municipal improvements, or not-for-profit associations) payable in annual
installments, or any part thereof, which has, or may become a lien on the Real
Property or any part thereof, nor of any pending special assessments affecting
the Real Property, or any part thereof; and
(n) To the Companies' knowledge, the Real Property is
satisfactory for its current use by the Company and the Subsidiaries, as
appropriate.
5.12 Personal Property. All of the personal property located at the
Real Property constitutes all of the material tangible personal property and
assets owned or held by the Company and its Subsidiaries (the "Personal
Property"). Except as disclosed in Schedule 5.12 of the Disclosure Schedule,
and except as may be subject to lease agreements or purchase money liens of the
Company and the Subsidiaries, the Companies own and have, and will have on the
Closing Date, good and marketable title to all such property (and to all other
tangible and intangible personal property and assets to be acquired by the
Buyer hereunder), and none of such property is, or on the
14
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Closing Date will be, subject to any encumbrance other than as set forth in the
Disclosure Schedule or the Financial Statements. The Personal Property include
all such properties used and necessary to conduct in all material respects the
business and operations of the Company and its Subsidiaries as it is presently
conducted.
5.13 RESERVE
5.14 Insurance. Schedule 5.14 of the Disclosure Schedule sets forth
the following information with respect to each current insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company or
its Subsidiaries is a party, a named insured, or otherwise the beneficiary of
coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
With respect to each such insurance policy, the Company has not received any
pending notice of any default (including with respect to the payment of
premiums or the giving of notices), under the policy, and no party to the
policy has repudiated any provision thereof. To the Companies' knowledge, the
Company and its Subsidiaries have been covered during the past three (3) years
by insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period.
5.15 Employee Benefits. Except as provided on Schedule 5.15 of the
Disclosure Schedule, the Company and its Subsidiaries have all complied in all
material respects with all laws relating to the employment of labor, including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and those laws relating to wages, hours, collective
bargaining, unemployment insurance, workers' compensation, equal employment
opportunity, sexual
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harassment and payment and withholding of taxes. More specifically, the Company
and its Subsidiaries have substantially complied with and are not knowingly in
default in any material respect under any laws, rules and regulations relating
to employment of labor, including those relating to wages, hours, equal
employment opportunities, sexual harassment, employment of protected minorities
(including women and persons over 40 years of age), collective bargaining and
the withholding and payment of taxes and contributions and have withheld all
amounts required or agreed to be withheld from wages and salaries of its
employees, and are not liable (other than for the current payroll period) for
any arrearage of wages or for any tax or penalty or failure to comply with the
foregoing. There are no claims or complaints pending or, to the Companies'
knowledge, threatened against the Company or its Subsidiaries before any court
or governmental agency and involving any alleged unlawful employment practices,
whether or not relating to the laws described above. The Company and its
Subsidiaries have not consented to any decree involving any claim of unfair
labor practice and have not been held in any judicial proceeding to have
committed any unfair labor practice and there are no material controversies
pending or threatened between the Company or its Subsidiaries and any of its
employees.
5.16 Employees. Schedule 5.16 of the Disclosure Schedule sets forth a
true and complete list of all employees of the Company and its Subsidiaries,
their positions, locations, salaries or hourly wages and severance
arrangements. Except as set forth on Schedule 5.16 of the Disclosure Schedule,
there is no liability for unpaid salary or wages, bonuses, vacation time or
other employee benefits due or accrued, nor liability for withheld or deducted
amounts from Employees earnings for the period ending on the Closing Date.
Neither the Company nor its Subsidiaries is a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. There is no organizational effort presently being made or threatened
by or on behalf of any labor union with respect to employees of the Company or
its Subsidiaries.
5.17 Environment, Health and Safety. Except as otherwise disclosed in
the reports and other documentation described in Schedule 5.17 hereof to the
Companies' knowledge
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there are no actions, suits, claims, or proceedings relating to a violation or
non-compliance with any existing federal, state, or local environmental
statute, regulation, ordinance, or other environmental regulatory requirement,
whether relating to air, water, land or otherwise (collectively, "Applicable
Environmental Laws) pending which may affect the Real Property, or with respect
to the disposal, discharge or release of Hazardous Substances, hazardous wastes
or contaminants at or from or onto the Real Property. As used herein,
"Hazardous Substances" shall mean any hazardous materials, hazardous waste,
hazardous and toxic substances, pollutants and contaminants, as those terms are
defined by any Applicable Environmental Laws.
5.18 Intellectual Property.
(a) The Company and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, ("Intellectual Property"),
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted. Each item of Intellectual Property owned
or used by the Company and its Subsidiaries is owned or available for use by
the Company and its Subsidiaries on identical terms and conditions immediately
subsequent to the Closing. The Company and its Subsidiaries have taken all
reasonably necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) Except to the extent set forth on Schedule 5.18(b) of the
Disclosure Schedule, to the Companies' knowledge, the Company and its
Subsidiaries have not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and none of the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has ever
received any currently pending charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that the Company or the Subsidiaries must license or
refrain from using any Intellectual Property rights of any third party). To the
Companies knowledge, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
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Intellectual Property rights of the Company or its Subsidiaries.
5.19 Contracts. Schedule 5.19 of the Disclosure Schedule lists the
following contracts and other agreements to which either the Company or its
Subsidiaries are a party as of the date hereof:
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any person providing for lease payments in
excess of $10,000 per annum or a term of more than one (1) year;
(b) any agent representation agreement, personal service
agreement, and such other agreements related to agent representation services
and/or management of athletes services;
(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $100,000, or under
which it has imposed a security interest on any material portion of its assets,
tangible or intangible;
(e) any agreement concerning confidentiality or Noncompetition;
(f) any agreement with any of the stockholders or their
affiliates (as such term is defined in Rule 144 of the Securities Act)
(exclusive of employment agreements);
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis (other than agreements which
are terminable without causing a Material Adverse Effect);
(i) any agreement under which the consequences of a default or
termination would have a Material Adverse Effect; or
(j) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
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The Company has delivered or made available to the Buyer a correct and complete
copy of each written agreement listed in Schedule 5.19 of the Disclosure
Schedule and a summary setting forth the terms and conditions of each oral
agreement referred to in Schedule 5.19. Except as set forth in Schedule 5.19 of
the Disclosure Schedule, with respect to each such agreement to the Companies
knowledge: (A) the agreement is legal, valid, binding, enforceable, and in full
force and effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination modification, or
acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
5.20 Taxes.
(a) Except as otherwise disclosed in Schedule 5.20 of the
Disclosure Schedule: The Company has filed and has furnished or made available
to the Buyer (or received an appropriate extension of time to file) all
federal, state, local, and foreign Tax Returns required to be filed prior to
the Effective Date. From 1992 through the Effective Date, the Company and the
Subsidiaries filed consolidated U.S. federal income tax returns as members of
an affiliated group, the common parent of which is the Company. All such Tax
Returns were true and correct in all material respects. The Company and each of
the Subsidiaries has paid all Taxes shown to be due on such Tax Returns, and
has made appropriate provisions in the Balance Sheet for any Taxes not yet due,
or which are being contested in good faith. The Company and each of the
Subsidiaries has disclosed on all Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within
the meaning of Section 6662 of the Code or any similar provision of state,
local or foreign law. The Company and each of the Subsidiaries has withheld and
paid over to the appropriate Governmental Authority all Taxes required by law
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
The Company and each of the Subsidiaries has made all payments of estimated
Taxes required to be made under federal, state, local or foreign law. All tax
deficiencies asserted or assessed against the Company and each of the
Subsidiaries have
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been paid or finally settled. Neither the Company nor any of the Subsidiaries
expects any federal, state, local or foreign taxing authority to assess any
additional Taxes for any period for which Tax Returns have been filed. No
claims have ever been made by any tax authority in a jurisdiction where the
Company and each of the Subsidiaries do not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. Neither the Company nor any of the
Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a tax assessment or deficiency
which waiver or extension remains in effect as of the date hereof. There is no
pending or, to the Companies' knowledge, threatened action, audit, proceeding
or investigation for the assessment or collection of any Taxes. There are no
requests for rulings, subpoenas or requests for information pending with
respect to any taxing authority. Any adjustments of Taxes made by any federal
taxing authority in any examination which is required to be reported to a
state, local, or foreign taxing authority has been reported, and any additional
Taxes due with respect thereto have been paid. No power of attorney has been
granted by the Company or any of the Subsidiaries, and is currently in force,
with respect to any matter relating to Taxes. There are no liens (other than
liens for Taxes that are not yet due or which are being contested in good
faith) on any assets of the Company or any of the Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax, except for
liens which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as otherwise disclosed in Section 5.20 of the
Disclosure Schedule: Neither the Company nor any of the Subsidiaries has made
an election under Section 341(f) of the Code. Neither the Company nor any of
the Subsidiaries has made any payments, is obligated to make any payments, or
is a party to any agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under Section 280G of the
Code. Neither the Company nor any of the Subsidiaries has been a United States
real property holding company within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii). No
excess loss account (within the meaning of Treas. Reg. ss. 1.1502-19) exists
with respect to any of the Subsidiaries. Neither the Company nor any of the
Subsidiaries has, or will have, as of the Closing Date, any deferred gain or
loss arising from deferred intercompany transactions within the meaning of
Treas. Reg. ss. 1.1502-13. Neither the Company nor any of the
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Subsidiaries was acquired in a "qualified stock purchase" under Section
338(d)(3) of the Code and no election under Section 338(g) of the Code,
protective carryover basis election, or offset prohibition election is
applicable to the Company or any of the Subsidiaries. Neither the Company nor
any of the Subsidiaries has participated in or cooperated with any
international boycott within the meaning of Section 999 of the Code. Neither
the Company nor any of the Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or any similar provision of
law or regulations) by reason of a change in accounting method, nor is any
taxing authority considering such change in accounting method. Neither the
Company nor any of the Subsidiaries has disposed of any property which has been
accounted for tax purposes under the installment method. Neither the Company
nor any of the Subsidiaries is a party to any interest rate swap, currency swap
or similar transaction. The net operating loss and other carryovers available
to the Company and each of the Subsidiaries as of the most recent practicable
date will be set forth in Section 5.20(b) of the Disclosure Schedule. As of the
Closing Date, the ability of the Company and each of the Subsidiaries to use
their net operating losses and carryovers will not have been affected by
Sections 382, 383 or 384 of the Code or by the SRLY or CRCO limitations of
Treas. Reg. ss.ss. 1.1502-21 or 1.1502-22. Neither the Company nor any of the
Subsidiaries owns any interest in an entity which is characterized as a
partnership for U.S. federal income tax purposes. Neither the Company nor any
of the Subsidiaries would be liable for any increase in Tax under Section 47 of
the Code, were such entity to dispose of all of its assets on the Closing Date.
As of the Closing Date, neither the Company nor any of the Subsidiaries will
have sustained an "overall foreign loss" within the meaning of Section 904(f)
of the Code. As of the Closing Date, neither the Company nor any of the
Subsidiaries will have any "non-recapture net section 1231 losses" within the
meaning of Section 1231(c) of the Code. No election under Section 1504(d) of
the Code has been made with respect to the Company or any of the Subsidiaries.
(c) The Seller covenants and agrees to pay and bear any risk with
respect to any Tax liability to any French governmental entity arising with
respect to the operations of the Company or any of the Subsidiaries in France
during calendar year 1996.
(d) The Company represents that it will implement a plan of cost
reduction and management as described in the letter from Robert M. Gutkowski to
Donald L. Dell, dated June
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25, 1997.
(e) For purposes of this Section 5.20, the following terms will
have the following meanings:
(i) "Tax" or "Taxes" shall mean any and all federal, state,
local, foreign, and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax
imposed in connection therewith or with respect thereto), whether imposed on
the Company or any of the Subsidiaries, including, without limitation, taxes
imposed on, or measured by, income, franchise, profits, or gross receipts, and
also ad valorem, value added, sales, use, service, real or personal property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer, and
gains taxes and customs duties.
(ii) "Tax Return" shall mean returns, reports, information
statements, or other documentation (including any additional or supporting
material) filed or required to be filed in connection with the calculation,
determination, assessment or collection of any Tax.
5.21 Litigation. Except as set forth in Schedule 5.21 of the
Disclosure Schedule, there are no lawsuits, claims, actions, administrative
hearings, arbitration or other proceedings or governmental investigations or
inquiries (a) pending or, to the actual knowledge of the Company threatened,
against or involving the Company or any of its Subsidiaries or any property or
rights of the Company or any of its Subsidiaries, nor is there any order,
judgment, injunction or decree of any court, governmental agency or arbitrator
outstanding against the Company or any of its Subsidiaries, or (b) pending or,
to the actual knowledge of the Company threatened, against the Company or any
of its Subsidiaries which challenge the validity or propriety of this Agreement
or the transactions contemplated herein, and the Company has received no notice
of any complaints with respect to the Company or its Subsidiaries which have
been filed with any consumer protection agency.
5.22 Consents. No consent or approval under any agreement entered into
by the
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Company is required in connection with the execution, delivery or performance
by the Company of this Agreement or in connection with the transactions
contemplated hereby, which the failure to obtain or make, either individually
or in the aggregate with all other such failures, could reasonably be expected
to (a) have a Material Adverse Effect on the business, financial condition or
results of operation of the Company and its Subsidiaries taken as a whole, or
(b) prevent the Company from consummating the transactions contemplated hereby.
5.23 Affiliate Transactions. Except as set forth on Schedule 5.23
hereof, none of the officers or directors, or individuals related to any of
them by blood or marriage, or, to the best knowledge of the Company or its
Subsidiaries, none of its other employees, including the Seller, is currently a
party (either directly or through any ownership, beneficial, contingent or
other interest in an entity, business or enterprise of any kind) to any
transaction with or involving the Company or its Subsidiaries or any assets
used in the operation of the Company or its Subsidiaries including, without
limitation, any arrangement (other than for services in the ordinary course of
business as officers, directors or employees of Seller) providing for (a) the
furnishing of services by or to, (b) the rental of the sites on which the Real
Property is located, (c) any loan or other indebtedness from or to, (d) the
grant of any mortgage, security interest, pledge or other encumbrance from or
to, or (e) otherwise requiring payments or other consideration (including a
promise of forbearance) from or to, any such person.
5.24 Broker's and Finder's Fees. The Company has not retained any
broker or finder or other person in connection with transactions contemplated
hereby.
5.25 Foreign Company. The Seller has delivered or made available to
the Buyer true and correct copies of each agreement related to the Foreign
Company Shares including a copy of the agreements under which 250 shares of
voting common stock of ProServ (the "Foreign Company Shares") were bought by a
foreign company (the "Foreign Company"). These agreements represent all of the
agreements between the buyers of the Foreign Company Shares and the Company
regarding the purchase of the Foreign Company Shares.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller represents and warrants to the Buyer as follows:
6.1 Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Seller, enforceable in accordance with its terms and conditions. The
Seller, is a natural person, is over 21 years of age and has not had a legal
representative, appointed by a court of law or otherwise, act in his behalf or
with respect to any of his property. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
governmental entity in order to consummate the transactions contemplated by
this Agreement.
6.2 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated herein, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party, by
which he is bound
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or to which any of his assets are subject.
6.3 Title to Shares. The Seller holds of record and owns beneficially
the Shares of the Companies as set forth next to his name in Schedule 5.2 of
the Disclosure Schedule, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
security interests, options, warrants, purchase rights, liens, contracts,
commitments and equities ("Encumbrances"). The Seller is not a party to any
option, warrant, purchase right, or other contract or commitment that could
require the Seller to sell, transfer, or otherwise dispose of the Shares. The
Seller is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of the Shares. The Seller has not
received any notice of any adverse claim to the ownership of the Shares, does
not have any reason to know of any such adverse claim and is not aware of
existing facts that would give rise to any adverse claim to the ownership of
the Shares. The sale and delivery of the Shares to the Buyer pursuant to this
Agreement shall vest in the Buyer legal and valid title to the Shares, free and
clear of Encumbrances, other than Encumbrances created by the Buyer and
restrictions on resales of the Shares under applicable securities laws.
6.5 Accredited Investor. The Seller is a natural person whose
individual net worth, or whose joint net worth with that person's spouse,
exceeds $1,000,000. The Seller is a sophisticated investor by virtue of his
education, training and/or numerous prior investments made on his or her behalf
or through entities which he or she, alone or with others, controls. The Seller
is knowledgeable and experienced in financial and business matters, and is
capable of evaluating the
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merits and risks of an investment and of making an informed business decision.
6.6 Investment Intention. The Seller is acquiring Consideration Stock
for investment and not with a view to sell or distribute thereof in violation
of any securities laws.
6.7 Interest in Competing Business. Excluding the interests that the
Seller has in the Companies and their Subsidiaries, the Seller does not have
any interest of any type, directly or indirectly, in any business related to or
involved with sports management, marketing, or production, or which is in any
other manner competitive with the business of the Companies and their
Subsidiaries.
6.8 Receipt of Information. The Seller has received a copy of each of
the following documents relating to the Buyer: (i) Annual Report on Form 10-K
for the year ended December 31, 1996; and (ii) Prospectus relating to the
Buyer's initial public offering.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer hereby represent and warrants to each of the Companies and
the Seller as follows:
7.1 Corporate Organization.
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(a) The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
will be qualified at Closing to do business where the Companies do business and
has the full power and authority to own the Shares, and to carry on the
business of the Companies as now being conducted in the manner of and in the
places in which such business is now being conducted.
(b) The copies of the Certificate of Incorporation and By-Laws of
the Buyer heretofore delivered to the Companies and the Seller are complete and
correct copies of such instruments as presently in effect.
7.2 Authorization. The Buyer has full power and authority to enter
into this Agreement and to carry out the transactions contemplated herein. The
Board of Directors of the Buyer has approved this Agreement and the
transactions contemplated herein, and have authorized the execution and
delivery of this Agreement, and no other corporate proceedings on the part of
the Buyer are necessary to consummate the transactions contemplated herein.
This Agreement has been duly and validly executed and delivered by the Buyer
and (assuming this Agreement is a legal, valid and binding obligation of the
Companies and the Seller) constitutes a legal, valid and binding obligation of
the Buyer enforceable in accordance with its terms.
7.3 No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein will (with or
without notice or the passage of time, or both): (a) violate any provision of
the Certificate of Incorporation or By-Laws of the Buyer; (b) violate, conflict
with, constitute a default under, permit the termination of, cause the
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<PAGE>
acceleration of the maturity of, or result in the creation or imposition of any
lien upon the properties or assets of the Buyer pursuant to the provisions of,
any agreement, lease, document, instrument, debt or obligation to which the
Buyer is bound; or (c) violate any statute or law or any judgment, decree,
order, regulation or rule of any court or governmental agency or body by which
the Buyer is bound or to which the Buyer is subject. The Buyer has not received
notice that it is in violation of any statute, law, judgment, decree, order,
regulation or rule relating to or affecting the operation, conduct or ownership
of the properties or business of the Buyer.
7.4 Litigation. There are no lawsuits, claims, actions, administrative
hearings, arbitration or other proceedings or governmental investigations or
inquiries pending or, to the actual knowledge of the Buyer threatened, against
or involving the Buyer or any property or rights of the Buyer, nor is there any
order, judgment, injunction or decree of any court, governmental agency or
arbitrator outstanding against the Buyer, and the Buyer has received no notice
of any complaints with respect to the Buyer which have been filed with any
consumer protection agency.
7.5 Consents. Except for applicable requirements of (i) the Securities
Act, and the rules and regulations of the SEC thereunder, (ii) the Securities
Act of 1934 as amended and the rules and regulations of the SEC thereunder (the
"Exchange Act"), (iii) state securities laws ("Blue Sky Laws") (iv) NASDAQ, and
(v) The Boston Stock Exchange, no consent, approval, authorization or order of
(or registration or filing with) any court or governmental agency or body or
other third party is required to be made or obtained by the Buyer in connection
with the execution, delivery or performance by the Buyer of this Agreement or
in connection with the transactions contemplated
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herein, which the failure to obtain or make could reasonably be expected to
prevent the Buyer from consummating the transactions contemplated herein.
7.6 Investment Intention. The Buyer is acquiring the Shares solely for
its own account and not with the view to sell or distribute thereof in
violation of any securities laws.
7.7 Shareholder Consent. The Buyer has the authority to issue the
Consideration Stock to the Seller without the requirement of any consents from
shareholders of the Buyer, and the Consideration Stock is properly registered
under the Exchange Act.
7.8 Buyer's SEC Filings. The Buyer's SEC filings (i) conform in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, and the rules and regulations thereunder and (ii) do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading, in light of the circumstances under which they were made.
7.9 Material Change of Buyer. There has been no material adverse
change to the Buyer since the Buyer's most recent filing on form 10-Q that
would require the filing of a report on Form 8-K or an amendment to any prior
filing of the Buyer.
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ARTICLE 8
COVENANTS AND AGREEMENTS OF THE BUYER
-------------------------------------
8.1 Closing. On the Closing Date, the Buyer shall purchase the Shares
from the Seller as provided in Articles 1 and 2 hereof and shall deliver or
cause to be delivered to the Seller the Consideration Cash and the
Consideration Stock as provided in Article 2 hereof.
8.2 Notification. The Buyer shall notify the Seller of any litigation,
arbitration or administrative proceeding pending or, to its knowledge,
threatened against the Buyer which challenges the transactions contemplated
herein.
8.3 No Inconsistent Action. The Buyer shall not take any other action
which is materially inconsistent with its obligations under this Agreement.
8.4 Registration Statement for Registering of Stock. The Buyer shall
enter into a registration rights agreement (the "Registration Rights
Agreement") with the Seller, whereby the Buyer undertakes to register the
resale of the Consideration Stock pursuant to the Registration Rights
Agreement, in the form attached hereto as Exhibit B.
8.5 Compliance with Laws. The Buyer shall, and shall cause its
subsidiaries to, and the Buyer and its subsidiaries shall, operate the Buyer
and its subsidiaries in all material respects in accordance with all laws,
regulations, rules and orders.
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8.6 SEC Filings and Press Releases. The Buyer shall promptly deliver
copies to the Seller and his counsel of all SEC filings and press releases of
the Buyer issued subsequent to the date hereof.
8.7 Negotiations with Foreign Company and Key Executives. The Buyer
shall enter into prompt, good faith negotiations with (i) the Foreign Company
to purchase its shares as provided herein and (ii) William Allard, Ivan
Blumberg, and Jeffrey Knapple (collectively, the "Key Executives") to enter
into employment agreements and to acquire all of their stock and stock
equivalents in the Companies, in whatever form held and without regard to any
otherwise applicable vesting or payment provisions, at a price per share that
is equal to (and in the same form of consideration as) the price per share
being paid to Seller for his ProServ Common as determined in accordance with
the allocation provisions of the next sentence, provided, however, that with
respect to 50 stock equivalents held by Allard and 20 stock equivalents held by
Knapple in the form of stock options, such price per share shall be reduced by
the exercise price therefor equal to $2,585 per stock equivalent. Solely for
purposes of this Section 8.7, (i) the aggregate Purchase Price to the Seller
shall be deemed to equal $8,600,000; (ii) the portion of the Purchase Price
allocated to the ProServ Preferred shall be $600,000; (iii) the portion of the
Purchase Price allocated to the Seller's 51% interest in the TV Common shall be
equal to the product of (A) 51% and (B) a value for TV to be determined by good
faith negotiations between the Buyer and the Seller, provided, however, that in
the event that the Buyer and the Seller do not agree within five (5) business
days after the date hereof on the value of 100% of the stock of TV, ProServ
shall engage a reasonably acceptable independent entity to perform such
valuation, subject to the reasonable review of such entity's procedures by the
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Buyer's auditors; and (iv) the balance of the Purchase Price shall be divided
by 880 to determine the price per share being paid to the Seller for his
ProServ Common, enabling the Buyer to make offers to the Key Executives for
their stock and stock equivalent interests in ProServ.
8.8 Releases. The Buyer shall cause the release of the Seller's
guarantees as described in Section 12.6.
ARTICLE 9
COVENANTS AND AGREEMENTS OF THE SELLER AND THE COMPANIES
--------------------------------------------------------
9.1 Pre-Closing Covenants. The Seller and the Companies covenant and
agree that between the date hereof and the Closing Date, except as expressly
permitted by this Agreement or with the prior written consent of the Buyer,
they shall act in accordance with the following:
(a) The Seller shall, and shall cause the Companies to, and the
Companies shall, conduct their business and operations in the ordinary and
prudent course of business consistent with customary and industry standards and
with the intent of preserving the ongoing operations and assets of the
Companies.
(b) The Seller shall, and shall cause the Companies to, and the
Companies shall, use their commercially reasonable efforts to preserve the
operation of the Companies intact and to preserve the business of the
Companies' clients, suppliers and others having business relations with the
Companies and continue to conduct the financial operations of the Companies,
including its credit and collection policies, in the ordinary course of
business with substantially the same effort, and to substantially the same
extent and in the same manner, as in the prior conduct of the business
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of the Companies.
(c) The Seller shall, and shall cause the Companies to, and the
Companies shall, operate the Companies in accordance with all laws,
regulations, rules and orders.
(d) The Seller shall not, and shall prevent the Companies from,
and the Companies shall not (i) acquire, sell or dispose of, commit to sell or
dispose of, or encumber or mortgage any of the Companies's assets except in the
ordinary course of business; (ii) waive, release, grant or transfer any rights
of value or modify or change in any material respect any existing license,
lease, contract or other document which would affect the Companies or the
Seller after the Closing in excess of $100,000; (iii) grant or agree to grant
any general increases in the rates of salaries or compensation payable to
employees of the Companies; (iv) grant or agree to grant any specific bonus or
increase to any executive or management employee of the Companies; (v) provide
for any new pension, retirement or other employment benefits for employees of
the Companies or any increases in any existing benefits; (vi) enter into any
new agreement which would bind the Companies after the Closing which agreement
is expected to cause revenues or obligations to or from the Companies in excess
of $100,000; (vii) amend its Certificate of Incorporation or By-Laws; (viii)
change the number of authorized shares of its capital stock; (ix) split or
reclassify any shares of its capital stock or declare, set aside or pay any
dividend or other distribution or payment in cash, stock or property in respect
of shares of its capital stock; (x) undertake any debt of the Companies for
borrowed money in addition to the debt of the Companies as described in
Schedules 5.7 and 5.9 of the Disclosure Schedule or pursuant to existing lines
of credit in the ordinary course of business; or (xi) make or commit to make
any distribution from the Company to TV, in each case, except as otherwise
separately agreed to by the Seller, the Companies, and the Buyer.
Notwithstanding
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anything to the contrary previously set forth in this Section 9.1(d): (y) the
Companies may enter into any waiver, release, grant, transfer, modifications or
change provided for in clause (ii) of this Section 9.1(d) and enter into any
new agreement provided for in clause (vi) of this Section 9.1(d), in each case
in excess of $100,000 in revenues or obligations of the Companies, taken as a
whole, in the ordinary course of the Companies' business without separate
agreement of the Buyer if the Buyer or any subsidiary or affiliate of the Buyer
is or is likely to be a competitor of the Companies for such particular
business; and (z) where any of the Companies seeks the agreement of the Buyer
as to any of the matters described in Section 9.1(d): (1) the Company shall
provide to the Buyer such information relating thereto as a reasonable person
would consider necessary or appropriate in order to reach an informed decision,
which information shall be subject to all confidentiality restrictions set
forth in Section 10.2; (2) the Buyer shall respond to such request by the third
(3rd) business day after its receipt thereof, with the absence of a timely
response from the Buyer being deemed to be its agreement to such request; and
(3) the Buyer's agreement shall not be unreasonably withheld or conditioned,
such determinations to be made solely from the perspective of the Companies
without regard to any effect (positive or negative, direct or indirect) on the
Buyer or any of its subsidiaries or affiliates. .
(e) The Seller shall provide the Buyer prompt written notice of
any material change in any of the information contained in the representations
and warranties made in Article 5 and Article 6 hereof or any of the Disclosure
Schedules.
(f) Following the execution of this Agreement, the Companies and
the Seller shall give the Buyer and the Buyer's counsel, accountants, engineers
and other representatives,
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full and reasonable access during normal business hours and upon reasonable
notice to all of the Companies' personnel, properties, books, contracts,
reports and records including financial information and tax returns, to all
real estate, buildings and equipment, and to the Companies' employees in order
that the Buyer may have full opportunity to make such investigation as it
desires of the affairs of the Companies and to furnish the Buyer with
information, and copies of all documents and agreements including but not
limited to the representation or management of the Companies' clients financial
and operating data and other information concerning the financial condition,
results of operations and business of the Companies that the Buyer may
reasonably request. The rights of the Buyer under this Section shall not be
exercised in such a manner as to interfere with the business of the Seller or
the Companies.
(g) The Seller shall use his commercially reasonable efforts to
assist the Buyer to enter into agreements with the remaining shareholders of
the Companies, as such shareholders are identified in Schedule 5.2 of the
Disclosure Schedule, for the purchase of their shares.
9.2 Foreign Company Agreement. The Seller shall use his commercially
reasonable efforts to cause, within ten (10) days of the execution of this
Agreement, the holder of the Foreign Company Shares to enter into an agreement
(the "Foreign Company Agreement") with the Buyer for the purchase of the
Foreign Company Shares for a purchase price of $3,000,000.00, deliverable in
immediately available funds on the Closing Date against the delivery of duly
endorsed certificates for the Foreign Company Shares, free and clear of any
Encumbrances, together with mutual releases to the Buyer on the Closing Date.
The Foreign Company Agreement shall be, in form and substance,
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reasonably satisfactory to the Buyer. In no event will the failure of the
Foreign Company to enter into the Foreign Company Agreement or to deliver the
appropriate certificates or release to the Buyer at the Closing give rise to
any liability on the part of the Seller or any of the Companies.
9.3 "Lock-Up" Requirement If the Buyer effects the registration of the
Consideration Stock through an underwritten transaction, and such underwriter
shall so request, at the request of the Buyer, the Seller shall sign a
"lock-up" letter with such underwriter restricting the Seller's transfer of the
Consideration Stock pursuant to the terms of Section 9.9; provided, however,
that the terms of such lock-up letter are not more severe than the transfer
restrictions set forth in Section 9.9.
9.4 Notification. The Seller and the Companies shall notify the Buyer
of any material litigation, arbitration or administrative proceeding pending
or, to their knowledge, threatened against the Seller or the Companies which
challenges the transactions contemplated herein.
9.5 No Inconsistent Action. The Seller and the Companies shall take no
action which is materially inconsistent with their obligations under this
Agreement.
9.6 Closing Covenants.
(a) On the Closing Date, the Seller shall sell and deliver the
Shares to the Buyer as provided in Articles 1 and 2 of this Agreement.
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(b) On the Closing Date, the Seller shall use his commercially
reasonable efforts to cause the holder of the Foreign Company Shares to sell
and deliver the Foreign Company Shares to the Buyer as provided in Section 9.2
of this Agreement; provided, however, that in no event shall the failure of the
Foreign Company to do so give rise to any liability on the part of the Seller
or any of the Companies.
9.7 Closing of the Companies's Transfer Books. On the date hereof, the
stock transfer books of the Companies shall be closed and no transfer of shares
at the Companies' capital stock shall thereafter be made.
9.8 Non-Solicitation. From and after the date hereof until the
Closing, the Companies and the Seller shall not initiate or solicit any
Competing Transaction (as defined below) or enter into discussions or negotiate
with any person or entity in furtherance of such inquiries to obtain a
Competing Transaction, or enter into an agreement with respect to any Competing
Transaction, and the Companies and the Seller shall promptly notify the Buyer
of all relevant terms of any such inquiries and proposals received by any of
the Companies or the Seller and if such inquiry or proposal is in writing, the
Companies or the Seller shall deliver or cause to be delivered to the Buyer a
copy of such inquiry or proposal. For purposes of this Agreement, "Competing
Transaction" shall mean any of the following involving the Companies or the
Seller (i) any merger, consolidation, share exchange, business combination, or
other similar transaction (other than the transactions contemplated by this
Agreement); (ii) any sale, lease, exchange, transfer or other disposition of
25% or more of the assets of the Companies or the Seller's interest in the
Companies,
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taken as a whole, in a single transaction or series of transactions; (iii) any
offer (whether cash or securities) for 25% or more of the outstanding Shares of
capital stock of the Companies owned by the Seller; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing.
9.9 Restrictions on Transfer.
(a) For a period of 27 months from the Closing Date, the Seller
shall not: (1) offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the Consideration Stock; or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Consideration Stock owned by the Stockholder,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of the Consideration Stock, in cash or otherwise.
Notwithstanding the foregoing, (i) the restrictions contained in the foregoing
sentence shall be automatically released for 50% of the Consideration Stock on
the first anniversary of the Closing Date and (ii) the Seller may transfer the
Consideration Stock by inter vivos gift or inheritance, in each case for no
consideration; or by pledge; provided, however, that in each case the donee or
pledgee agrees to be bound by the sale restrictions contained herein.
Notwithstanding the restrictions contained in this Section 9.9, the holder of
the Consideration Stock shall be entitled to (i) vote or otherwise exercise all
of the governance rights associated with the ownership of the Consideration
Stock, and (ii) receive all dividends and distributions on or with respect to
the Consideration Stock.
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Upon the expiration or termination of any of the restrictions contained in this
Section 9.9(a), the Buyer shall cause the removal of (or modify as appropriate)
the restrictive legend on such stock at the request of the record holder.
(b) In the event of a merger, consolidation, liquidation or the
like of the Buyer pursuant to which all holders of the Buyer's Class A Common
Stock are to receive consideration, then, notwithstanding the restrictions
contained in this Section 9.9, any holder of the Consideration Stock shall be
entitled to receive consideration on a pro rata basis with all other holders of
the Buyer's Class A Common Stock, free and clear of any restrictions regarding
the sale or disposition of the Consideration Stock and/or the proceeds so
received, and Section 9.9(a) shall no longer apply.
(c) In the event that any shareholder of the Buyer's Class A
Common Stock unrelated to the holder of the Consideration Stock shall invite
the tender of all or a portion of the Buyer's Class A Common Stock, and the
holders of a majority of such shares shall tender such shares in response
thereto, then, notwithstanding any restrictions contained in this Section 9.9,
any holder of the Consideration Stock may tender his/her shares in accordance
with the tender offer and shall be entitled to receive consideration from such
tender offer on a pro rata basis with all other tendering shareholders of the
Buyer's Class A Common Stock, free and clear of any restrictions regarding the
sale or disposition of the Consideration Stock and/or such consideration, and
Section 9.9 (a) shall no longer apply.
ARTICLE 10
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JOINT COVENANTS
---------------
The Buyer, the Seller and the Companies covenant and agree that
between the date hereof and the Closing Date, they shall act in accordance with
the following:
10.1 Conditions. Except as otherwise provided in this Agreement, if
any event should occur, either within or without the control of any party
hereto, which would prevent fulfillment of the conditions upon the obligations
of any party hereto to consummate the transactions contemplated by this
Agreement, the parties hereto shall use their commercially reasonable best
efforts to cure the event as expeditiously as possible.
10.2 Confidentiality. The Buyer, the Seller and the Companies shall
each keep confidential (y) the existence and terms of this Agreement and all
agreements contemplated hereby and (z) all information obtained by it or them
with respect to the other in connection with the negotiations preceding this
Agreement, Buyer's due diligence with respect to the acquisition and any
communications between the Buyer and any of the Seller or any of the Companies
pursuant to Articles 8 or 9, and will use such information solely in connection
with the transactions contemplated by this Agreement, and if the transactions
contemplated hereby are not consummated for any reason, each shall return to
the other, without retaining a copy thereof, any schedules, documents or other
written information obtained from the other in connection with this Agreement
and the transactions contemplated hereby and any notes, memoranda,
correspondence or other compilation, however recorded and in any medium,
containing or referring to such information. Each of the Buyer and each Company
shall use all commercially reasonable efforts to cause each
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of its employees, representatives, officers, directors, shareholders, agents
and advisors to abide by this Section 10.2. Notwithstanding the foregoing, no
party shall be required to keep confidential or return any information which
(i) is obtained through other lawful sources, not bound by a confidentiality
agreement with the disclosing party, (ii) is or becomes publicly known through
no fault of the receiving party or its agents, (iii) is required to be
disclosed pursuant to an order or request of a judicial or governmental
authority or because of the rules and regulations of the Securities and
Exchange Commission (provided the other parties are given reasonable prior
notice), or (iv) is developed by the receiving party independently of the
disclosure by the disclosing party. This section shall survive the Closing and
any termination of this Agreement.
10.3 Cooperation. The Buyer, the Seller and the Companies shall
cooperate fully with each other in taking any actions, including actions to
obtain the required consent of any governmental instrumentality or any third
party necessary or helpful to accomplish the transactions contemplated by this
Agreement; provided, however, that no party shall be required to take any
action which would have a Material Adverse Effect upon it or any affiliated
entity.
ARTICLE 11
CONDITIONS OF CLOSING BY THE BUYER
----------------------------------
The obligations of the Buyer hereunder are, at its option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
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11.1 Representations, Warranties and Covenants.
(a) All representations and warranties of the Companies and the
Seller made in this Agreement shall be true and complete in all material
respects as of the date hereof and on and as of the Closing Date as if made on
and as of that date; provided, however, that unless a failure of this condition
has an adverse effect on the value of the Companies, taken as a whole, in
excess of $400,000 or otherwise significantly diminish the future business
prospects of the Companies, taken as a whole, such condition precedent shall be
deemed satisfied.
(b) All of the terms, covenants and conditions to be complied
with and performed by the Companies and the Seller on or prior to Closing Date
shall have been complied with or performed in all material respects; provided,
however, that unless a failure of this condition has an adverse effect on the
value of the Companies, taken as a whole, in excess of $400,000 or otherwise
significantly diminish the future business prospects of the Companies, taken as
a whole, such condition precedent shall be deemed satisfied..
(c) The Buyer shall have received a certificate, dated as of the
Closing Date, executed by a duly qualified officer of each of the Companies and
by the Seller, to the effect that their respective representations and
warranties contained in this Agreement are true and complete in all material
respects on and as of the Closing Date as if made on and as of that date, and
that each has complied with or performed all terms, covenants and conditions to
be complied with or performed by him or it in all material respects on or prior
to the Closing Date, in each case subject only to the exceptions as would be
permitted under clauses (a) and (b) of this Section 11.1.
11.2 Governmental Authorizations. Each of the Companies shall be the
holder of
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all material licenses, permits and other authorizations listed in the
Disclosure Schedule, and there shall not have been any modification of any of
such licenses, permits and other authorizations which has a Material Adverse
Effect on the conduct of their business and operations. No proceeding shall be
pending which seeks or the effect of which reasonably could be to revoke,
cancel, fail to renew, suspend or modify materially and adversely any material
licenses, permits or other authorizations.
11.3 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered against,
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
11.4 Legal Opinion. Each of the Companies and the Seller shall have
delivered to the Buyer a written opinion of its and their counsel, dated as of
the Closing Date, substantially in the form attached hereto as Exhibit C.
11.5 Delivery of Shares. On the Closing Date, the Buyer shall have
received certificates representing the Shares.
11.6 Delivery of Foreign Company Shares. On the Closing Date, the
Buyer shall have received certificates representing the Foreign Company Shares.
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11.7 Resignations. On the Closing Date, the Buyer shall have received
the resignations of all of the directors of the Companies.
11.8 Insurance, Benefits and Seller's Employment Agreement. The Buyer
shall have received a certificate, dated as of the Closing Date, executed by a
duly qualified officer of each of the Companies, to the effect that: (i) each
of the Companies has canceled its 401K Plan and any other similar plan or
program; (ii) each of the Companies has canceled its Split Money Insurance Plan
with respect to the Seller, although it is acknowledged that the existing
policies may be assigned; (iii) each of the Companies has canceled its Deferred
Compensation Plan with respect to the Seller, although it is acknowledged that
the existing policies may be assigned; and (iv) each of the Companies has
terminated its employment agreement and any other similar arrangement with the
Seller.
ARTICLE 12
CONDITIONS OF CLOSING BY THE SELLER
-----------------------------------
The obligations of the Seller hereunder are, at his option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
12.1 Representations, Warranties and Covenants.
(a) All representations and warranties of the Buyer shall be true
and
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complete in all material respects as of the date hereof and on and as of the
Closing Date as if made on and as of that date.
(b) All the terms, covenants and conditions to be complied with
and performed by the Buyer on or prior to the Closing Date shall have been
complied with or performed in all material respects.
(c) The Seller shall have received a certificate, dated as of the
Closing Date, executed by a duly qualified officer of the Buyer, to the effect
that the representations and warranties of the Buyer contained in this
Agreement are true and complete in all material respects on and as of the
Closing Date as if made on and as of that date, and that the Buyer has complied
with or performed all terms, covenants and conditions to be complied with or
performed by it in all material respects on or prior to the Closing Date.
12.2 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no other, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
12.3 Legal Opinion. The Buyer shall have delivered to the Seller
opinions of their corporate counsel, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit D.
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12.4 Delivery of Consideration Stock and Consideration Cash. The Buyer
shall have delivered or caused to be delivered to the Seller the Consideration
Stock, the Consideration Cash, and if applicable, the Promissory Note, in
accordance with the terms of Article 2 hereof.
12.5 Employment Agreement. On the Closing Date, the Buyer shall have
entered into an employment agreement with the Seller in the form attached
hereto as Exhibit E and shall have tendered the initial grant of Stock Options
(as defined in the employment agreement) for 40,000 shares of Class A Common
Stock of the Buyer.
12.6 Releases. All guarantees or any other personal undertaking of the
Seller, as set forth in Exhibit F attached hereto, with respect to (a) any
outstanding credit facilities or loans for the benefit of either ProServ or TV,
or any of their subsidiaries, and (b) any settlement agreement must be released
or indemnified to the reasonable satisfaction of the Seller. In addition, the
Buyer shall cause the repayment of not less than 50% of the outstanding debt of
ProServ allowed as of Closing pursuant to this Agreement so as to create a
working capital line at least equal to the amount so repaid; provided, however,
that the Buyer may, in lieu of providing such a working capital facility from
an outside source, provide such a facility itself on terms, conditions and
provisions (including security, all-in cost of funds and covenants no more
onerous than those currently in effect at the Companies) as such debt is
described in Schedules 5.7 and 5.9 of the Disclosure Schedule.
12.7 Registration Rights Agreement. On the Closing Date, the Buyer
shall have entered into a Registration Rights Agreement with the Seller as set
forth in Exhibit B attached
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hereto.
12.8 Board Resolutions On the Closing Date, the Buyer shall have
delivered to the Seller certified resolutions of the Board indicating that the
Seller has been appointed/elected as a director on the board of the Buyer.
ARTICLE 13
TRANSFER TAXES; FEES AND EXPENSES
---------------------------------
13.1 Expenses. Except as set forth in Sections 2.3(b), 13.2 and 13.3
hereof, each party hereto shall be solely responsible for all costs and expense
incurred by it in connection with the negotiation, preparation and performance
of and compliance with the terms of this Agreement.
13.2 Transfer Taxes and Similar Charges. All costs of transferring the
Shares in accordance with this Agreement, including recordation, transfer and
documentary taxes and fees, and any excise, sales or use taxes, shall be borne
equally by the Buyer and the Seller.
13.3 Governmental Filing or Grant Fees. Any filing or grant fees
imposed by any governmental authority the consent of which is required to the
transactions contemplated hereby or is a condition of this Agreement shall be
borne by the Seller.
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ARTICLE 14
COMMISSIONS OR FINDER'S FEE
---------------------------
14.1 Representation and Agreement to Indemnify. The parties hereto
agree to indemnify, defend and hold each other harmless from and against any
and all claims, losses, liabilities and expenses (including reasonable
attorneys' and other professionals' fees and disbursements) arising out of a
claim by any person or entity based on any arrangement or agreement made or
alleged to have been made by the Buyer, Seller or the Companies to pay a
commission, finder's fee or similar payment in connection with this Agreement
or any matter related hereto.
ARTICLE 15
DOCUMENTS TO BE DELIVERED AT CLOSING
------------------------------------
15.1 The Seller' Documents. At the Closing, the Seller and the
Companies shall deliver or cause to be delivered to the Buyer the following:
(a) Certified resolutions of the Board of Directors of each of
the Companies approving the execution and delivery of this Agreement and each
of the other documents, and authorizing the consummation of the transactions
contemplated hereby and thereby;
(b) Certificates, dated the Closing Date, by each of the
Companies and the Seller in the form described in Section 11.1(c) above;
(c) Articles of Incorporation and Bylaws of each of the Companies
certified by each of the Company's secretary as of the Closing Date to be true
and accurate copies
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thereof;
(d) The opinion letters, dated the Closing Date, referenced in
Sections 11.4 above;
(e) Certificates evidencing the Shares;
(f) Governmental certificates showing that each of the Companies
are duly incorporated and in good standing in the State of Delaware, dated not
more than forty-five (45) calendar days before the Closing Date; and
(g) Such additional information and material as the Buyer shall
have requested in a timely manner in writing and which is reasonably necessary
for the Closing.
15.2 The Buyer's Documents. At the Closing, the Buyer shall deliver or
cause to be delivered to the Seller the following:
(a) The Consideration Stock, the Consideration Cash, and if
applicable, the Promissory Note, in accordance with Article 2 hereof.
(b) A certificate, dated the Closing Date, by the Buyer in the
form described in Section 12(c) above.
(c) The opinion of the Buyer's corporate counsel, dated the
Closing Date, to the effect set forth in Section 12.3;
(d) Governmental certificates showing that the Buyer is duly
incorporated and in good standing in the State of Delaware and is qualified as
a foreign corporation in the State of New York, dated not more than forty-five
(45) calendar days before the Closing Date;
(e) Certified resolutions of the Board of Directors of the Buyer
approving
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the execution and delivery of this Agreement and each of the other documents
and agreements referred to herein and authorizing the consummation of the
transactions contemplated hereby and thereby;
(f) Certified resolutions of the Board of Directors of the Buyer
appointing/electing the Seller to the Board of Directors;
(g) The Employment Agreement set forth in Section 12.5;
(h) The Registration Rights Agreement set forth in Section 8.4;
and
(i) Such additional information and material as the Seller shall
have requested in a timely manner in writing and which is reasonably necessary
for the Closing.
ARTICLE 16
INDEMNIFICATION
---------------
16.1 The Seller's Indemnities.
(a) The Seller hereby agrees to indemnify, defend and hold the
Buyer harmless with respect to any and all demands, claims, actions, suits,
proceedings, assessments, judgments, costs, losses, damages, liabilities and
expenses (including, without limitation, reasonable attorney's and other
professionals' fees and disbursements) asserted against, resulting from,
imposed upon or incurred by the Buyer directly or indirectly relating to or
arising out of (i) the inaccuracy of any representation or warranty, or the
breach of any covenant or agreement, contained herein or in any instrument or
certificate delivered pursuant hereto and (ii) the operation of the Companies
prior
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to the Closing; provided, however, that as a condition precedent hereto, the
Buyer shall have delivered written notice of any such claim to Seller prior to
the first anniversary of the Closing Date (or the second anniversary of the
Closing Date solely with respect to any breach of Section 5.20 hereof).
(b) The Seller hereby further agrees to indemnify the Buyer as
follows:
(i) For purposes of this Section 16.1 (b), "Net Working
Capital" shall be defined as the difference between the consolidated current
assets and current liabilities of the Companies determined on a basis
consistent with that used in the projected Net Working Capital calculations
submitted to Buyer by the Companies on June 18, 1997, under cover memo to Jan
Chason and Donna Coleman from Doug Porter.
(ii) To the extent that on the Closing Date the Net Working
Capital deficit is equal to or less than ($1,450,000), Seller shall have no
indemnity obligation with respect thereto.
(iii) To the extent that on the Closing Date the Net Working
Capital deficit is greater than ($1,450,000), Seller shall indemnify Buyer to
the extent of (i) 50% of the amount by which the Net Working Capital deficit as
of the Closing Date is greater than ($1,450,000) but equal to or less than
($1,750,000), and (ii) 100% of the amount by which the Net Working Capital
deficit as of the Closing Date is greater than ($1,750,000), provided, however,
that any increase in the deficit Net Working Capital caused by any action or
inaction requested by or approved by Buyer in writing in its sole discretion
shall be excluded for purposes of such indemnity.
(c) The Seller further agrees to indemnify the Buyer as follows:
Buyer shall consider in good faith for not less than four (4) months following
the Closing Date the
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continuation of the employment by TV of Dennis Spencer; if Buyer, following
such good faith consideration, shall determine to cause TV to terminate the
employment of Dennis Spencer:
(i) Buyer shall cause TV to negotiate in good faith to obtain
the least costly settlement agreement with Mr. Spenser possible under the
circumstances, and
(ii) Seller will indemnify TV to the extent of 50% of any
such settlement agreement.
16.2 Buyer's Claim Against Consideration Stock. If claims with respect
to the Seller's indemnification obligations hereunder are brought on or prior
to the first anniversary of the Closing Date, the Buyer shall have the right to
offset such claims (once acknowledged by or determined adversely against the
Seller after all appeals) against (but only against) that 50% portion of the
Consideration Stock to which the transfer restrictions set forth in Section
9.9(a) remain effective after the first anniversary of the Closing Date,
provided, however, that the Seller may cause the release of such Consideration
Stock from any such claim by substituting therefor either a bond in favor of
the Buyer or pledging to the Buyer as security for such outstanding claims
property of equivalent value reasonably satisfactory to the Buyer.
16.3 The Buyer's Indemnities. The Buyer hereby agrees to indemnify,
defend and hold the Seller and the Companies harmless with respect to any and
all demands, claims, actions, suits, proceedings, assessments, judgments,
costs, losses, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' and other professionals' fees and
disbursements) asserted against, resulting from, imposed upon or incurred by
the Seller or any Company directly
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or indirectly relating to or arising out of the inaccuracy of any
representation or warranty, or the breach of any covenant or agreement,
contained herein or in any instrument or certificate delivered pursuant hereto;
provided, however, that as a condition precedent hereto, the Seller and/or the
Companies shall have delivered written notice of any such claim to Buyer prior
to the first anniversary of the Closing Date.
16.4 Rights. The Buyer and the Seller agree that the rights of
indemnification provided in this Article 16 are exclusive of and in addition to
any and all other such rights of the Buyer and the Seller hereunder.
16.5 Survival of Representations and Warranties. The representations
and warranties contained in this Agreement shall survive the Closing for a
period of twelve (12) months (except for representations and warranties set
forth in Section 5.20, which shall survive for a period of twenty-four (24)
months) (the "Claims Period") following the Closing Date, and upon the
expiration of such period shall lapse and be of no further effect.
16.6 Limitation on Indemnity. Notwithstanding anything to the contrary
contained in this Agreement; (a) the Seller shall have no liability or
obligation to the Buyer for breach of (i) any representation or warranty
provided in Section 5.20 unless and only to the extent that such breach (or
breaches) reduces the value of the Companies, taken as a whole, by in excess of
$100,000 in the aggregate, or (ii) any representation, warranty, covenant or
agreement of the Seller or the Company made elsewhere in this Agreement unless
and to the extent that the aggregate of all claims
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by the Buyer for such breaches exceed $100,000) in the aggregate; and (b) no
party may seek an indemnity claim against another for breach of a
representation or warranty contained herein, if the claimant was aware at or
prior to the execution and delivery hereof of such breach.
16.7 Procedures.
(a) Promptly after the receipt by any party (the "Indemnified
Party") of notice of (A) any claim or (B) the commencement of any action or
proceeding which may entitle such party to indemnification under this Section,
such party shall give the other party (the "Indemnifying Party") written notice
of such claim or the commencement of such action or proceeding and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting from such claim. So long as notice is given in accordance
with the respective provisos in Sections 16.1 and 16.3, the failure to give the
Indemnifying Party timely notice under this clause shall not preclude the
Indemnified Party from seeking indemnification from the Indemnifying Party
unless and to the extent such failure has materially prejudiced the
Indemnifying Party's ability to defend the claim or litigation. (b) If the
Indemnifying Party assumes the defense of any such claim or litigation
resulting therefrom with counsel reasonably acceptable to the Indemnified
Party, the obligations of the Indemnifying Party as to such claim shall be
limited to taking all steps necessary in the defense or settlement of such
claim or litigation resulting therefrom and to holding the Indemnified Party
harmless from and against any losses, damages and liabilities caused by or
arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation resulting therefrom;
however, the Indemnified Party may participate, at its or his
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expense, in the defense of such claim or litigation provided that the
Indemnifying Party shall direct and control the defense of such claim or
litigation. If the Indemnified Party reasonably concludes that it may have
defenses or other interests different from or in conflict with those of the
Indemnifying Party, it may require the Indemnifying Party to provide for (at
the Indemnifying Party's expense) separate counsel for the Indemnified Party,
such counsel to be selected by the Indemnified Party, subject to the reasonable
approval of the Indemnifying Party. The Indemnified Party shall cooperate and
make available all books and records reasonably necessary and useful in
connection with the defense at no out-of-pocket cost to itself. The
Indemnifying Party shall not, in the defense of such claim or any litigation
resulting therefrom, consent to entry of any judgment, except with the written
consent of the Indemnified Party, or enter into any settlement, except with the
written consent of the Indemnified Party, which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim or
litigation.
(c) If the Indemnifying Party shall not assume the defense of any
such claim or litigation resulting therefrom, the Indemnified Party may, but
shall have no obligation to, defend against such claim or litigation in such
manner as it may deem appropriate. The Indemnifying Party shall promptly
reimburse the Indemnified Party for the amount of all expenses, legal or
otherwise, incurred by the Indemnified Party in connection with the defense
against such claim or litigation. If both parties shall agree to the terms of
any settlement of such claim or litigation, the Indemnifying Party shall
promptly pay such settlement in accordance therewith. If no settlement of the
claim or litigation is made, the Indemnifying Party shall promptly reimburse
the Indemnified Party for the amount of any judgment rendered with respect to
such claim or in such
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litigation and of all expenses, legal or otherwise, incurred by the Indemnified
Party in the defense against such claim or litigation.
ARTICLE 17
TERMINATION RIGHTS
------------------
17.1 Termination. This Agreement may be terminated by either the Buyer
or the Seller, if the party seeking to terminate is not in material default or
breach of this Agreement, upon written notice to the other upon the occurrence
of any of the following:
(a) if, on or prior to the Closing Date, the other party defaults
in any material respect in the observance or in the due and timely performance
of any of its covenants or agreements herein contained and such material
default shall not be cured within ten (10) calendar days of the date of written
notice of default served by the party claiming such material default; or
(b) if there shall be in effect any judgment, final decree or
order that would prevent or make unlawful the Closing of this Agreement; or
(c) by the Buyer or the Seller if the conditions precedent to
Closing have not been satisfied prior to the final closing date provided for in
Article 3 provided that the party seeking to terminate has compiled with all
terms and conditions hereof and is not then in default under this Agreement.
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(d) if the holder of the Foreign Company Shares does not sign an
agreement with the Buyer, within ten (10) days of the execution of this
Agreement, for the purchase and sale of the Foreign Company Shares as described
in Section 9.2 of this Agreement.
(e) as provided in any Section of this Agreement which
specifically provides for termination.
17.2 Liability. The termination of this Agreement under Section 17.1
shall not relieve any party of any liability for breach of this Agreement prior
to the date of termination.
17.3 Limitations on Right to Terminate. Notwithstanding anything to
the contrary contained in this Article 17: (a) the Buyer may not terminate this
Agreement and recover the Cash Deposit, together with any investment earnings
thereon, unless the aggregate reduction in the value of the Companies, taken as
a whole, resulting from the breach(es) by the Seller and/or any of the
Companies of their respective representations, warranties, covenants or
agreements exceeds $400,000 or would otherwise cause a significant diminution
in the future business prospects of the Companies, taken as a whole; and (b) if
the Buyer is eligible to terminate this Agreement pursuant to Section 17.3(a)
but instead chooses to proceed to Closing and to seek indemnity from the Seller
for such breach(es) (i) such claims shall be limited to those damages in excess
of $100,000 and (ii) the Buyer shall be precluded from seeking damages in
excess of $900,000 in the aggregate, regardless of whether such claim is made
before or after the Closing Date.
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ARTICLE 18
PUT AND CALL PROVISIONS AFTER CLOSING
-------------------------------------
18.1 Put Option. Each record holder as of a given date may, at its
option, by written notice given to Buyer any time within sixty (60) days
immediately following the second anniversary of the Closing Date (the "Put
Period"), elect to transfer to the Buyer all of the remaining Consideration
Stock held by him, free and clear of any and all Encumbrances, including any
restrictions set forth in Section 9.9, at a price per share equal to the
quotient of $1,732,500 divided by the number of shares of Consideration Stock
(as adjusted for any stock splits, reverse stock splits, stock dividends and
the like subsequent to the Closing Date).
18.2 Put Closing. The closing of any purchase under section 18.1 shall
be held at a place and date specified by the Buyer by written notice given to
all record holders not more than ten (10) days after any such record holder
shall have exercised the option pursuant hereto; the date of the closing shall
not be more than thirty (30) days after the record holder shall have exercised
the option pursuant to Section 18.1. At the closing, (i) the holder of the
Consideration Stock who is the subject of the "put" shall deliver to Buyer a
certificate or certificates for all the shares of Consideration Stock being
transferred, duly endorsed in blank and with all required stock transfer stamps
attached, if any, and (ii) Buyer shall pay to the holder the purchase price for
such shares. The purchase price shall be payable by wire transfer of
immediately available funds to an account specified by the holder(s) by written
notice given to Buyer at least two business days before the closing.
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18.3 Call Option. The Buyer (or its assignee) may, at its option, by
written notice given to the Seller on a given date, and at any time beginning
with the 61st day and ending with the 90th day following the second anniversary
of the Closing Date (the "Call Period"), elect to purchase from the Seller or
holder up to 50% of the Consideration Stock held by the Seller or holder, free
and clear of any and all Encumbrances, including any restrictions set forth in
Section 9.9, at a price per share equal to the quotient of $866,250 divided by
the number of shares then equal to 50% of the Consideration Stock (as adjusted
for any stock splits, reverse stock splits, stock dividends and the like
subsequent to the Closing Date). The Seller shall be prohibited from conveying
its allocation of the Consideration Stock after delivery of a notice by Buyer
pursuant to this Section.
18.4 Call Closing. The closing or any purchase under Section 18.3
shall be held at a place and date specified by the Buyer in a written notice
given to each of the holders not more than ten (10) days after the Buyer shall
have exercised the option pursuant hereto; the date of the closing shall not be
more than thirty (30) days after the Buyer shall have exercised the option
pursuant to Section 18.3. At the closing, (i) the record holder who is the
subject of the "call" shall deliver to the Buyer a certificate or certificates
for all the Shares of Consideration Stock being transferred, duly endorsed in
blank and with all required stock transfer stamps attached, and (ii) the Buyer
shall pay the Seller the purchase price for such shares of Consideration Stock
in accordance with the amount set forth herein. The purchase price shall be
payable by wire transfer of immediately available funds to the account
specified by the Seller by written notice given to the Buyer at least two
business days before the closing.
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18.5 Call and Put Options Not Exercised. In the event and to the
extent that Seller does not exercise the Put Option (as defined above) and the
Buyer does not exercise the Call Option, the remaining Consideration Stock
shall be free and clear of any restrictions created on such stock by this
Agreement, excluding any restrictions that are required under the Securities
Laws.
18.6 Buyer's Default on Put Obligations. In the event that the Buyer
defaults on its obligations pursuant to Section 18.1, the Seller may, at his
discretion, require the Buyer to issue to the holders of the Stock
Consideration, pro rata to their holdings, additional shares of the Buyer's
Class A Common Stock to the extent that the net proceeds from the sale thereof,
together with the net proceeds from the sale of the Consideration Stock, shall
equal $1,732,500 in the aggregate; provided, however, that the Buyer's
obligation to issue such additional stock shall be limited to an additional
225,000 shares. In the event that the Seller exercises such option but the net
proceeds from such sales do not equal or exceed $1,732,500, the Buyer shall
remain liable for the balance.
ARTICLE 19
OTHER PROVISIONS
----------------
19.1 Specific Performance. In the event of a material breach by any
party of its respective obligations hereunder (other than the failure of the
Buyer to tender the consideration due at Closing) any other party shall have
the right to bring an action to enforce the terms of this Agreement by decree
of specific performance, provided, however, that Seller shall first have ten
(10) days to cure any failure to deliver the Shares after written notice to
such effect from the Buyer, it
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being agreed that the property to be transferred hereunder is unique and not
readily available in the open market, and each party thereby further agrees to
waive any and all defenses against any such action for specific performance
based on the grounds that there is an adequate remedy for money damages
available.
19.2 Further Assurances. After the Closing, each party shall from time
to time, at the request of and without further cost or expense to the other
parties, execute and deliver such other instruments of conveyance and transfer
and take such other actions as may reasonably be requested by any party in
order to more effectively consummate the transactions contemplated hereby to
vest in such party its rights, including as to the Buyer good and marketable
title as to the assets being transferred hereunder. The Buyer shall from time
to time, at the request of and without further cost or expense to the Seller,
execute and deliver such other instruments and take such other actions as may
reasonably be requested in order to more effectively relieve the Seller of any
obligations being assumed by the Buyer hereunder.
19.3 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party, except for any assignment by the Buyer to an affiliate of the
Buyer in which case the Buyer shall remain fully obligated under this Agreement
as an assignor.
19.4 Entire Agreement. This Agreement, the Disclosure Schedule and the
Exhibits
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hereto embody the entire agreement and understanding of the parties hereto and
supersede any and all prior agreements, arrangements, representations,
warranties, and understandings relating to the matters provided for herein,
including that certain letter of intent between the Buyer and the Seller dated
as of May 16, 1997. No amendment, waiver of compliance with any provision or
condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any waiver, amendment, change, extension or discharge is sought.
19.5 Headings. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
19.6 Governing Law. The construction and performance of this Agreement
shall be governed by the laws of the State of New York without giving effect to
any otherwise applicable principles of conflicts of law or choice of law.
19.7 Notices. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and shall
be deemed to have been duly delivered and received on the date of personal
delivery or on the date of receipt, if mailed by registered or certified mail,
postage prepaid and return receipt requested, or on the date of a stamped
receipt, if sent by an overnight delivery service, or on the date of written
confirmation of delivery by facsimile, and shall be addressed to the following
addresses, or to such other address as any party may request, in the case of
the Seller, by notifying the Buyer, and in the case of the Buyer, by
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notifying the Seller:
To the Companies: ProServ, Inc.
1101 Wilson Boulevard,
19th Floor
Arlington, VA 22209
Attn: Chief Executive Officer
Fax No. (703) 276-3088
ProServ Television, Inc.
1101 Wilson Boulevard,
19th Floor
Arlington, VA 22209
Attn: Chief Executive Officer
Fax No. (703) 276-3088
With a Copy (not constituting notice) to:
To the Seller: Donald L. Dell
12200 Stoney Creek Rd.
Potomac, Maryland 20854
Fax No. (301) 963-6719
With a Copy (not constituting notice) to: Jerry L. Shulman
Williams & Connolly
725 Twelfth Street, N.W.
Washington, D.C. 20005
Fax No. (202) 434-5029
To the Buyer: The Marquee Group, Inc.
888 7th Avenue
New York, NY 10019
Attn: Robert Gutkowski
Fax No. (212) 977-4625
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With a Copy (not constituting notice) to: Howard J. Tytel
The Sillerman Companies
150 East 58th Street
New York, NY 10155
Fax No. (212) 753-3188
19.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument. It shall not be necessary
when making proof of this Agreement to account for more than one such
counterpart.
19.9 Alternate Dispute Resolution.
(a) In the event of any dispute, controversy or claim between the
Buyer, the Seller, and/or the Companies arising out of or relating to this
Agreement, the Seller and representatives of the Buyer shall meet at a place
mutually agreed upon by such parties as soon as reasonably possible (but not
later than ten (10) days after notice from any party hereto to the other that
the party giving notice has such a dispute) and shall enter into good faith
negotiations aimed at resolving the dispute. If they are unable to resolve the
dispute in a mutually satisfactory manner within ten (10) days from the date of
such meeting, they shall proceed as set forth below.
(b) First, the parties shall endeavor to: (i) choose a mutually
acceptable alternative dispute resolution ("ADR") mechanism, including without
limitation choosing one or more third party arbitrators; and (ii) set forth the
general framework for the ADR process. If the parties are unable to agree to a
mutually acceptable ADR mechanism within ten (10) days from the date of the
initial proposal from any party with respect thereto, the parties shall enter
into binding arbitration as set forth below.
(c) All disputes among the parties arising out of or relating to
this Agreement that are not resolved by good faith negotiations between the
parties or by an ADR mechanism as set forth above shall be resolved solely by
binding arbitration pursuant to the United States Arbitration Act, 9 U.S.C.
Section 1 et seq. All disputes as to whether any dispute is subject
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to arbitration shall also be settled by binding arbitration. Either party may
commence arbitration proceedings at any time following the fifth (5th) day
after delivery of notice from one party to the other of the inability of the
parties to agree upon a mutually acceptable ADR mechanism as set forth above.
(d) Any arbitration shall be conducted in the Washington, D.C.
metropolitan area (or such other area mutually agreeable to all parties) before
a single arbitrator mutually selected by the parties thereto or, in the event
the parties shall fail to agree, by a three-person panel acting pursuant to the
Commercial Arbitration Rules and, if applicable at such time, the Streamlined
Arbitration Rules and Procedures, then in effect of the American Arbitration
Association. Any three person arbitration panel shall consist of one arbitrator
selected by each disputing party and one arbitrator selected by the first two
arbitrators. The presentation of evidence shall be governed by the Federal
Rules of Evidence. Discovery shall be controlled by the arbitrator/panel.
(e) Any arbitration award made shall:
(i) set forth the arbitrator/ panel's findings of fact and
conclusions of law and afford any such remedy as is within the scope of the
Agreement;
(ii) be made on an expedited basis to the extent feasible;
(iii) be final and binding upon the parties and may be
entered for enforcement in any court of competent jurisdiction.; and
(iv) include as part of the arbitrator's/panel's
determination the responsibility among the parties for payment of the
arbitrator's/panel's fees and expenses, and the prevailing party on any issue
in any arbitration shall be entitled to recover from the other party all fees
and expenses (including without limitation reasonable attorneys' and other
professionals' fees and disbursements) incurred in pursuing such issue if the
arbitrator/panel, in its discretion, determines that such an award is
warranted.
(f) Each party will participate in any such arbitration in good
faith and will (and will cause its representatives, employees and affiliates
to, and will request each participant in any ADR mechanism and each arbitrator
to) hold the existence, content and result of any dispute in confidence except
to the extent that disclosure of any such information is required by law.
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(g) This Section 19.9 shall be a complete defense to any suit,
action or proceeding instituted before any court or agency with respect to any
matter resolvable hereunder, provided, however, that, notwithstanding this
provision, any party may seek interim judicial relief in aid of ADR or
arbitration, to prevent a violation of this Agreement pending ADR or
arbitration or to enforce any ADR or arbitration award.
19.10 Severability. Should any provision of this Agreement be
unenforceable or prohibited by any applicable law, this Agreement shall be
considered divisible as to such provision which shall be inoperative, and the
remainder of this Agreement shall be valid and binding as though such provision
were not included herein.
19.11 Interpretation. No provision of this Agreement shall be
interpreted or construed against any party because that party or its legal
representative drafted such provision. The titles of the paragraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement. For all purposes of this Agreement, unless the
context otherwise requires or as otherwise expressly provided, (a) all defined
terms shall include both the singular and the plural forms thereof; (b)
reference to any gender shall include all other genders; (c) all references to
words such as "herein", "hereof", and the like shall refer to this Agreement as
a whole and not to any particular Article or Section within this Agreement; (d)
the term "include" means "include without limitation"; and (e) the term "or" is
intended to include the term "and/or".
[SIGNATURES APPEAR ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
Companies:
----------
PROSERV, INC.
By: /s/Donald L. Dell
--------------------------------
Name: Donald L. Dell
Title: Chairman & CEO
PROSERV TELEVISION, INC.
By: /s/ Donald L. Dell
--------------------------------
Name: Donald L. Dell
Title: Chairman & CEO
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>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 21 day of July, 1997 (the "Execution Date") by and among QBQ
ENTERTAINMENT, INC., a New York corporation ("Seller") DENNIS ARFA, an
individual ("Arfa"); MARQUEE MUSIC, INC., a Delaware corporation ("Marquee
Music"), and THE MARQUEE GROUP, INC., a Delaware corporation ("Marquee Group";
Marquee Group and Marquee Music are hereinafter referred to collectively as
"Buyer");
WHEREAS, Seller is in the business of booking tours and appearances
for musical and comedy entertainers (the "Booking Business"); and
WHEREAS, Seller desires to sell and Buyer desires to purchase certain
assets and assume certain liabilities associated with the Booking Business, all
on the terms and subject to the conditions set forth herein; and
WHEREAS, Arfa is the sole shareholder of the Seller and shall benefit
from the transaction contemplated hereby.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
PURCHASE OF ASSETS
------------------
1.1 Transfer of Assets. On the Closing Date, Seller shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and assume from
Seller, all of the assets, properties, interests and rights of Seller of
whatsoever kind and nature, real and personal, tangible and intangible, owned
or
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leased by the Seller as the case may be, which are used or held for use by or
relate to the Booking Business as the same shall exist on the Closing Date (the
"Assets"), including but not limited to the following (but excluding the assets
specified in Section 1.2 hereof):
1.1.1 all of Seller's rights in and to the licenses, permits and
other authorizations issued to Seller by any governmental authority and used
directly in, or relating directly to, the conduct of the Booking Business along
with renewals or modifications of such items between the date hereof and the
Closing Date;
1.1.2 all equipment, office furniture and fixtures, office
materials and supplies, inventory, spare parts and other tangible personal
property of every kind and description, owned, leased or held by Seller and
used in the conduct of the Booking Business, and which are described more fully
in Section 7.7, together with any replacements of equal quality thereof and
additions thereto, made between the date hereof and the Closing Date, and less
any retirements or dispositions thereof made between the date hereof and the
Closing Date in the ordinary course of business and consistent with past
practices of the Seller;
1.1.3 all of Seller's rights in and under such contracts,
agreements, leases, commitments, purchase orders, sale orders and other
agreements written or oral, relating directly or exclusively to the conduct of
the Booking Business and which are described more fully in Sections 7.7, 7.8
and 7.9 (collectively, "Contracts"), together with all Contracts entered into
or acquired by Seller between the date hereof and the Closing Date in the
ordinary course of business and consistent with the terms of this Agreement
(collectively, "Additional Contracts");
1.1.4 all of Seller's rights in and to the trademarks, trade
names, service marks, franchises, copyrights, including registrations and
applications for registration of any of them, logos and slogans or licenses to
use same owned or held by it and used directly and exclusively in, or relating
directly and exclusively to, the conduct of the Booking Business, as described
more fully in Section 7.12, together with any associated good will and any
additions thereto between the date hereof and the Closing Date;
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1.1.5 all of Seller's rights in and to the files, records, and
books of account of the Booking Business including, without limitation,
executed copies of all written Contracts to be assigned hereunder; provided,
however, that Seller shall for a period of six (6) years following the Closing
Date have access to all of the foregoing for audit, inspection and duplication
by Seller or its designees, at Seller's expense, upon reasonable prior notice
during normal business hours;
1.1.6 all of Seller's rights under manufacturers' and vendors'
warranties relating to items included in the Assets and all similar rights
against third parties relating to items included in the Assets; and
1.1.7 all accounts receivable of Seller created after the later of
September 30, 1997 or the date of the Closing (the "Revenue Cut-Off Date").
The Assets shall be transferred to Buyer free and clear of all debts,
security interests, mortgages, trusts, claims, pledges, conditional sales
agreements or other liens, liabilities and encumbrances whatsoever
(collectively, "Encumbrances") other than Permitted Encumbrances (as
hereinafter defined). As used herein, "Permitted Encumbrances" shall mean: (a)
such of the following as to which no enforcement, collection, execution, levy
or foreclosure proceeding shall have been commenced prior to the Closing Date:
(i) liens for taxes, assessments and governmental charges or levies not yet due
and payable or which are being contested in good faith by appropriate
procedures, (ii) Encumbrances arising in the ordinary course of business
securing obligations that (A) are not overdue for a period of more than 60 days
and (B) are not in excess of $1,000 in the case of a single property or $5,000
in the aggregate at any time, (iii) pledges or deposits to secure obligations
under workers' compensation laws or similar legislation or to secure public or
statutory obligations, and (iv) liens of materialmen, warehousemen, couriers
and like persons disclosed as of the date hereof; and (b) Encumbrances on
furniture, fixtures or equipment incurred in connection with the purchase or
lease of such furniture, fixtures or equipment in the ordinary course of
business disclosed as of the date hereof.
1.2 Excluded Assets. Notwithstanding anything to the contrary
contained herein, it is
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expressly understood and agreed that the Assets shall not include the following
assets along with all rights, title and interest therein which shall be
referred to as the "Excluded Assets":
1.2.1 all cash, cash equivalents or similar type investments of
Seller, such as certificates of deposit, Treasury bills and other marketable
securities on hand and/or in banks;
1.2.2 all tangible and intangible personal property disposed of or
consumed in the ordinary course of business between the date of this Agreement
and the Closing Date, or as permitted under the terms hereof;
1.2.3 all Contracts that have terminated or expired prior to the
Closing Date in the ordinary course of business or as permitted hereunder;
1.2.4 Seller's corporate seal, minute books, charter documents,
corporate stock record books and such other books and records as pertain to the
organization, existence or share capitalization of Seller and duplicate copies
of such records as are necessary to enable Seller to file its tax returns and
reports as well as any other records or materials relating to Seller generally
and not involving specific aspects of the Stations's operation;
1.2.5 Contracts of insurance and all insurance proceeds or claims
made by Seller relating to property or equipment repaired, replaced or restored
by Seller prior to the Closing Date;
1.2.6 any and all other claims made by Seller with respect to
transactions prior to the Closing Date and the proceeds thereof;
1.2.7 all pension, profit sharing or cash or deferred (Section
401(k)) plans and trusts and the assets thereof and any other employee benefit
plan or arrangement and the assets thereof, if any, maintained by Seller or its
parent organization;
1.2.8 any and all accounts and notes receivable created on or
prior to the Revenue
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Cut-Off Date (the "Excluded Receivables"; without limiting the generality of
the foregoing, it is understood and agreed that Excluded Receivables shall
include commission receipts from tour events at venues at which performances
have taken place on or prior to the Revenue Cut-Off Date, regardless of the
actual date of receipt of such commission receipts); and
1.2.9 any books and records relating to any of the foregoing.
ARTICLE 2
ASSUMPTION OF OBLIGATIONS
-------------------------
2.1 Assumption of Obligations. Subject to the provisions of this
Section 2.1 and Section 2.2, on the Closing Date, Buyer shall only assume and
undertake to pay, satisfy or discharge the liabilities, obligations and
commitments of Seller arising under (i) the Contracts described more fully in
Sections 7.7, 7.8 and 7.9; (ii) all Additional Contracts; and (iii) any other
Contracts entered into between the date hereof and the Closing Date which Buyer
expressly agrees in writing to assume. All of the foregoing liabilities and
obligations shall be referred to herein collectively as the "Assumed
Liabilities".
2.2 Limitation. Except as set forth in Section 2.1 hereof, Buyer
expressly does not, and shall not, assume or be deemed to assume, under this
Agreement or otherwise by reason of the transactions contemplated hereby, any
liabilities, obligations or commitments of Seller of any nature whatsoever.
Without limiting the generality of the foregoing, except as set forth in
Section 2.1, Buyer shall not assume or be liable for any liability or
obligation of Seller arising out of any contract of employment, collective
bargaining agreement, insurance, pension, retirement, deferred compensation or
incentive bonus, or profit sharing or employee benefit plan or trust, or any
judgment, litigation, proceeding or claim by any person or entity relating to
any business of the Seller prior to the Closing Date, whether or not such
judgment, litigation, proceeding or claim is pending, threatened or asserted
before, on or after the Closing Date.
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ARTICLE 3
CONSIDERATION
-------------
3.1 Purchase Price. The aggregate consideration (the "Purchase Price")
for the transfer of the Assets from the Seller to the Buyer shall be Six
Million One Hundred and Two Thousand Five Hundred Dollars ($6,102,500), plus
the assumption at Closing of the Assumed Liabilities, plus the Additional
Payments in accordance with Section 3.3.
3.2 Payment. (a) Buyer shall pay to Seller the Purchase Price as
follows: (i) the $400,000 Cash Deposit (as defined below) payable upon the
execution and delivery of this Agreement; pursuant to Section 3.5; and (ii) the
following amounts: (A) upon the Closing Date, $2,702,500 by wire transfer in
immediately available funds to a bank designated in writing by Seller; (B)
$1,000,000 by certified or official bank check in equal annual installments of
$125,000 over eight (8) years the ("Installment Payments"); and (C) upon the
Closing Date, by issuing shares of Class A Common Stock $.01 par value (the
"Consideration Stock") of Marquee Group to Seller or its designees, with a
market value as of the close of business on the date prior to the Closing Date
of $2 million, such market value to be determined by the average official
closing price per share of said stock from the date hereof through the date
which is five (5) business days prior to the Closing Date in the market in
which it is publicly traded (the "Closing Price"); provided, however, that in
no event shall the Closing Price be greater than $8.50 per share of
Consideration Stock for all purposes of this Agreement.
(b) Anything contained herein to the contrary notwithstanding, the
unpaid Installment Payments to be paid to the Seller pursuant to Section
3.2(a)(ii)(B) shall be paid in one lump sum within ten (10) days after Dennis
Arfa ("Arfa") shall no longer be employed by Buyer (i) if Buyer shall fail to
make an Offer of Comparable Employment (as hereafter defined) to Arfa at least
one hundred twenty (120) days prior to the termination of Arfa's employment
with Buyer, or (ii) other than by reason of his death, total disability or
termination for cause as defined and pursuant to his employment agreement with
Buyer as then in effect. As used herein, "Offer of Comparable Employment" shall
mean an offer of employment containing (i) a minimum employment term of
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not less than three (3) years, (ii) a minimum initial base salary of $325,000
per annum, subject to adjustment for inflation (which shall be at least 5% per
annum) and to discretionary annual increases, (iii) bonuses which are
comparable to the Income Bonus and the Cash Flow Bonus in the Arfa Employment
Agreement (as hereinafter defined) which the Buyer in good faith reasonably
believes will result in Arfa receiving aggregate annual bonuses of not less
than $200,000 based on targets of comparable difficulty and/or probability of
achieving as the targets set forth in the Arfa Employment Agreement; and (iv)
annual stock option grants on terms no less favorable than those contained in
the Employment Agreement.
3.3 Additional Payments. Buyer shall pay to Seller (or its designee)
the following additional payments (the "Additional Payments"): (i) an aggregate
amount equal to the revenues actually received by Marquee Music on or prior to
the Revenue Cut-Off Date, which amount shall be paid as and when such revenues
are received; (ii) an aggregate amount equal to the revenues received by Buyer
with respect to Excluded Receivables, which amount shall be paid as and when
such revenues are received (whether before, on or after the Revenue Cut-Off
Date) ; (iii) $150,000 on April 1st in each of 1998 and 1999; and (iv) $105,000
on April 1st in each of 2000, 2001, and 2002.
3.4 Stock Legend. (a) In addition to any legend imposed by applicable
state securities laws or the certificate of incorporation of Marquee Group, all
stock issued by the Marquee Group pursuant to this Agreement, shall bear a
restrictive legend stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
FURTHERMORE, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN HOLDING PERIODS,
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"CALL" AND "PUT" PROVISIONS SET FORTH IN THAT CERTAIN ASSET
PURCHASE AGREEMENT BY AND AMONG MARQUEE MUSIC, INC., THE MARQUEE
GROUP, INC., QBQ ENTERTAINMENT, INC. AND DENNIS ARFA, DATED AS OF
JULY 21, 1997 (THE "AGREEMENT").
(b) Notwithstanding the foregoing provisions of Section 3.4(a),
the restrictions imposed by the legend contained in Section 3.4(a) upon the
transferability of stock issued by Marquee Group hereunder shall cease and
terminate when: (i) the provisions of Sections 18.1.3. and 18.2.3 shall
terminate or have expired; and (ii) any such securities are or will be sold or
otherwise disposed of (A) in accordance with the Registration Rights Agreement
(as hereinafter defined) (B) pursuant to an exemption from the Securities Act
of 1933, as amended (the "Securities Act") which is described in a written
opinion of counsel reasonably satisfactory to Marquee Group or (c) by a holder
who meets the requirements for the transfer of such securities pursuant to Rule
144 promulgated by the Securities and Exchange Commission under the Securities
Act. Whenever the restrictions imposed by the legend contained in Section
3.4(a) shall terminate, the holder of any securities as to which such
restrictions have terminated shall be entitled to receive from Marquee Group,
without expense, a new certificate or certificates not bearing the restrictive
legends set forth in Section 3.4(a) and not containing any other legend.
3.5 Deposit. Simultaneously with the execution and delivery of this
Agreement, the Buyer shall pay to Seller $400,000 by wire transfer of
immediately available funds into an account designated by Seller (the "Cash
Deposit"). The Seller shall be permitted to utilize the Cash Deposit for its
own account, and the Cash Deposit shall be non-refundable to Buyer unless this
Agreement is terminated by Buyer by reason of the Seller's default in
accordance with Section 17.1(a).
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3.6 Proration of Expenses.
3.6.1 Except as otherwise provided herein, all expenses incurred
prior to Closing Date arising from the conduct of the business and operations
of the Booking Business shall be prorated between Buyer and Seller in
accordance with generally accepted accounting principles as of 11:59 p.m.,
local time, on the date immediately preceding the Closing Date. Such prorations
shall include, without limitation, all ad valorem, real estate and other
property taxes (but excluding taxes arising by reason of the transfer of the
Assets as contemplated hereby, which shall be paid as set forth in Article 13
of this Agreement), business and license fees (including any retroactive
adjustments thereof), wages and salaries of employees, including accruals up to
the Closing Date for bonuses, commissions, vacations and sick pay, and related
payroll taxes, utility expenses, rents and similar prepaid and deferred items
attributable to the ownership and operation of the Booking Business. Real
estate taxes shall be apportioned on the basis of taxes assessed for the
preceding year, with a reapportionment as soon as the new tax rate and
valuation can be ascertained.
3.6.2 The prorations and adjustments contemplated by this Section,
to the extent practicable, shall be made on the Closing Date. As to those
prorations and adjustments not capable of being ascertained on the Closing
Date, an adjustment and proration shall be made within ninety (90) calendar
days of the Closing Date.
3.6.3 In the event of any disputes between the parties as to such
adjustments, the amounts not in dispute shall nonetheless be paid at the time
provided in Section 3.6.2 and such disputes shall be determined by an
independent certified public accountant mutually acceptable to the parties, and
the fees and expenses of such accountant shall be paid one-half by Seller and
one-half by Buyer.
3.7 Additional Consideration. At the Closing, the Buyer shall issue to
Seller (or its designee) and deposit additional shares of Class A Common Stock
, $.01 par value, of Marquee Group having a market value equal to $500,000
based upon the Closing Price (the "Additional Stock") into an escrow account
(the "Escrow Account"). The Additional Stock shall be released from the Escrow
Account to the Seller if the Operating Income (as hereinafter defined) of
Marquee
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Music exceeds: (i) $1,000,000 in any of the first three (3) Fiscal Years (as
defined below) ending after the Closing Date; or (ii) $1,250,000 in the fourth
Fiscal Year ending after the Closing Date (the "Performance Goals"). For the
purposes hereof, "Operating Income" shall, with respect to the applicable
period, be defined as the net revenues of Marquee Music during such period
derived from all Contracts and Additional Contracts and from clients or
business opportunities introduced to Marquee Music by Arfa (and Adam Kornfeld),
less direct operating expenses and less allocable corporate overhead expenses;
provided, however, that the calculation of Operating Income shall be made
without deduction for (i) Federal, state and local income taxes; (ii) the cost
and expense relating to the transactions contemplated by this Agreement and any
other acquisition of the equity interests or assets of a person, corporation or
business entity by Buyer, including, without limitation, depreciation and
amortization expense relating to any of the foregoing transactions; (iii)
extraordinary depreciation and amortization expense; (iv) any advances, signing
bonuses, salaries, benefits and other compensation paid to agents other than
Arfa and Kornfeld who become employees of Marquee Music except to the extent
that the revenues generated by such agents are included in Operating Income, in
which case any such advances, signing bonuses, salaries, benefits and other
compensation will be included on a proportionate basis based on the ratio of
the revenues of such agents included in Operating Income to all revenues
generated by such agents; and (v) any bonuses paid to Arfa (including, without
limitation, the Income Bonus and Operating Bonus, as such terms are defined in
the Arfa Employment Agreement); and provided, further, that any allocation of
general corporate overhead expense to Marquee Music from Marquee Group shall be
at the more favorable of an allocation determined by the Chief Executive
Officer of Marquee Music or a percentage of such general corporate overhead
expenses based on the ratio of Marquee Music's revenues to all revenues of
Buyer on a consolidated basis. Subject to Section 4.2, achievement of the
Performance Goals shall be based on Marquee Music's annual Financial Statements
as determined by Marquee Group's independent auditors. Anything contained
herein to the contrary notwithstanding, the Additional Stock shall be released
from the Escrow Account to the Seller upon: (i) Arfa's resignation as an
employee of Marquee Music for Good Reason, as defined in and pursuant to the
Arfa Employment Agreement; or (ii) upon the termination of Arfa as an employee
of Marquee Music by Buyer in breach of the Arfa Employment Agreement (each
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of the foregoing being hereinafter referred to as an "Acceleration Event").
ARTICLE 4
CLOSING
-------
4.1 Closing. Except as otherwise mutually agreed upon by Seller and
Buyer, the consummation of the transactions contemplated herein (the "Closing")
shall occur upon the first to occur of the following: (i) at any time
determined by the Buyer, provided the Buyer has given the Seller five (5) days
prior notice, within ninety (90) business days following the date on which the
last of the conditions contained in Article 11 and Article 12 below have been
satisfied; or (ii) at any time determined by Seller, provided, Seller has given
Buyer five (5) days prior notice, at any time following the later of: (A) the
date on which the conditions provided in Section 11.5 shall have been satisfied
and the Seller states in such notice that it is ready, willing and able to
fulfill the remaining conditions contained in Article XI; or (ii) October 1,
1997. The Closing shall be held at the offices of Buyer in New York City, or at
such other place as the parties shall mutually agree upon. As used herein, the
term ("Business Day") shall mean any day that is not a Saturday, Sunday or
banking holiday in the State of New York.
4.2 Operating Income Statements. (a) Buyer shall deliver to Seller
within thirty (30) days after the end of each Fiscal Year of Marquee Music
(defined as October 1st to September 30th), a written calculation (the "Annual
Statement"), in reasonable detail, of the Operating Income for such Fiscal
Year, which Annual Statement shall include a profit and loss statement,
statement of cash flow and a balance sheet. Except as otherwise required
pursuant to this Agreement, the calculation of Operating Income to be made
hereunder shall be determined in accordance with generally accepted accounting
principles consistently applied, shall be in accordance with the books and
records of Marquee Music and shall be consistent with the audited financial
statements of Buyer.
(b) In the event that Seller shall dispute the calculation of the
Operating Income for any
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Fiscal Year, Seller shall notify Buyer in writing no later than sixty (60) days
after receipt of the Annual Statement. In the event of such dispute such
calculation shall be submitted to a Big Six Firm mutually agreed upon by Buyer
and Seller for review and recalculation (or, if the Buyer and the Seller cannot
agree on such Big-Six Firm within twenty (20) days after such written
notification has been delivered to the Buyer, Buyer and Seller shall within
twenty (20) days thereafter each select a Big-Six Firm and such two Big-Six
Firms shall select a third Big-Six Firm, and such dispute shall be submitted to
such third Big-Six Firm as aforesaid for review and recalculation or, if such
third Big-Six Firm shall not for any reason have been designated within such
twenty (20) day period, then a Big-Six Firm (which shall in any event not be a
Big Six Firm regularly employed by the Buyer) shall be designated as promptly
as is practicable by the American Arbitration Association in accordance with
its rules then obtaining and such dispute shall be submitted to such Big-Six
Firm so designated for review and recalculation). The Big-Six Firm(s)
ultimately undertaking such review and recalculation is hereinafter sometimes
hereinafter referred to as the "Accountants" and the determination of the
Accountants as to the amount of Operating Income shall be final and binding
upon the parties. Any such review and recalculation shall be made in accordance
with the definition of Operating Income and other guidelines contained in this
Agreement. The fees, costs and expenses of such review and recalculation shall
be borne by Seller unless the Operating Income calculated by the Accountants
shall exceed the Operating Income set forth in the Annual Statement by more
than seven and one-half percent (7.5%) in which case such fees, costs and
expenses shall be borne by Buyer. Buyer agrees to cooperate with the
Accountants and to provide all such information as is reasonably necessary to
the Accountants in the performance of their review and recalculation.
ARTICLE 5
[RESERVED]
----------
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby jointly and severally makes the following representations
and warranties to Seller, each of which is true and correct on the date hereof,
shall remain true and correct in all material respects through and including
the Closing Date, shall be unaffected by any notice to Seller other than in the
Disclosure Schedule (as defined herein) and shall survive the Closing to the
extent provided in Section 16.4.
6.1 Organization and Standing. Each of the Buyers is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and are duly qualified to do business and shall be in good
standing in the State of New York at the Closing Date.
6.2 Authorization and Binding Obligation. Buyer has all necessary
power and authority to enter into and perform this Agreement, the Escrow
Agreement, the Registration Rights Agreement (as defined in Section 12.5), the
Assumption Agreement (as defined in Section 15.2.5), Kornfeld Employment
Agreement (as defined in Section 11.2) and the Arfa Employment Agreement, (all
of such agreements other than this Agreement being hereinafter referred to
collectively as "Transaction Agreements") and the transactions contemplated
hereby and thereby, and to own or lease the Assets and to carry on the Booking
Business as it is now being conducted, and Buyer's execution, delivery and
performance of this Agreement and the Transaction Agreements and the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on its part. This Agreement has been duly
executed and delivered by Buyer and this Agreement constitutes, and the
Transaction Agreements will constitute the valid and binding obligation of
Buyer, enforceable in accordance with their terms, except as limited by laws
affecting creditors' rights or equitable principles generally.
6.3 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement and the Transaction
Agreements by Buyer: (a) does not require the consent of any third party; (b)
will not violate any applicable law, judgment, order, injunction,
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decree, rule, regulation or ruling of any governmental authority applicable to
Buyer; and (c) will not, either alone or with the giving of notice or the
passage of time, or both, conflict with, constitute grounds for termination of
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, any agreement, instrument, license or permit to which Buyer is
now subject, including, without limitation, the Charter and By-laws (and any
other organizational documents or certificates) of each of the Buyers.
6.4 Litigation and Compliance with Law. There is no litigation,
administrative, arbitration or other proceeding, or petition, complaint or
investigation before any court or governmental body, pending, or to the
knowledge of Buyer, threatened against Buyer or any of its principals that
would adversely affect Buyer's ability to perform its obligations pursuant to
this Agreement or the Transaction Agreements. There is no violation of any law,
regulation or ordinance or any other requirement of any governmental body or
court which would have a material adverse effect on Buyer or its ability to
perform its obligations pursuant to this Agreement or the Transaction
Agreements.
6.5 Issuance of Consideration Stock. The Consideration Stock and the
Additional Stock, when issued, will be validly issued, fully paid and
non-assessable, will not be subject to any preemptive rights and will not be
subject to any Encumbrances other than those created by this Agreement and the
Transaction Agreements.
6.6 SEC Documents. (a) The Common Stock of Marquee Group is registered
pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and to the best of its knowledge, Marquee Group has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the Securities and Exchange Commission ("SEC") pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d), in addition to one or more registration statements
and amendments thereto heretofore filed by the Company with the SEC. Marquee
Group has delivered to the Seller true and complete copies of (i) its annual
reports on Form 10-K and quarterly reports on Form 10-Q for its 1996 fiscal
year and for the quarter ending March 31, 1997, (ii) proxy
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statements, information and solicitation materials filed by it with the SEC,
and (iii) each other report, registration statement, proxy statement and other
document filed with the SEC since the filing of its most recent Form 10-K (all
of the foregoing, collectively, the "SEC Documents").
(b) To the best knowledge of Marquee Group, as of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
6.7 Financial Statements. (a) Attached hereto as Schedule 6.7 are the
audited balance sheet of the Marquee Group at December 31, 1996 (the "Balance
Sheet"), and the related audited statements of income, retained earnings and
cash flows for the fiscal year then ended, in each case certified by Ernst &
Young LLP, the independent certified public accountant for Buyer and the
unaudited balance sheet of the Marquee Group of March 31, 1997, and the related
statements of income, retained earning and cash flows for such period
(collectively, the "Buyer Financial Statements").
(b) To the best knowledge of Marquee Group, the Buyer Financial
Statements and the financial statements of Marquee Group included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except
(a) as may be otherwise indicated in such financial statements or the notes
thereto or (b) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of Buyer as of the
dates thereof and the results
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of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
6.8 No Material Adverse Change. Since March 31, 1997, the date through
which the most recent quarterly report of Buyer on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, and
until the date hereof, there has been no material adverse change in the
businesses, properties, prospects, operations or financial condition of Buyer
and its Affiliates (as such term is defined in the Securities Act of 1993, as
amended), except as otherwise disclosed or reflected in other SEC Documents.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SELLER AND ARFA
-------------------------------------------------
Subject to Section 19.4, Seller and Arfa hereby jointly and severally
make the following representations and warranties to Buyer, each of which is
true and correct on the date hereof, shall remain true and correct in all
material respects to and including the Closing Date, shall be unaffected by any
notice to Buyer other than in the Disclosure Schedule (as defined herein) and
shall survive the Closing to the extent provided in Section 16.4. Such
representations and warranties are subject to, and qualified by, any fact or
facts disclosed in the separate Disclosure Schedule which is hereby made a part
of this Agreement (the "Disclosure Schedule").
7.1 Organization and Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
is duly qualified to do business in the State New York and has the corporate
power and authority to own, lease and operate the Assets and to carry on the
Booking Business as now being conducted and as proposed to be conducted by
Seller between the date hereof and the Closing Date.
7.2 Authorization and Binding Obligation. Seller has the corporate
power and authority to enter into and perform this Agreement and the
Transaction Agreements (other than the Arfa
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Employment Agreement and Kornfeld Employment Agreement), and the transactions
contemplated hereby and thereby, and Seller's execution, delivery and
performance of this Agreement, and the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on its part. This Agreement has been duly executed and delivered by Seller and
this Agreement constitutes, and the Transaction Agreements (other than the Arfa
Employment Agreement and Kornfeld Employment Agreement) will constitute, the
valid and binding obligation of Seller enforceable in accordance with their
terms, except as limited by laws affecting the enforcement of creditor's rights
or equitable principles generally.
7.3 Absence of Conflicting Agreements or Required Consents. Except as
set forth in Section 7.3 of the Disclosure Schedule and Exhibit 11.5 attached
hereto with respect to consents required in connection with the assignment of
certain Contracts (it being agreed that Seller shall not be required to deliver
the consents set forth in said Exhibit 11.5), the execution, delivery and
performance of this Agreement by Seller: (a) does not require the consent of
any third party; (b) will not violate any applicable law, judgment, order,
injunction, decree, rule, regulation or ruling of any governmental authority to
which Seller is a party or by which it or the Assets are bound; (c) will not,
either alone or with the giving of notice or the passage of time, or both,
conflict with, constitute grounds for termination of or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
Contract, agreement, instrument, license or permit to which Seller or the
Assets is now subject; and (d) will not result in the creation of any lien,
charge or encumbrance on any of the Assets, except to the extent that any such
matter or matters referred to in sub parts (a) through (d) would not in the
aggregate have a material adverse effect on the Buyer.
7.4 Government Authorizations. There are no material licenses, permits
or other authorizations from governmental and regulatory authorities which are
required for the lawful conduct of the Booking Business in the manner and to
the full extent it is presently conducted, the failure of which to have or
obtain would have a material adverse effect upon the Booking Business.
7.5 [RESERVED]
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7.6 Taxes. Except as set forth on Section 7.6 of the Disclosure
Schedule, Seller has filed all federal, state, local and foreign income,
franchise, sales, use, property, excise, payroll and other tax returns required
by law and has paid in full all taxes, estimated taxes, interest, assessments,
and penalties due and payable. All returns and forms which have been filed have
been true and correct in all material respects and no tax or other payment in a
material amount other than as shown on such returns and forms are required to
be paid and have been paid by Seller. There are no present disputes as to taxes
of any nature payable by Seller which in any event could materially adversely
affect any of the Assets or the Booking Business.
7.7 Personal Property.
7.7.1 Section 7.7 of the Disclosure Schedule contains a list of
all material tangible personal property and assets owned and leased by the
Seller and used primarily or exclusively in the conduct of the Booking
Business. Except as may be subject to lease agreements of the Seller (the
"Personal Property Contracts") and except for Permitted Encumbrances, Seller
owns and has, and will have on the Closing Date, good title to all such
property (and to all other tangible personal property and assets to be
transferred to Buyer hereunder), and none of such property is, or at the
Closing will be, subject to any security interest, mortgage, pledge,
conditional sales agreement or other lien or Encumbrance. All of the items of
the tangible personal property and assets included in the Assets are in all
material respects in reasonable operating condition (ordinary wear and tear
excepted) and are available for immediate use in the conduct of the business
and operations of the Seller. The properties listed in said Section 7.7 include
all such properties used to conduct in all material respects the business and
operations of the Seller as now conducted.
7.7.2 The Personal Property Contracts listed on such Section 7.7
constitute valid and binding obligations of Seller to Seller's and Arfa's
actual knowledge, such Personal Property Contracts are in full force and effect
as of the date hereof and will on the Closing Date constitute valid and binding
obligations of Seller. Seller is not in default under any of such Personal
Property Contracts and has not received or given written notice of any default
thereunder from or to any of the other parties thereto. Seller is not aware
that any other party to such Personal Property Contracts is in default with
respect thereto. Seller will use reasonable efforts to obtain all required
third-party
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consents from all third parties to the Personal Property Contracts to be
conveyed and assigned to Buyer as part of the Assets, so as to insure the Buyer
will enjoy all of the privileges of Seller thereunder. Except as set forth in
Section 7.7 of the Disclosure Schedule, Seller has full legal power and
authority to assign its rights under the Personal Property Contracts to Buyer
in accordance with this Agreement on terms and conditions no less favorable
than those in effect on the date hereof, and to Seller's actual knowledge, such
assignment will not affect the validity and enforceability of any of the
Personal Property Contracts. Neither Seller nor Arfa has received any notice
from any party to any of the Personal Property Contracts disputing the
enforceability of any such agreements.
7.8 Real Property.
7.8.1 Section 7.8 to the Disclosure Schedule contains a complete
and accurate list of all real property leased by the Seller (collectively the
"Real Estate Contracts") and a summary of the applicable leases, Seller owns no
real property.
7.8.2 The Real Estate Contracts listed on such Section 7.8
constitute valid and binding obligations of Seller and, to Seller's and Arfa's
knowledge, of all other persons purported to be parties thereto and are in full
force and effect as of the date hereof and will on the Closing Date constitute
valid and binding obligations of Seller and, to Seller's and Arfa's actual
knowledge, of all other persons purported to be parties thereto and shall be in
full force and effect. Seller is not in default under any of such Real Estate
Contracts and has not received or given written notice of any default
thereunder from or to any of the other parties thereto. Seller is not aware
that any other party to such Real Estate Contract is in default with respect
thereto. Seller has or will obtain all required third party consents from all
third parties to the Real Estate Contracts to be conveyed and assigned to Buyer
as part of the Assets, so as to insure that Buyer will enjoy all of the
privileges of Seller thereunder. Except as set forth in Section 7.8 of the
Disclosure Schedule, Seller has full legal power and authority to assign its
rights under the Real Estate Contracts to Buyer in accordance with this
Agreement on terms and conditions no less favorable than those in effect on the
date hereof, and such assignment will not affect the validity, enforceability
and continuity of any of the Real Estate Contracts.
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7.9 Contracts. Section 7.9 of the Disclosure Schedule lists and
describes all Contracts of the Seller as of the date of this Agreement which
shall be assumed by the Buyer as of the Closing Date. Notwithstanding the
foregoing, if it is discovered before Closing that Seller failed to list a
contract in said Section 7.9 which was required to be listed, then the Buyer
may elect in its sole discretion to accept or reject such contract.
7.10 Status of Contracts. Except as noted in Section 7.9 of the
Disclosure Schedule, Seller has delivered to Buyer true and complete copies of
all written Contracts, including any and all amendments and other modifications
to such Contracts. To the actual knowledge of Arfa and the Seller, all
Contracts are valid, binding and enforceable by Seller in accordance with their
respective terms, except as limited by laws affecting creditors' rights or
equitable principles generally. To the Seller's and Arfa's knowledge, Seller
has complied in all material respects with all Contracts and is not in default
beyond any applicable grace periods under any of the Contracts, and the Seller
is not aware that any other contracting party is in default under any of the
Contracts. Except as set forth in Section 7.9 of the Disclosure Schedule,
Seller has full legal power and authority to assign its respective rights under
the Contracts to Buyer in accordance with this Agreement on terms and
conditions no less favorable than those in effect on the date hereof, and to
Seller's and Arfa's actual knowledge, such assignment will not affect the
validity and enforceability of any of the Contracts.
7.11 Copyrights, Trademarks and Similar Rights. Seller has no
copyrights, trademarks, trade names, licenses, patents, permits, and other
similar intangible property rights and interests, whether applied for, issued
to, or owned by the Seller, or under which Seller is a licensee or franchisee
and used exclusively or primarily in the conduct of the business and operations
of the Seller.
7.12 Financial Statements. Seller has delivered to Buyer complete
audited copies of the statement of income and the balance sheet for Seller for
the period ending December 31, 1996 and December 31, 1995, a compilation copy
of the statement of income and balance sheet for Seller for the period ending
December 31, 1994 and an unaudited statement of income and balance sheet for
the four (4) months ending April 30, 1997 (collectively, the "Seller Financial
Statements"). The
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Seller Financial Statements have been prepared in accordance with the books and
records of the Seller and accurately represent and present fairly the financial
condition and results of operations of the Seller for the periods indicated.
From April 30, 1997, there has been no material adverse change in the business,
property, assets or condition (financial or otherwise) of the Seller and
(except for the transaction contemplated herein) Seller has operated the
Booking Business in all respects only in the ordinary course of business.
Except for (a) liabilities as and to the extent reflected or reserved
against in the Seller Financial Statements, (b) liabilities not yet due and
payable or obligations to be performed or satisfied after the date hereof under
contracts and agreements listed in the Disclosure Schedule, or excluded from
the Disclosure Schedule pursuant to the terms of this Agreement, (c)
liabilities incurred between April 30, 1997 and the date hereof in the ordinary
and usual course of business (including tax liabilities resulting solely from
the normal operations of the Seller during such period) and (d) any other
liabilities disclosed in this Agreement or in the Disclosure Schedule, Seller
has no material liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, of a nature customarily reflected in
financial statements reflecting the accrual basis of accounting.
7.14 Personnel Information.
7.14.1 Section 7.14 of the Disclosure Schedule contains a true and
complete list of all persons employed by the Seller. Seller has not received
notification that any of the current key employees of Seller presently plan to
terminate their employment, whether by reason of the transactions contemplated
hereby or otherwise and Seller shall immediately notify Buyer upon receipt of
any such notice. The representations and warranties set forth herein shall not
be deemed to be materially changed if the Company terminates its employment
relationship with or hires any non-key employee prior to the Closing.
7.14.2 Seller is not a party to any Contract with any labor
organization, nor has Seller agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining unit been
certified as representing any of Seller's employees. Seller has no knowledge of
any organizational effort currently being made or threatened by or on behalf of
any
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labor union with respect to employees of Seller. During the past three (3)
years, Seller has not experienced any strikes, work stoppages, grievance
proceedings, claims of unfair labor practices filed or other significant labor
difficulties of any nature.
7.14.3 Except as disclosed in Section 7.14 of the Disclosure
Schedule, Seller has complied in all material respects with respect to any laws
relating to the employment of labor, including, without limitation, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
those laws relating to wages, hours, collective bargaining, unemployment
insurance, workers' compensation, equal employment opportunity and payment and
withholding of taxes, the failure of which to comply with would have a material
adverse effect on the Seller.
7.15 Litigation. Except as set forth in Section 7.15 of the Disclosure
Schedule, Seller is subject to no judgment, award, order, writ, injunction,
arbitration decision or decree materially adversely affecting the conduct of
the Booking Business or the Assets, and there is no litigation or proceeding
or, to the Seller's knowledge, investigation pending or, to the Seller's and
Arfa's knowledge, threatened against Seller in any federal, state or local
court, or before any administrative agency or arbitrator, or before any other
tribunal duly authorized to resolve disputes, which would reasonably be
expected to have any material adverse effect upon the business, property,
assets or condition (financial or otherwise) of the Seller or which seeks to
enjoin or prohibit, or otherwise questions the validity of, any action taken or
to be taken pursuant to or in connection with this Agreement.
7.16 Compliance With Laws. Except as set forth in Section 7.16 of the
Disclosure Schedule, Seller has not received any notice asserting any
non-compliance by it in connection with the business or operation of the Seller
with any applicable statute, rule or regulation, federal, state or local.
Seller is not in default with respect to any judgment, order, injunction or
decree as to which it is a named party of any court, administrative agency or
other governmental authority or any other tribunal duly authorized to resolve
disputes in any respect material to the transactions contemplated hereby.
Seller has not received notice that it is not in compliance in all material
respects with all laws, regulations and governmental orders applicable to the
conduct of its business and operations,
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the failure to comply with which would have a material adverse effect on the
business, operations or financial condition of the Seller.
7.17 Employee Benefit Plans. Section 7.17 of the Disclosure Schedule
contains a true and complete list as of the date of this Agreement of all
employee benefit plans applicable to the employees of Seller. Seller maintains
no other employee benefit plan as the term is defined in Section 3 of the
Employee Retirement Income Security Act of 1984, as amended, applicable to the
employees of Seller.
7.18 Business. Seller is involved primarily in the Booking Business
and holds no equity interests in any other business other than the Booking
Business.
7.19 Accuracy of Information. No written statements made by Seller
herein and no information provided by Seller herein or in the documents,
instruments or other written communications made or delivered directly by
Seller to Buyer in connection with the purchase and sale of the Assets contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained therein or herein not misleading. To the extent
that a representation or other information is made to the Seller's knowledge or
is otherwise qualified by its terms, this representation shall not be
interpreted to expand such limitations or qualifications.
ARTICLE 8
COVENANTS OF BUYER
------------------
8.1 Closing. On the Closing Date, Buyer or its assignee shall purchase
the Assets from Seller as provided in Article 1 hereof and shall assume the
Assumed Liabilities of Seller as provided in Article 2 hereof.
8.2 Notification. Buyer shall notify Seller of any litigation,
arbitration or administrative proceeding pending or, to its knowledge,
threatened against Buyer which challenges the transactions
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contemplated hereby.
8.3 No Inconsistent Action. Buyer shall not take any other action
which is materially inconsistent with its obligations under this Agreement.
8.4 Buyer's Post-Closing Covenant. Buyer, for a period of six (6)
years following the Closing Date, shall make available for audit and inspection
by Seller and its representatives for any reasonable purpose all records,
files, documents and correspondence transferred to it hereunder. Buyer shall at
no time dispose of or destroy any such records, files, documents and
correspondence without giving sixty (60) days prior notice to Seller to permit
Seller, at its expense, to examine, duplicate or take possession of and title
to such records, files, documents and correspondence. All personnel records
shall be maintained as confidential if required by any applicable state or
federal law.
8.5 Issuance of Consideration Stock. The Consideration Stock and the
Additional Stock, when issued, will be validly issued, fully paid and
non-assessable.
8.6 Name. Buyer shall comply with the last sentence of Section 11.10.
ARTICLE 9
COVENANTS OF SELLER
-------------------
9.1 Seller's Pre-Closing Covenants. Seller and Arfa covenant and agree
with respect to Seller's operations that between the date hereof and the
Closing Date, except as expressly permitted by this Agreement or with the prior
written consent of Buyer, Seller shall act in accordance with the following:
9.1.1 Seller shall and Arfa shall cause the Seller to conduct its
business and operations in the ordinary and prudent course of business and with
the intent of preserving its ongoing operations and assets including, but not
limited to, using its best efforts to retain the services
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of key employees.
9.1.2 Seller shall and Arfa shall cause the Seller to use
commercially reasonable efforts to preserve its operations intact and to
preserve its relations with its customers, suppliers and others having business
relations with the Seller and continue to conduct its financial operations,
including its credit and collection policies, in the ordinary course of
business with substantially the same effort, and to substantially the same
extent, and in the same manner, as in the prior conduct of its business.
9.1.3 Seller shall and Arfa shall cause the Seller to not, other
than in the ordinary course of business or after receiving Buyer's prior
written approval: (i) sell or dispose of or commit to sell or dispose of any of
the Assets; (ii) grant or agree to grant any general increases in the rates of
salaries or compensation payable to its employees; (iii) except as provided in
Section 11.2, grant or agree to grant any specific bonus or increase to any of
its executive or management employees; or (iv) provide for any new pension,
retirement or other employment benefits for its employees or any increases in
any existing benefits.
9.1.4 Seller shall and Arfa shall cause the Seller to provide
Buyer prompt written notice of any material change in any of the information
contained in the representations and warranties made in Article 7 hereof, or
any Exhibits or Schedules herein or attached hereto.
9.1.5 Seller may enter into or renew any contract, agreement,
commitment or other understanding or arrangement in the ordinary course of
business; provided, however, that the fixed liability of Seller under said
contracts to be assumed by Buyer at Closing shall not exceed Five Thousand
Dollars ($5,000) per contract or Fifty Thousand Dollars ($50,000) in the
aggregate, without the written approval of the Buyer.
9.1.6 The Seller shall and Arfa shall cause the Seller to give the
Buyer and the Buyer's counsel, accountants, engineers and other
representatives, full and reasonable access during normal business hours (upon
reasonable prior notice) to all of the Seller's personnel, properties,
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books, contracts, reports and records, including financial information and tax
returns with supporting work papers to all real estate buildings and equipment
relating to its operations, and to its employees in order that the Buyer may
have full opportunity to make such investigation as it desires of the affairs
of the Seller. Seller shall and Arfa shall cause the Seller to furnish Buyer
with information and copies of all documents and agreements including, but not
limited to, financial and operating data and other information concerning the
financial condition, results of operations and business of the Seller, that the
Buyer may reasonably request in order to complete the Buyer's due diligence
examination of the Seller. The rights of the Buyer under this Section shall not
be exercised in such a manner as to materially interfere with the business of
the Seller.
9.1.7 Notwithstanding anything in this Agreement to the contrary,
Seller may enter into any contract without the consent of Buyer, but if any
such contract is outside the scope of the restrictions set forth in this
Section 9.1, Buyer shall not be obligated to accept and assume such contract at
Closing.
9.1.8 Seller shall and Arfa shall cause the Seller to use
reasonable efforts to maintain the employment with the Seller the "key
employees" listed in part (a) of Section 7.14 of the Disclosure Schedule.
Between the date hereof and for a period of three (3) years from the Closing
Date, neither the Seller nor any executive officer of Seller shall and Arfa
shall cause the Seller to, directly or indirectly, through any agent or
otherwise, hire or solicit the employment of any of the "key employees" listed
in part (a) of Section 7.14 of the Disclosure Schedule, who are hired by Buyer
at or after the Closing, or who are subject to non-competition agreements with
Buyer (but only to the extent limited by such non-competition agreements),
except as agreed to in writing by Buyer and Seller.
9.1.9 Within thirty-five (35) days of the end of each month,
Seller shall and Arfa shall cause the Seller to deliver to Buyer at Buyer's
request an unaudited statement of revenue and expenses of the Seller for the
month then ended. The monthly statements of revenue and expenses shall be
certified by the Chairman or President of Seller, shall be true and complete to
the best of Seller's knowledge and shall fairly and accurately represent the
results of operation of the Seller for
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the period covered by such reports and statements. Seller shall and Arfa shall
cause the Seller to also furnish to Buyer any and all other information at such
times as is customarily prepared by Seller concerning the financial condition
of the Seller as Buyer may reasonably request.
9.1.10 The Seller shall and Arfa shall cause the Seller to
cooperate with the Buyer by providing the Buyer with such financial and
accounting records as Buyer may reasonably request in connection with the
preparation of financial statements of the Seller.
9.1.11 Seller shall and Arfa shall cause the Seller to use
reasonable commercial efforts to assist Buyer in obtaining employment
agreements with those of Seller's employees who Buyer desires to employ (it
being understood and agreed that the Seller shall not be obligated to expend
any monies pursuant to this Section 9.1.11).
9.2 Notification. Seller shall and Arfa shall cause the Seller to
notify Buyer of any material litigation, arbitration or administrative
proceeding pending or, to its knowledge, threatened against Seller which would
materially adversely affect the transactions contemplated hereby.
9.3 No Inconsistent Action. Seller shall not and Arfa shall cause the
Seller to take any action which is materially inconsistent with its obligations
under this Agreement.
9.4 Closing Covenant. On the Closing Date, Seller shall and Arfa shall
cause the Seller to transfer, convey, assign and deliver to Buyer the Assets
and the Assumed Liabilities as provided in Articles 1 and 2 of this Agreement.
9.5 Restrictions on Transfer. Except as otherwise permitted by the
terms of this Agreement, the Seller will not and Arfa Shall not permit the
Seller to, during the period commencing on the Closing Date and ending on the
second anniversary of the Closing Date: (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer,
or dispose of, directly or indirectly, any of the Consideration Stock or
Additional Stock; or (2) enter into any swap or other arrangement
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that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Consideration Stock or the Additional Stock
owned by the Seller, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of the Consideration Stock or Additional
Stock, in cash or otherwise.
9.6 Audits. The Seller shall and Arfa have caused the Seller to
deliver to the Buyer audits of the Seller's statement of income and balance
sheet for the periods ending December 31, 1995 and December 31, 1996 (the
"Audits"). Seller shall, and Arfa shall cause the Seller to, use reasonable
efforts to cause David Berdon & Co, LLP, to prepare audited financial
statements which the Buyer can use in any of Buyer's filings with the
Securities and Exchange Commission, including providing comfort letters with
respect thereto. Buyer shall be responsible for the fees and expenses of David
Berdon & Co., LLP, in connection with the preparation of the Audits and the
other financial statements to be delivered pursuant to this Section 9.6.
ARTICLE 10
JOINT COVENANTS
---------------
Buyer, Seller and Arfa covenant and agree that between the date hereof
and the earlier of the termination of this Agreement pursuant to Section 17.1
or Closing Date, they shall act in accordance with the following:
10.1 Conditions. If any event should occur, either within or without
the control of any party hereto, which would prevent fulfillment of the
conditions upon the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, the parties hereto shall use best
efforts to cure the event as expeditiously as possible.
10.2 Confidentiality. Buyer shall continue to observe the provisions
of the Confidentiality Agreement dated as of April 14, 1997, among Seller,
Marquee Group and SFX Broadcasting, Inc.
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(the "Confidentiality Agreement"). In addition, Seller shall, and Arfa shall
cause the Seller to, each keep confidential all confidential information
obtained by it with respect to the Buyer in connection with this Agreement and
the negotiations preceding this Agreement in accordance with the terms of the
Confidentiality Agreement as if Marquee Group were the "Company" as such term
is defined in the Confidentiality Agreement". Notwithstanding the foregoing,
the Buyer shall be permitted to issue a press release announcing this
transaction and the economic terms contained herein upon the execution hereof;
provided, however, that Seller shall have the right to approve any such press
release.
10.3 Cooperation. Buyer and Seller shall and Arfa shall cause the
Seller to cooperate fully with each other in taking any actions, including
actions to obtain the required consent of any governmental instrumentality or
any third party necessary or helpful to accomplish the transactions
contemplated by this Agreement; provided, however, that no party shall be
required to take any action which would have a material adverse effect upon it
or any affiliated entity.
10.4 Consents to Assign. To the extent that any Contract set forth in
Section 7.3 of the Disclosure Schedule is not capable of being sold, assigned,
transferred, delivered or subleased without the waiver or consent of any third
person (including a government or governmental unit), or if such sale,
assignment, transfer, delivery or sublease or attempted sale, assignment,
transfer, delivery or sublease would constitute a breach thereof or a violation
of any law or regulation, this Agreement and any Assignment executed pursuant
hereto shall not constitute a sale, assignment, transfer, delivery or sublease
or an attempted sale, assignment, transfer, delivery or sublease thereof. In
those cases where consents, assignments, releases and/or waivers have not been
obtained at, or prior to the Closing Date to the transfer and assignment to the
Buyer of the Contracts, this Agreement and any Assignment executed pursuant
hereto, to the extent permitted by law, shall constitute an equitable
assignment by Seller to the Buyer of all of Seller's rights, benefits, title
and interest in and to the Contracts, and where necessary or appropriate, the
Buyer shall be deemed to be the Seller's Agent for the purpose of completing,
fulfilling and discharging all of Seller's rights and liabilities arising after
the Closing Date under such Contracts. Seller shall use its reasonable efforts
to provide the Buyer with the benefits of such Contracts (including, without
limitation,
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permitting the Buyer to enforce any rights of Seller arising under such
Contracts), and the Buyer shall, to the extent the Buyer is provided with the
benefits of such Contracts, assume, perform and in due course pay and discharge
all debts, obligations and liabilities of Seller under such Contracts.
10.6 Bulk Sales Laws. The Buyer hereby waives compliance by Seller
with the provisions of the "bulk sales" or similar laws of any state. Seller
agrees to indemnify the Buyer and hold it harmless against any and all claims,
losses, damages, liabilities, costs and expenses incurred by the Buyer or any
affiliate as a result of any failure to comply with any "bulk sales" or similar
laws.
10.7 Employee Matters. Buyer may, but shall not be obligated, to hire
substantially all of the employees of the Seller immediately following the
Closing. Seller shall be responsible for all salary and benefits of the
employees of the Seller for the period prior to the Closing Date. All employees
of the Seller shall cease active participation in all of Seller's employee
benefit plans on the Closing Date, in accordance with the terms of such plans.
ARTICLE 11
CONDITIONS OF CLOSING BY BUYER
------------------------------
The obligations of Buyer hereunder are, at its option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
11.1 Representations, Warranties and Covenants.
11.1.1 All representations and warranties of Seller made in this
Agreement shall be true and complete in all material respects as of the date
hereof, and on and as of the Closing Date as if made on and as of that date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
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11.1.2 All of the terms, covenants and conditions to be complied
with and performed by Seller on or prior to Closing Date shall have been
complied with or performed in all material respects.
11.1.3 Buyer shall have received a certificate, dated as of the
Closing Date, executed by a senior executive officer of Seller, to the effect
that the representations and warranties of Seller contained in this Agreement
are true and complete in all material respects on and as of the Closing Date,
as if made on and as of that date, and that Seller has complied with or
performed all terms, covenants and conditions to be complied with, or performed
by it in all material respects on or prior to the Closing Date.
11.2 Employment Agreements. Dennis Arfa and Adam Kornfeld shall have
entered into employment agreements with Buyer (the "Arfa Employment Agreement")
and (the "Kornfeld Employment Agreement", as applicable) in the forms attached
hereto as Exhibit B.
11.3 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto, which would render it unlawful as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
11.4 Legal Opinion. Seller shall have delivered to Buyer a written
opinion of its counsel (which may be Grubman Indursky & Schindler, P.C. or
Kramer, Levin, Naftalis and Frankel or other counsel reasonably satisfactory to
Buyer), dated as of the Closing Date, addressed to Buyer substantially in the
form attached hereto as Exhibit D.
11.5 Third-Party Consents. Seller shall have obtained and shall have
delivered to Buyer all third party consents to the Contracts contemplated by
Section 7.3 of the Disclosure Schedule, it being understood and agreed that the
Seller shall not be required to deliver those consents described on Exhibit
11.5 hereto.
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11.6 Closing Documents. Seller shall have delivered or caused to be
delivered to Buyer on the Closing Date, the Bill of Sale in the form attached
hereto as Exhibit C, and the documents required to be delivered pursuant to
Section 15.1.
11.7 Financing Statements. Seller shall have delivered to Buyer
releases, if any, under the Uniform Commercial Code of any financing statements
filed against any Assets in the jurisdiction in which the Assets are, and have
been located since such Assets were acquired by Seller, except for purchase
money, leasehold or informational filings made by equipment, vendors or lessors
on lease obligations or purchase money being specifically assumed by Buyer as
set forth in Section 7.7 of the Disclosure Schedule.
11.8 Employee Notification. Seller shall have delivered to Buyer an
Employee Notification substantially in the form attached hereto as Exhibit E.
11.9 Escrow Agreement. Seller shall have entered into the Escrow
Agreement.
11.10. Change of Name. Marquee Music shall file a Certificate of
Amendment with the Secretary of State of the State of Delaware amending the
Certificate of Incorporation of Marquee Music so as to change the name of
Marquee Music to "QBQ Entertainment, Inc., a division of the Marquee Group,
Inc.," such Certificate of Amendment shall be substantially in the form of
Exhibit 11.10 hereto. After such change, Buyer hereby covenants and agrees that
Marquee Music's name shall be "QBQ Entertainment, Inc., a division of the
Marquee Group, Inc., and that the name of Marquee Music shall not be changed
again for a period of five (5) years without Seller's consent which shall not
be unreasonably withheld.
ARTICLE 12
CONDITIONS OF CLOSING BY SELLER
-------------------------------
The obligations of Seller hereunder are, at its option, subject to
satisfaction, at or prior to the
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Closing Date, of each of the following conditions:
12.1 Representations, Warranties and Covenants.
12.1.1 All representations and warranties of Buyer made in this
Agreement shall be true and complete in all material respects as of the date
hereof, and on and as of the Closing Date as if made on and as of that date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
12.1.2 All the terms, covenants and conditions to be complied
with and performed by Buyer on or prior to the Closing Date shall have been
complied with or performed in all material respects.
12.1.3 Seller shall have received a certificate, dated as of the
Closing Date, executed by senior executive officers of Buyer, to the effect
that the representations and warranties of Buyer contained in this Agreement
are true and complete in all material respects on and as of the Closing Date,
as if made on and as of that date, and that Buyer has complied with or
performed all terms, covenants and conditions to be complied with or performed
by it in all material respects on or prior to the Closing Date.
12.2 Employment Agreements. The Buyer shall have entered into the: (i)
Arfa Employment Agreement and make the Loan (as defined therein) on the Closing
Date; and (ii) Kornfeld Employment Agreement on or prior to the Closing Date.
12.3 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no other, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto, which would render it unlawful as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
12.4 Legal Opinion. Buyer shall have delivered to Seller an opinion of
its counsel, dated as of the Closing Date, addressed to Seller substantially in
the form attached hereto as Exhibit F.
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12.5 Registration Rights Agreement. The Buyer shall have entered into
a Registration Rights Agreement for the Consideration Stock and the Additional
Stock substantially in the form attached hereto as Exhibit G (the "Registration
Rights Agreement").
12.6 Escrow Agreement. The Buyer and the Seller shall have entered
into the Escrow Agreement.
12.7 Consideration Stock. The Buyer shall have delivered the
Consideration Stock to the Seller.
12.8 Additional Stock. The Buyer shall have deposited the Additional
Stock described in Section 3.5 into the Escrow Account.
12.9 Closing Documents. Buyer shall have delivered or cause to be
delivered to Seller, on the Closing Date, the documents required to be
delivered pursuant to Section 15.2.
12.10 Change of Name. Seller shall have delivered to Buyer a duplicate
original of a Certificate of Amendment, substantially in the form of Exhibit
12.10 attached hereto, amending the charter of the Seller to so as to change
the name of Seller to DLA Holding Corporation. Seller shall file such
Certificate of Amendment with the Secretary of State of the State of New York
simultaneously with the Closing.
ARTICLE 13
TRANSFER TAXES; FEES AND EXPENSES
---------------------------------
13.1 Expenses. Except as set forth in Section 13.2 hereof, each party
hereto shall be solely responsible for all costs and expenses incurred by it in
connection with the negotiation, preparation and performance of and compliance
with the terms of this Agreement.
13.2 Transfer Taxes and Similar Charges. All costs of transferring the
Assets in
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accordance with this Agreement, including recordation, transfer and documentary
taxes and fees, and any excise, sales or use taxes, shall be borne by Seller.
ARTICLE 14
COMMISSIONS OR FINDER'S FEE
---------------------------
14.1 Buyer's Representation and Agreement to Indemnify. Buyer
represents and warrants to Seller that neither it nor any person or entity
acting on its behalf has agreed to pay a commission, finder's fee or similar
payment in connection with this Agreement, or any matter related hereto to any
person or entity except to The Sillerman Companies. Buyer further agrees to
indemnify, defend and hold Seller harmless from and against any and all claims,
losses, liabilities and expenses (including reasonable attorney's fees) arising
out of a claim by The Sillerman Companies, or any other person or entity based
on any such arrangement or agreement made or alleged to have been made by
Buyer. Buyer shall be solely responsible for any fees due to The Sillerman
Companies.
14.2 Seller's Representation and Agreement to Indemnify. Seller
represents and warrants to Buyer that neither it nor any person or entity
acting on its behalf has agreed to pay a commission, finder's fee or similar
payment in connection with this Agreement, or any matter related hereto to any
person or entity. Seller further agrees to indemnify, defend and hold Buyer
harmless from and against any and all claims, losses, liabilities and expenses
(including reasonable attorney's fees) arising out of a claim by any person or
entity based on any such arrangement or agreement made or alleged to have been
made by Seller.
ARTICLE 15
DOCUMENTS TO BE DELIVERED AT CLOSING
------------------------------------
15.1 Seller's Documents. At the Closing, Seller shall and Arfa shall
cause the Seller to deliver or cause to be delivered to Buyer the following
(which shall be executed by Seller as applicable):
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15.1.1 Certified resolutions of the Board of Directors of Seller
approving the execution and delivery of this Agreement and each of the other
documents and authorizing the consummation of the transactions contemplated
hereby and thereby;
15.1.2 A certificate, dated the Closing Date, by Seller
containing the statement described in Section 11.1.3 above,
15.1.3 Governmental Certificates showing that Seller is duly
incorporated and in good standing in the State of New York, dated not more than
forty-five (45) days before the Closing Date;
15.1.4 Articles of Incorporation and Bylaws of Seller certified
by Seller's secretary as of the Closing Date;
15.1.5 Bill of Sale;
15.1.6 The opinion letter of Seller's counsel referenced in
Sections 11.4 above; and
15.2 Buyer's Documents. At the Closing, Buyer shall deliver or cause
to be delivered to Seller the following (which shall be executed by Buyer as
applicable):
15.2.1 The Purchase Price in accordance with Section 3.3 hereof
and the Loan;
15.2.2 A certificate, dated the Closing Date, by Buyer in the
form containing the statement described in Section 12.1.3 above.
15.2.3 The opinion of Buyer's counsel, dated the Closing Date, to
the effect set forth in Section 12.4;
15.2.4 Governmental certificates showing that Buyer is duly
incorporated and in
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good standing in the State of Delaware and qualified and in good standing in
the State of New York dated not more than forty-five (45) days before the
Closing Date;
15.2.5 An assignment and assumption agreement substantially in
the form of Exhibit 15.2.5, effecting the assumption of the Assumed Liabilities
(the "Assumption Agreement");
15.2.6 Certified resolutions of the Board of Directors of each
Buyer approving the execution and delivery of this Agreement and each of the
other documents and agreements referred to herein, and authorizing the
consummation of the transactions contemplated hereby and thereby;
15.2.7 Articles of Incorporation and Bylaws of each Buyer
certified by each Buyer's secretary as of the Closing Date; and
15.2.8 The Arfa Employment Agreement and the Kornfeld Employment
Agreement.
15.2.9 The Registration Rights Agreement.
15.2.10 The Additional Stock and the Letter of Credit shall be
deposited into the Escrow Account with copies of these items delivered to the
Seller.
ARTICLE 16
INDEMNIFICATION
---------------
16.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Losses" shall mean any and all losses, claims, shortages,
damages, liabilities or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements and other professional fees) suffered,
sustained or incurred by any indemnified
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person arising from any such matter which is the subject of indemnification
under this Agreement; provided, that the amount of Losses of any indemnified
person under this Agreement shall not include the amount, if any, of insurance
proceeds that such indemnified person (including the Buyer in the event of an
indemnification under Section 16.2) shall have received that are paid because
of the event, or matter the existence or occurrence of which gave rise to such
indemnification.
16.2 Seller's Indemnities. Seller and Arfa hereby agree (subject to
Section 19.4) to indemnify, defend and hold Buyer harmless with respect to any
and all Losses asserted against, resulting from, imposed upon or incurred by
Buyer relating to or arising out of:
16.2.1 Any and all liabilities, obligations, or commitments of
Seller not included in the Assumed Liabilities of any nature, whether absolute,
accrued, contingent, or otherwise, including those relating to all periods
prior to the Closing, whether the claim is asserted prior to or after the
Closing, by reason of or resulting from liabilities or obligations of or claims
against Seller or Arfa in connection with Seller's operations prior to the
Closing, (it being understood and agreed that the liabilities, obligations, or
commitments of Seller included in the Assumed Liabilities are being assumed by
the Buyer pursuant to Section 2.1);
16.2.2 The breach of any of the representations, warranties,
covenants, conditions or agreements of Seller or Arfa set forth in this
Agreement and the Transaction Agreements;
16.2.3 Any failure to comply with any "bulk sales" laws
applicable to the transactions contemplated hereby;
16.2.4 The failure of Seller or Arfa to pay, perform or discharge
when due any of Seller's obligations, liabilities or Contracts not assumed by
Buyer pursuant to this Agreement;
16.2.5 The litigation (if any) listed on Section 7.15 of the
Disclosure Schedule; and
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16.2.6 Any employee benefit plan maintained by Seller.
16.3 Buyer's Indemnities. Buyer hereby agrees to indemnify, defend and
hold Seller harmless with respect to any and all Losses asserted against,
resulting from, imposed upon or incurred by Seller relating to or arising out
of:
16.3.1 The use or operation of the Assets after the Closing Date;
16.3.2 The conduct of the Booking Business (and any other
business conducted by the Buyer) after the Closing Date;
16.3.3 The breach of any of the representations, warranties,
covenants, conditions or agreements of Buyer set forth in this Agreement or in
any of the Transaction Agreements;
16.3.4 Any and all liabilities, obligations or commitments of
Seller included in the Assumed Liabilities of any nature, whether absolute,
accrued, contingent or otherwise; and
16.3.5 Any employee benefit plan maintained by Buyer.
16.4 Survival of Representations and Warranties. Either party shall
have the right to bring an action with respect to the representations and
warranties contained herein for a period of fifteen (15) months following the
Closing Date, and upon the expiration of such period such right shall lapse and
be of no further force or effect.
16.5 Limitation on Indemnity. (a) Notwithstanding anything to the
contrary contained in this Agreement, neither the Seller nor Arfa shall have
any liability or obligation to the Buyer for breach of any representation,
warranty, condition, covenant or agreement of the Seller in this Agreement
unless, until and only to the extent that the aggregate of all losses for such
breaches exceeds One Hundred Eighty Thousand Dollars ($180,000) (the "Threshold
Amount"), in which event the Seller and Arfa shall then be jointly and
severally liable only for all losses in excess of
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Sixty-Five ($65,000) Thousand Dollars (the "Basket Amount").
(b) Notwithstanding anything to the contrary contained in the
Agreement: (i) the aggregate liability of the Seller for all claims for
indemnification asserted pursuant to this Article 16 shall not exceed
$2,500,000; and (ii) Arfa and/or the Seller shall be permitted to surrender to
Buyer shares of Marquee Group Class A Common Stock, $.01 par value, having an
aggregate market value, based on the Closing Price, equal to not less than the
amount of any indemnification obligations of Arfa and Seller pursuant to
Article XVI, in payment and satisfaction of their obligations under Article
XVI.
16.6 Procedures.
16.6.1 Promptly after the receipt by either party (the
"Indemnified Party") of notice of (A) any claim or (B) the commencement of any
action or proceeding which may entitle such party to indemnification under this
Section, such party shall give the other party (the "Indemnifying Party")
written notice of such claim or the commencement of such action or proceeding
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting from such claim. The failure to give the
Indemnifying Party timely notice under this Section 16.6.1 shall not preclude
the Indemnified Party from seeking indemnification from the Indemnifying Party
with respect to such claim or litigation, unless such failure has materially
prejudiced the Indemnifying Party's ability to defend the claim or litigation.
16.6.2 If the Indemnifying Party assumes the defense of any such
claim or litigation resulting therefrom with counsel reasonably acceptable to
Indemnified Party, the obligations of the Indemnifying Party as to such claim
shall be limited to taking all steps necessary in the defense or settlement of
such claim or litigation resulting therefrom and to holding the Indemnified
Party harmless from and against any losses, damages and liabilities caused by
or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation resulting therefrom;
provided, however, that the Indemnified Party may participate, at its expense,
in the defense of such claim or litigation provided that the Indemnifying Party
shall direct and control the defense of such claim or litigation. The
Indemnified Party shall cooperate and make
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available all books and records reasonably necessary and useful in connection
with the defense. The Indemnifying Party shall not, in the defense of such
claim or any litigation resulting therefrom, consent to entry of any judgment,
except with the written consent of the Indemnified Party, or enter into any
settlement, except with the written consent of the Indemnified Party, which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party of a release from all liability in
respect of such claim or litigation.
16.6.3 If the Indemnifying Party shall not assume the defense of
any such claim or litigation resulting therefrom, the Indemnified Party may,
but shall have no obligation to, defend against such claim or litigation in
such manner as it may deem appropriate, and the Indemnified Party may
compromise or settle such claim or litigation with the Indemnifying Party's
consent. The Indemnifying Party shall promptly pay any such settlement of such
claim or litigation and shall also promptly reimburse the Indemnified Party for
the amount of all expenses, legal or otherwise, incurred by the Indemnified
Party in connection with the defense against or settlement of such claim or
litigation. If no settlement of the claim or litigation is made, the
Indemnifying Party shall promptly reimburse the Indemnified Party for the
amount of any judgment rendered with respect to such claim or in such
litigation and of all expenses, legal or otherwise, incurred by the Indemnified
Party in the defense against such claim or litigation.
16.7 Limitation of Remedies. Anything contained herein to the contrary
notwithstanding, except as otherwise set forth herein, the remedies provided
for in this Article XVI shall be the sole remedies, contractual or otherwise
(whether at law or in equity), of the Buyer, Seller and Arfa with respect to
any violation or breach of this Agreement, and shall preclude assertion by such
party of any other rights or the seeking of any other remedies against such
other party with respect to this Agreement.
ARTICLE 17
TERMINATION RIGHTS
------------------
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17.1 Termination. This Agreement may be terminated by either Buyer or
Seller, if the party seeking to terminate is not in material default or breach
of this Agreement, upon written notice to the other upon the occurrence of any
of the following:
(a) if the other party defaults in any material respect in the
observance or in the due and timely performance of any of its covenants or
agreements herein contained (including, without limitation, such party's
obligation to consummate the transactions contemplated herein at the Closing,
in accordance with Section 4.1) and such material default shall not be cured
within fifteen (15) days of the date of notice of default served by the party
claiming such material default; or
(b) on the first anniversary of this Agreement, if there shall be
in effect any judgment, final decree or order that would prevent or make
unlawful the Closing of this Agreement;
17.2 Liability. The termination of this Agreement under Section 17.1
shall not relieve any party of any liability for breach of this Agreement prior
to the date of termination (including, without limitation, the failure to
consummate the transactions contemplated herein at the Closing in accordance
with Section 4.1). Anything contained herein to the contrary notwithstanding,
in the event that Seller shall terminate this Agreement pursuant to Section
17.1(a), the Buyer acknowledges and agrees that it shall comply with terms of
Section 19.2 below.
ARTICLE 18
PUT AND CALL PROVISIONS AFTER CLOSING
-------------------------------------
18.1 Put and Call with Respect to the Consideration Stock. The
Consideration Stock will be subject to the following put and call provision:
18.1.1 Put Option. The Seller may, at its option, by written
notice given to Buyer any time within thirty (30) days after the first to occur
of second anniversary of the Closing Date or
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an Acceleration Event, elect to transfer and sell to the Buyer up to 75% of the
Consideration Stock, free and clear of any and all Encumbrances (other than
this Agreement and the other Transaction Agreements) for an aggregate purchase
price equal to the ratio of the number of shares of Consideration Stock so
transferred to all shares of Consideration Stock multiplied by $2,000,000.
18.1.2 Put Closing. The closing of any purchase under section
18.1.1 shall be held at a place and date specified by the Buyer by written
notice given to Seller not more than twenty (20) days after the Seller shall
have exercised the option pursuant hereto; the date of the closing shall not be
more than thirty (30) days after the Seller shall have exercised the option
pursuant to Section 18.1.1. At the closing, (i) the Seller shall deliver to
Buyer a certificate or certificates for the Shares of Consideration Stock so
transferred duly endorsed in blank and with all required stock transfer stamps
attached, if any, and (ii) Buyer or its designee shall pay to Seller the
purchase price for such Shares after first deducting any amounts then
outstanding under the Loan as an offset to the Loan. The purchase price shall
be payable by wire transfer of immediately available funds to an account
specified by the Seller by written notice given to Buyer at least two business
days before the closing.
18.1.3 Call Option. The Buyer (or its assignee) may, at its
option, by written notice given to the Seller at any time within thirty (30)
days after the first to occur of the second anniversary of the Closing Date or
a Pledge Event (as hereinafter defined), elect to purchase from the Seller 50%
(and not more than 50%) of the Consideration Stock, less any shares of
Consideration Stock previously transferred pursuant to Section 18.1.1, free and
clear of any and all Encumbrances (other than this Agreement and the other
Transaction Agreements) for an aggregate purchase price equal to the ratio of
the number of shares of Consideration Stock so purchased to 75% of the Shares
of Consideration Stock multiplied by $2,250,000. The Seller shall be prohibited
from causing the Buyer to purchase pursuant to Section 18.1.1 or otherwise
conveying that number of shares of Consideration Stock which Buyer has elected
to purchase pursuant to this Section 18.1.3 after delivery of a notice by Buyer
pursuant to this Section 18.1.3, notwithstanding any prior election by the
Seller to exercise its rights pursuant to Section 18.1.1. As used herein,
"Pledge Event" shall mean the exercise of Marquee Group's right pursuant to
Section 2(e)(ii) of the Pledge Agreement dated as of the Effective Date between
Marquee Group and Arfa.
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18.1.4 Call Closing. The closing or any purchase under Section
18.1.3. shall be held at a place and date specified by the Buyer or its
assignee in a written notice given to the Seller not more than ten (10) days
after the Buyer or its assignee shall have exercised the option pursuant
hereto; the date of the closing shall not be more than thirty (30) days after
the Buyer or its assignee shall have exercised the option pursuant to Section
18.1.3. At the closing, (i) the Seller shall deliver to the Buyer or its
assignee a certificate or certificates for the Shares of Consideration Stock so
purchased, duly endorsed in blank and with all required stock transfer stamps
attached, and (ii) the Buyer or its assignee shall pay such holders the
purchase price for such Shares of Consideration Stock in accordance with the
amount set forth herein after first deducting any amounts then outstanding
under the Loan as an offset to the Loan. The purchase price shall be payable by
wire transfer of immediately available funds to accounts specified by the
Seller by written notice given to the Buyer or its assignee at least two
business days before the closing.
18.2 The Additional Stock shall be subject to the following put and
call provisions:
18.2.1 Put Option. If the Additional Stock is released from the
Escrow Account to the Seller, the Seller may, at its option, by written notice
given to Buyer any time within thirty (30) days after the first to occur of (a)
an Acceleration Event, or (b) the later of the second anniversary of the
Closing Date or the date of the release of the Additional Stock from the Escrow
Account pursuant to the Escrow Agreement, elect in either case to transfer and
sell to the Buyer up to 75% of the Additional Stock, free and clear of any and
all Encumbrances (other than this Agreement and the other Transaction
Agreements) for an aggregate purchase price equal to the ratio of the number of
shares of Additional Stock transferred to all shares of Additional Stock
multiplied by $500,000.
18.2.2 Put Closing. The closing of any purchase under Section
18.2.1 shall be held at a place and date specified by the Buyer by written
notice given to Seller not more than twenty (20) days after the Seller shall
have exercised the option pursuant hereto; the date of the closing shall not be
more than thirty (30) days after the Seller shall have exercised the option
pursuant to Section 18.2.1. At the closing, (i) the Seller shall deliver to
Buyer a certificate or certificates for all the Shares of Additional Stock duly
endorsed in blank and with all required stock transfer stamps attached, if any,
and (ii) Buyer shall pay to Seller the purchase price for the Shares after
first
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deducting any amounts then outstanding under the Loan as an offset to the Loan.
The purchase price shall be payable by wire transfer of immediately available
funds to an account specified by the Seller by written notice given to Buyer at
least two business days before the closing.
18.2.3 Call Option. If the Additional Stock is released from the
Escrow Account to the Seller, the Buyer (or its assignee) may, at its option,
by written notice given to the Seller at any time within thirty (30) days after
the later of the second anniversary of the Closing Date or the date of the
release of the Additional Stock from the Escrow Account pursuant to the Escrow
Agreement Closing Date, elect to purchase from the Seller 50% (and not more
than 50%) of the Additional Stock, less any shares of Additional Stock
previously transferred pursuant to Section 18.2.1, free and clear of any and
all Encumbrances for an aggregate purchase price equal to the ratio of the
number of shares of Additional Stock so purchased to 50% of the Additional
Stock multiplied by $750,000. The Seller shall be prohibited from causing the
Buyer to purchase pursuant to Section 18.2.1 or otherwise conveying that number
of shares of Additional Stock which Buyer has elected to purchase pursuant to
this Section 18.2.3 after delivery of a notice by Buyer pursuant to this
Section, notwithstanding any prior election by the Seller to exercise its
rights pursuant to Section 18.2.1.
18.2.4 Call Closing. The closing or any purchase under Section
18.2.3 shall be held at a place and date specified by the Buyer in a written
notice given to the Seller not more than ten (10) days after the Buyer shall
have exercised the option pursuant hereto; the date of the closing shall not be
more than thirty (30) days after the Buyer shall have exercised the option
pursuant to Section 18.2.3. At the closing, (i) the Seller shall deliver to the
Buyer a certificate or certificates for the Shares of Additional Stock so
purchased, duly endorsed in blank and with all required stock transfer stamps
attached, and (ii) the Buyer shall pay such holders the purchase price for the
Shares of Additional Stock in accordance with the amount set forth herein,
after first deducting any amounts then outstanding under the Loan as an offset
to the Loan. The purchase price shall be payable by wire transfer of
immediately available funds to accounts specified by the Seller by written
notice given to the Buyer at least two business days before the closing.
ARTICLE 19
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OTHER PROVISIONS
----------------
19.1 Specific Performance. Seller recognizes that, in the event Seller
refuses to perform the provisions of this Agreement, monetary damages alone
will not be adequate. Buyer shall, therefore, be entitled in such event, in
addition to bringing suit at law or equity for money or other damages, to
obtain specific performance of the terms of this Agreement. In any action to
enforce the provisions of this Agreement, Seller shall waive the defense that
there is an adequate remedy at law or equity and agrees that Buyer shall have
the right to obtain specific performance of the terms of this Agreement without
being required to prove actual damages, post bond or furnish other security.
19.2 Liquidated Damages. If the Seller terminates this Agreement
pursuant to Section 17.1(a) above due to Buyer's breach of any material
representation, warranty, covenant or condition hereunder, and Seller is not at
that time in breach of any material representation, warranty, covenant or
condition hereunder, then Seller would suffer direct and substantial damages,
which damages cannot be determined within reasonable certainty. Therefore,
because of the expense and delay which would be incurred in such event by
Seller, Buyer shall pay to Seller the amount of One Million Dollars
($1,000,000), which amount shall constitute liquidated damages (the "Liquidated
Damage Amount"). Buyer shall be required to pay the Liquidated Damage Amount to
the Seller by certified check or wire transfer to an account designated by the
Seller, after deduction for the Cash Deposit, within two (2) business days
after the expiration of all cure periods pursuant to Section 17.1 (a) above. It
is understood and agreed that such liquidated damage amount represents Buyer's
and Seller's reasonable estimate of actual damages and does not constitute a
penalty, except that this liquidated damages provision shall not apply with
respect to any breach of Section 10.2 and/or the Confidentiality Agreement.
Except with respect to any breach of Section 10.2 or the Confidentiality
Agreement, recovery of liquidated damages from the Cash Deposit and from the
Buyer pursuant to this Section 19.2 shall be the sole and exclusive remedy of
Seller against Buyer for failing to consummate this Agreement on the Closing
Date and shall be applicable regardless of the actual amount of damages
sustained. In the event that either of the parties hereto bring suit to enforce
(or to obtain injunctive relief with respect to) the provisions of Section
10.2, the Confidentiality Agreement, this Section 19.2 or Section 19.1 above,
the prevailing party in any such action shall, in
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addition to any remedies set forth in this Agreement or otherwise at law or in
equity, be entitled to recover reasonable attorney's fees from the other party.
19.3 Class A Common Stock. All references in this Agreement to the
Class A Common Stock, $.01 par value, of Marquee Group, Consideration Stock or
Additional Stock shall be deemed to include any successor securities issued in
replacement therefor or in consideration thereof in connection with any merger,
recapitalization or otherwise.
19.4 Risk of Loss.
(a) Except as otherwise set forth herein, the risk of loss or
damage to any of the Contracts or Assets prior to Closing shall be upon Seller.
Seller may replace any such lost Contract or repair, replace and restore any
such damaged or lost Asset to its prior condition as soon as possible and in no
event later than the Closing Date. If Seller fails to restore or replace such
Asset or Contract and Buyer does not elect to terminate this Agreement, Seller
shall assign to Buyer at Closing Seller's rights under any insurance policy or
pay over to Buyer all proceeds of insurance covering such Contracts or Asset's
damage, destruction or loss. If the restoration and replacement of any damaged
or destroyed property has not been completed at the time the Closing would
otherwise be held, then unless Seller and Buyer otherwise agree, the Closing
Date shall be delayed and shall take place within fifteen (15) days after
Seller gives written notice to Buyer of completion of the restoration or
replacement of such Contract Asset.
(b) Notwithstanding anything contained herein to the contrary:
(i) the loss of any Contracts or Assets having an aggregate value (as defined
in Section 19.4 (c)) of less than Two Hundred Thousand Dollars ($200,000) prior
to the Closing shall not be deemed to be a breach of this Agreement and the
Purchase Price adjustment in Section 19.4(c) and the termination rights
referenced in Section 19.4(b) (iii) shall not become operative; (ii) the loss
of any Contracts or Assets having an aggregate value equal to or greater than
Two Hundred Thousand Dollars ($200,000) but not in excess of Three Hundred
Fifty Thousand Dollars ($350,000) which are not repaired, replaced or restored,
as applicable, prior to the Cosing Date (or within 15 days thereafter as
contemplated by
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Section 19.4 (a)), shall result in an adjustment of the Purchase Price pursuant
to Section 19.4(c) as the sole and exclusive remedy of the Buyer hereunder
contractual or otherwise (whether at law or in equity) and the termination
rights referenced in Section 19.4(b)(iii) shall not become operative; and (iii)
Seller may only elect to terminate this Agreement pursuant to Article 17 hereof
if the aggregate value of such lost Contracts or Assets exceeds Three Hundred
Fifty Thousand Dollars ($350,000) and such Assets or Contracts are not
repaired, replaced or restored, as applicable, prior to the Closing Date (or
within 15 days thereafter as contemplated by Section 19.4 (a)).
(c) If the Seller loses Contracts having an aggregate value in
excess of Two Hundred Thousand Dollars ($200,000) which are not replaced or
restored as aforesaid, and the Buyer shall be required to, or shall elect to,
consummate the Closing pursuant to this Section 19.4, then each component of
the Purchase Price payable upon the Closing Date pursuant to Sections 3.2 and
3.7 shall be adjusted, such adjustment to be equal to the product of such
component of the Purchase Price multiplied by a fraction, (i) the numerator of
which shall be the Seller's net commission revenues during the preceding three
(3) calendar years from all Contracts other than the Contracts which were not
replaced or restored and (ii) the denominator of which shall be Seller's net
commission revenues from all Contracts during the preceding three (3) calendar
years. For all purposes of this Section 19.4 , the "value" of any Contract
shall, in the case of a Contract pertaining to an artist or entertainer, be
equal to the average annual net commission revenues generated by such artist or
entertainer under such Contract during the preceding three (3) calendar years.
19.5 Further Assurances. After the Closing, Seller shall from time to
time, at the request of and at the expense of Buyer, execute and deliver such
other instruments of conveyance and transfer and take such other actions as may
reasonably requested in order to more effectively consummate the transactions
contemplated hereby to vest in Buyer good title to the Assets being transferred
hereunder (subject to Permitted Encumbrances), and Buyer shall from time to
time, at the request of and without further cost or expense to Seller, execute
and deliver such other instruments and take such other actions as may
reasonably be requested in order to more effectively relieve Seller of any
obligations being assumed by Buyer hereunder.
19.6 Joint and Several Liability. Each of Marquee Group and Marquee
Music shall be
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jointly and severally liable for the obligations of the other under this
Agreement. Each of Arfa and the Seller shall be jointly and severally liable
for the obligations of the other under this Agreement.
19.7 Disclosure Generally. If, and to the extent, any information
required to be furnished in any Schedule is contained herein, in the Exhibits,
or in any other Schedule, such information shall be deemed to be included in
all Schedules in which it is required to be included.
19.8 Waiver. No delay or failure by any party hereto in exercising any
right, power or privilege under this Agreement, or under any other instrument
or document given in connection with or pursuant to this Agreement, shall
impair any such right, power or privilege or be construed as a waiver of any
default or any acquiescence therein. No single or partial exercise of any such
right, power or privilege shall preclude the further exercise of any right,
power of privilege, or the exercise of any other right, power or privilege.
19.9 Severability. If any part or any provision of this Agreement
shall be invalid or unenforceable under applicable law, said part or provisions
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining provisions of this Agreement which
shall be construed as if such invalid parts or provisions had not been
inserted, and such invalid or unenforceable provisions shall become and be
immediately amended and reformed to include only the portions thereof as are
enforceable by the court or such other body having jurisdiction of this
Agreement; and the parties agree that such portions as so amended and reformed
shall be valid and binding as though any wholly invalid or unenforceable
portion had not been included herein.
19.10 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party may voluntarily or involuntarily
assign its interest under this Agreement ( directly or indirectly, whether by
merger, sale of stock, sale of assets, or otherwise) without the prior written
consent of the other party (except that Seller may assign its rights and
interest hereunder to Arfa).
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19.11 Entire Agreement. This Agreement and the Exhibits hereto embody
the entire agreement and understanding of the parties hereto and supersede any
and all prior agreements, arrangements and understandings relating to the
matters provided for herein. No amendment, waiver of compliance with any
provision or condition hereof or consent pursuant to this Agreement shall be
effective unless evidenced by an instrument in writing signed by the party
against whom enforcement of any waiver, amendment, change, extension or
discharge is sought.
19.12 Headings. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
19.13 Governing Law. The construction and performance of this
Agreement shall be governed by the laws of the State of New York applicable to
agreements made and performed wholly therein.
19.14 Notices. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and shall
be deemed to have been duly delivered, given and received on the date of
personal delivery or five (5) days after mailing, if mailed by registered or
certified first class U.S. mail, postage prepaid and return receipt requested,
or on the date of a stamped receipt, if sent by an overnight delivery service,
and shall be addressed to the following addresses, or to such other address as
any party may request, in the case of Seller, by notifying Buyer, and in the
case of Buyer, by notifying Seller:
To Seller and/or QBQ Entertainment, Inc.
Dennis Arfa: 341 Madison Avenue
New York, NY 10017
Attn: Dennis Arfa
Copy to: Grubman Indursky & Schindler, P.C.
152 West 57 Street
New York, NY 10019
Attn: Jess H. Drabkin
To Buyer: The Marquee Group, Inc.
888 7th Avenue, 16th Floor
New York, NY 10019
Attn: Robert Gutkowski
50
<PAGE>
Copy to: The Sillerman Companies
150 East 58th Street, 19th Floor
New York, NY 10155
Attn: Kraig G. Fox
[end of page]
51
<PAGE>
19.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
SELLER:
-------
QBQ ENTERTAINMENT, INC.
/s/ Dennis Arfa
-----------------------------------
Dennis Arfa
/s/ Dennis Arfa
-----------------------------------
Dennis Arfa
BUYER:
------
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-------------------------------------
Robert M. Gutkowski
President and Chief Executive Officer
MARQUEE MUSIC, INC.
By: /s/ Robert M. Gutkowski
-------------------------------------
Robert M. Gutkowski
President and Chief Executive Officer
52
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated the 2nd day of
July, 1997, between BRIARCLIFF INTERNATIONAL LTD., a British Virgin Islands
corporation ("Seller"), and THE MARQUEE GROUP, INC., a Delaware corporation
("Buyer").
Recitals
--------
A. Seller owns 250 shares (the "Shares") of common stock, par value $1.00
("Common Stock") of ProServ, Inc., a Delaware corporation (the "Company").
B. Donald L. Dell ("Dell") and Buyer have entered into a Purchase and Sale
Agreement dated as of June 15, 1997 (the "Dell Agreement") pursuant to which
Dell has agreed to sell, among other things, 880 shares of Common Stock (the
"Dell Shares") to Buyer.
C. Seller desires to sell, and Buyer desires to purchase, the Shares for
the consideration and upon the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing, and for other
consideration, the receipt and sufficiency of which are acknowledged, the
parties agree as follows:
1. Purchase and Sale of Stock.
1.1. Agreement to Purchase and Sell. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date (as defined below),
Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares
without recourse, guaranty or representation (other than set forth in Section 2
hereof).
1.2. Purchase Price. In exchange for the Shares, Buyer agrees to pay to
Seller the sum of Three Million Dollars ($3,000,000.00) (the "Purchase Price").
1.3. Payment of Purchase Price. The Purchase Price shall be payable on
the Closing Date by wire transfer to Seller of the Purchase Price in
immediately available funds in accordance with instructions as shall have been
sent to Buyer at least two (2) business days prior to the Closing Date.
1.4. Closing. The closing of the purchase and sale of the Shares (the
"Closing") shall take place on the date (the "Closing Date") and at the time
and place of the closing of the purchase and sale of the Dell Shares which date
shall in no event be later than October 15, 1997 (the "Dell Closing Date").
1
<PAGE>
2. Seller Representations. Seller represents and warrants to Buyer that the
Shares are owned by Seller free and clear of all liens, encumbrances, charges,
assessments and adverse claims other than by reason of that certain Common
Stock Subscription and Shareholder Agreement (the "Subscription Agreement")
dated July 9, 1996, among the Company, Dell and the Seller.
3. Dell and Company Consent. By Side Agreement dated the date hereof among
Seller, Buyer, Dell and the Company, a copy of which is attached hereto and
incorporated herein as Exhibit D, each of Dell and the Company agrees with each
of the Buyer and Seller that each of Dell and the Company (i) consents to
Seller's sale and Buyer's purchase of the Shares under this Agreement, (ii)
waives any and all rights that any of Dell and the Company may have with
respect to the Shares under the Subscription Agreement, and (iii) agrees that
Seller's sale and Buyer's purchase of the Shares under this Agreement is made
in full compliance with the provisions of the Subscription Agreement.
4. Buyer Representations. Buyer represents and warrants to Seller that: (i)
Buyer is an "accredited investor," as defined in Rule 501 under the Securities
Act of 1933 (the "Securities Act"); (ii) Buyer is acquiring the Shares for
Buyer's own account for investment with no present intention of distributing or
reselling any such Shares with a view to any distribution within the meaning of
the Securities Act; (iii) Buyer has had the opportunity to ask questions of
Seller and of management of the Company regarding the Company and has received
all information reasonably requested by it; and (iv) Buyer understands that the
Shares have not been registered under the Securities Act or any state
securities law and that the certificate representing the Shares will bear an
appropriate restrictive legend, as well as a legend subjecting all transfers of
the Shares to the terms of the Subscription Agreement. Buyer agrees that it
will not, directly or indirectly, voluntarily offer, sell, pledge or otherwise
dispose of (or solicit any offers to purchase or otherwise acquire or take a
pledge of) any Shares unless (i) registered pursuant to the provisions of the
Securities Act and the applicable state securities laws, or (ii) an exemption
from registration is available under the Securities Act and the applicable
state securities laws. Buyer has full power and authority to enter into this
Agreement and to carry out the transactions contemplated herein. This Agreement
has been duly and validly executed and delivered by the Buyer, does not violate
any document or agreement, does not require filing with or consent of any
person and (assuming this Agreement is a legal, valid and binding obligation of
Seller) constitutes a legal, valid and binding obligation of Buyer enforceable
in accordance with its terms.
2
<PAGE>
5. Other Covenants and Agreements.
5.1. Indemnification by Seller. Upon the terms and subject to the
conditions set forth in this Section 5.1, Seller agrees to indemnify and hold
Buyer harmless against, and will reimburse Buyer on demand for, any payment,
loss, cost or expense (including reasonable attorney's fees) made or incurred
by or asserted against Buyer at any time after the Closing Date by a third
party in respect of any material breach of the Seller's representation and
warranty set forth in Section 2 hereof or from any material breach of
representation in Seller's certificate furnished to Buyer pursuant to Section
6.1.2 hereof, provided, however, that as a condition precedent hereto, the
Buyer shall have delivered written notice of any such claim to Seller prior to
the sixth month anniversary of the Closing Date.
5.2. Indemnification by Buyer. Upon the terms and subject to the
conditions set forth in this Section 5.2, Buyer agrees to indemnify and hold
Seller harmless against, and will reimburse Seller on demand for, any payment,
loss, cost or expense (including reasonable attorney's fees) made or incurred
by or asserted against Seller at any time after the Closing Date by a third
party in respect of any material breach of the Buyer's representations and
warranties set forth in Section 4 hereof or from any material breach of
representation in Buyer's certificate furnished to Seller pursuant to Section
6.2.2 hereof, provided, however, that as a condition precedent hereto, the
Seller shall have delivered written notice of any such claim to Buyer prior to
the sixth month anniversary of the Closing Date.
5.3. Taxes and Expenses.
5.3.1. All costs of transferring the Shares in accordance with this
Agreement, including recordation, transfer and documentary taxes and fees, and
any excise, sales or use taxes, shall be borne by Buyer. Sell will assume and
pay for its attorneys' fees in connection with the negotiation of this
Agreement.
5.3.2. Buyer will assume and pay all costs, liabilities and other
obligations incurred by Buyer in connection with the performance of and
compliance with all Transactions and other agreements and conditions contained
in this Agreement to be performed or complied with by Buyer, including legal
and accounting fees.
6. Conditions of Closing.
6.1. Buyer's Conditions of Closing. The obligation of Buyer to purchase
and pay for the Shares shall be subject to and conditioned upon the
satisfaction at the Closing of each of the following conditions:
3
<PAGE>
6.1.1. (RESERVED)
6.1.2. Seller shall have delivered to Buyer a Certificate of its
corporate Secretary certifying:
(a) Resolutions of its sole Director authorizing execution and
delivery of this Agreement and the performance of all transactions
contemplated hereby (the "Transactions");
(b) That the representation and warranty of Seller contained in
Section 2 of this Agreement is true and correct at and as of the Closing
Date; and
(c) The incumbency of its officers executing this Agreement and all
other documents and instruments executed on Seller's behalf.
6.1.3. Seller shall have delivered to Buyer the certificate
representing the Shares, duly endorsed for transfer or accompanied by
appropriate stock powers (in either case executed in blank or in favor of
Buyer).
6.1.4. As of the Closing Date, the approval and all consents from
third parties and governmental agencies required to consummate the Transactions
shall have been obtained.
6.1.5. As of the Closing Date, no suit, action, investigation,
inquiry or other proceeding by any governmental body or other person or legal
or administrative proceeding shall have been instituted or threatened which
questions the validity or legality of the Transactions or which could
reasonably be expected to adversely affect the ability of Buyer to consummate
such Transactions.
6.1.6. As of the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the Transactions or
any of them not be consummated as so provided, or imposing any material
conditions on the consummation of such Transactions by Buyer.
6.1.7. Seller shall have executed and delivered to Buyer a release
in favor of Buyer and the Company, in the form attached as Exhibit A.
6.1.8. The closing of the purchase and sale of the Dell Shares
under the Dell Agreement shall occur simultaneously with the Closing hereunder.
6.2. Seller's Conditions of Closing. The obligation of Seller to sell
the Shares shall be subject to and conditioned
4
<PAGE>
upon the satisfaction at the Closing of each of the following conditions:
6.2.1. (RESERVED)
6.2.2. Buyer shall have delivered to Seller a Certificate of its
corporate Secretary certifying:
(a) Resolutions of its Board of Directors authorizing execution and
delivery of this Agreement and the performance of all Transactions;
(b) That the representations and warranties of Buyer contained in
Section 4 of this Agreement are true and correct at and as of the Closing
Date; and
(c) The incumbency of its officers executing this Agreement and all
other documents and instruments executed on Buyer's behalf.
6.2.3. Buyer shall have effected payment of the Purchase Price in
accordance with the prior written instructions of Seller.
6.2.4. As of the Closing Date, the approval and all consents from
third parities and governmental agencies required to consummate the
Transactions shall have been obtained.
6.2.5. As of the Closing Date, no suit, action, investigation,
inquiry or other proceeding by any governmental body or other person or legal
or administrative proceeding shall have been instituted or threatened which
questions the validity or legality of the Transactions or which could
reasonably be expected to adversely affect the ability of Seller to consummate
such Transactions.
6.2.6. As of the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the Transactions or
any of them not be consummated as so provided or imposing any material
conditions on the consummation of such Transactions by Seller.
6.2.7. Buyer shall have executed and delivered to Seller a general
release in favor of Seller, in the form attached as Exhibit B.
6.2.8. Dell and the Company shall have executed and delivered to
Seller a release in favor of Seller, in the form attached as Exhibit C.
5
<PAGE>
6.2.9. The closing of the purchase and sale of Dell Shares under
the Dell Agreement shall occur simultaneously with the Closing hereunder.
7. Termination and Abandonment.
7.1. Methods of Termination. This agreement and the Transactions may be
terminated and/or abandoned at any time not later than the Closing Date:
(a) By mutual written consent of Buyer and Seller;
(b) By Buyer, if any of the conditions provided for in Section 6.1
hereof shall not have been met or waived in writing by Buyer by the Dell
Closing Date;
(c) By Seller, if any of the conditions provided for in Section 6.2
hereof shall not have been met or waived in writing by Seller by the Dell
Closing Date; or (d) Automatically, if the Closing shall not have occurred
by October 15, 1997.
7.2. Procedure Upon Termination. In the event of termination and/or
abandonment by Buyer or Seller, or both, pursuant to Section 7.1 hereof,
written notice thereof shall forthwith be given to the other party and to Dell,
and this Agreement and the Transactions shall be terminated and/or abandoned,
without further action by Buyer or Seller. If this Agreement and the
transactions are terminated and/or abandoned in accordance with clause (a) of
Section 7.1, or as a result of a failure of the condition set forth in Section
6.1.8 or 6.2.9, then no party hereto shall have any liability or further
obligation to any other party to this Agreement.
8. Miscellaneous.
7.1. Notice. Any notice or other communication required or permitted
hereunder shall be in writing and personally delivered, mailed by registered or
certified mail (return receipt requested and postage prepaid), sent by
telecopier (with evidence of transmission retained and a confirming copy sent
by regular mail), or sent by prepaid overnight courier service, and addressed
to the relevant party at its address set forth below, or at such other address
as such
6
<PAGE>
party may, by written notice, designate as its address for purposes of notice
hereunder.
(a) If to Buyer, at:
The Marquee Group, Inc.
888 Seventh Avenue
New York, NY 10019
Telecopy:
With copies (which shall not constitute notice) to:
Howard J. Tytel, Esquire
The Sillerman Companies
150 East 58th Street
New York, NY 10155
Telecopy: (212) 753-3188
and to:
Mr. Donald Dell
ProServ, Inc.
1101 Wilson Boulevard, 19th Floor
Arlington, VA 22209
Telecopy: (703) 276-3088
(b) If to Seller at:
c/o Malcolm K. Becker
Codan Trust Company (BVI) Ltd.
Romasco Place, Wickhams Cay 1
P.O. Box 3140
Road Town, Tortola
British Virgin Islands
Telecopy: (809) 494-4929
With copies to (which shall not constitute notice)
to:
John J. Hogan, Jr., Esquire
Dewey Ballantine
1301 Avenues of the Americas
New York, NY 10019-6092
Telecopy: (212) 259-6333
7
<PAGE>
and to:
Mr. Donald Dell
ProServ, Inc.
1101 Wilson Boulevard, 19th Floor
Arlington, VA 22209
Telecopy: (703) 276-3088
Notice shall be effective immediately upon personal delivery or telecopy, seven
(7) business days after deposit in the mail, or one (1) business day after
deposit with an overnight courier service.
8.2. Further Assurances. Each party will do such acts, and execute and
deliver to the other party such additional documents or instruments as may be
reasonably requested in order to effect the purpose of this Agreement.
8.3. Binding Effect and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. No party may voluntarily or involuntarily assign its interest
under this Agreement without the prior written consent of the other party,
except for any assignment by the Buyer to an affiliate of the Buyer in which
case the Buyer shall remain fully obligated under this Agreement.
8.4. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to its subject matter
and supersedes all prior written or oral agreements, understandings,
representations and warranties made with respect thereto. No amendment,
supplement or modification of this Agreement nor any waiver of any provision
hereof shall be made except in writing executed by all parties hereto.
8.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
8.6. Survival. The representations and warranties contained in this
Agreement shall survive the Closing for a period of six (6) months following
the Closing Date, and upon the expiration of such period shall lapse and be of
no further effect, except to the extent that prior to such date, a party
seeking indemnification hereunder shall have notified the other party of any
claims(s) arising with respect hereto. No party may seek an indemnity claim
against another for breach of a representation or warranty contained herein if
the claimant was
8
<PAGE>
aware at or prior to the execution and delivery hereof of such breach.
8.7. Counterparts. The Agreement may be executed in two counterparts,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument. It shall not be necessary when
making proof of this Agreement to account for more than one such counterpart.
8.8. Interpretation. The titles of the paragraphs of this Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement. For all purposes of this Agreement, unless the context
otherwise requires or as otherwise expressly provided, (a) all defined terms
shall include both the singular and the plural forms thereof; (b) reference to
any gender shall include all other genders; (c) all references to words such as
"herein", "hereof", and the like shall refer to this Agreement as a whole and
not to any particular Article or Section within this Agreement; (d) the term
"include" means "include without limitation"; and (e) the term "or" is intended
to include the term "and/or".
8.9. No Waiver; Remedies Cumulative. No waiver by any party hereto of
any one or more defaults by any other party or parties in the performance of
any of the provisions of this Agreement shall operate or be construed as a
waiver of any future default or defaults, whether of a like or different
nature. No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to any party hereto at law, in equity or
otherwise.
8.10. Severability. Should any provision of this Agreement be
unenforceable or prohibited by applicable law, this Agreement shall be
considered divisible as to such provision which shall be inoperative, and the
remainder of this Agreement shall be valid and binding as though such provision
were not included herein.
8.11. Confidentiality. The Buyer and the Seller shall each keep strictly
confidential the existence and terms of this Agreement. The Buyer shall not
make reference to the Seller in the press releases or publicly filed documents,
without the prior consent of the Seller, except as required pursuant to an
order or request of a judicial or governmental authority or required by the
rules or regulations of the Securities and Exchange Commission, in which case
the Buyer shall consult with Seller
9
<PAGE>
prior to making such reference and shall accept Seller's reasonable
recommendations as to the reference.
8.12. Commissions or Finder's Fees. The parties hereto agree to
indemnify, defend and hold each other harmless from and against any and all
claims, losses, liabilities and expenses (including reasonable attorneys' and
other professionals' fees and disbursements) arising out of a claim by any
person or entity based on any arrangement or agreement made or alleged to have
been made by the Buyer or Seller in pay a commission, finder's fee, or similar
payment in connection with this Agreement or any matter related hereto.
[SIGNATURES APPEAR ON NEXT PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the parties caused this Agreement to be executed and
delivered as of the date first set forth above.
BRIARCLIFF INTERNATIONAL LTD.
By: /s/ John J. Hogan, Jr.
-----------------------------------------
Name: John J. Hogan, Jr.
---------------------------------------
Title: Vice President
--------------------------------------
THE MARQUEE GROUP, INC.
By: /s/ Robert M. Gutkowski
-----------------------------------------
Name: Robert M. Gutkowski
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
11
<PAGE>
EXHIBIT A
---------
GENERAL RELEASE BY SELLER
-------------------------
IN CONSIDERATION of that certain General Release dated as of the date
hereof by The Marquee Group, Inc. ("Buyer"), inter alia, to Seller and for
other consideration, the receipt and sufficiency of which are acknowledged,
Briarcliff International Ltd. ("Seller") and its successors and assigns
(collectively, the "Releasing Parties"), release, remise, acquit, and forever
discharge Buyer, ProServ, Inc., and their respective Affiliates (as defined
below), representatives, successors, and assigns (collectively, the "Released
Parties"), from any and all claims, actions, and demands of every kind, whether
direct or derivative, choate or inchoate, known or unknown, in law or equity
(collectively, "Claims"), which the Releasing Parties have, have had, or may
have, against any Released Party, except as specifically set forth below:
1. Claims for indemnification or contribution against any Released Party
arising out of a Claim against any Releasing Party by a third party that is not
a Released Party (no such Claim having been brought to the attention of any
Releasing Party as of the date hereof);
2. Claims arising under that certain Stock Purchase Agreement dated as of
July __, 1997, between Buyer and Seller or that certain Side Agreement dated as
of July __, 1997, among Buyer, Seller, ProServ, Inc., and Donald L. Dell; and
3. Claims of the Releasing Parties against the Released Parties arising out
of or relating to actions of the Released Parties committed in bad faith or
with a fraudulent intent.
For purposes of this release, the term "Affiliate" shall mean, with respect
to a specified person or entity, any person or entity controlling, controlled
by, or under common control with, the specified person or entity.
Any Released party may plead this Release as a complete defense and bar to
any Claim brought in contravention hereof. In that event, or in the event of
any breach of any representation contained herein, the breaching Releasing
Party will indemnify, defend, and hold harmless the Released Parties from and
against all costs and expenses arising therefrom, including without limitation
reasonable attorneys' and other professionals' fees and expenses.
The Releasing Parties are aware that, under the law of certain
jurisdictions, a general release may not extend to Claims that a person does
not know or suspect exist at the time when the
<PAGE>
release is executed. To the greatest extent permissible, the Releasing Parties
expressly waive the benefit of those laws and acknowledge that they intend this
Release to extend to the fullest measure provided for above.
Each Releasing Party represents and warrants to the Released Parties that
is has not sold, assigned or otherwise transferred to any other party or other
entity any Claim which it has, had, or may have, against any Released Party.
This Release shall be binding upon the Releasing Parties their respective
heirs, representatives, successors, and assigns.
This Release constitutes the full and entire understanding and agreement
among the Releasing Parties and the Released Parties with regard to its subject
matter and supersedes all prior written or oral agreements, understandings,
representations and warranties made with respect thereto. No amendment,
supplement or modification of this Release nor any waiver of any provision
thereof shall be made except in writing executed by Buyer and Seller.
Any pronoun used in this Release shall be deemed to include singular and
plural and masculine, feminine and neuter gender as the case may be. The words
"herein," "hereof," and "hereunder" shall be deemed to refer to this entire
Release, except as the context otherwise requires.
If any provision of this Release, or the application thereof to any party
or circumstance, shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the reminder of this Release and the
application of that provision to other parties or circumstances, shall not be
affected thereby, and each provision shall be valid and enforced to the fullest
extent permitted by law.
[SIGNATURE APPEARS ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Release to be executed
as of this ____ day of _____, 19___.
BRIARCLIFF INTERNATIONAL LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
STATE OF NEW YORK )
COUNTY OF NEW YORK ) ss:
I, Igor Levin, a Notary Public in and for said jurisdiction certify that
John J. Hogan, Jr. personally appeared before me and acknowledged that he is
the Vice President of Briarcliff International Ltd., a British Virgin Islands
corporation, and that the above instrument was executed by him by order of its
sole director, sealed with its corporate seal, and attested by him as its Vice
President.
Witness my hand and Notorial Seal, this ____ day of ________, 1997.
[SEAL]
------------------------------
Notary Public
My commission expires:
- ----------------------------------
<PAGE>
EXHIBIT B
---------
GENERAL RELEASE BY BUYER
------------------------
IN CONSIDERATION of that certain General Release dated as of the date
hereof by Briarcliff International Ltd. ("Seller"), and inter alia, to Buyer
and for other consideration, the receipt and sufficiency of which are
acknowledged, The Marquee Group, Inc. ("Buyer") and its successors and assigns
(collectively, the "Releasing Parties"), release, remise, acquit, and forever
discharge Seller and its Affiliates (as defined below), representatives,
successors, and assigns (collectively, the "Released Parties"), from any and
all claims, actions, and demands of every kind, whether direct or derivative,
choate or inchoate, known or unknown, in law or equity (collectively,
"Claims"), which the Releasing Parties have, have had, or may have, against any
Released Party, except as specifically set forth below:
1. Claims for indemnification or contribution against any Released Party
arising out of a claim against any Releasing Party by a third party that is not
a Released Party (no such Claim having been brought to the attention of any
Releasing Party as of the date hereof);
2. Claims arising under that certain Stock Purchase Agreement dated as of
July __, 1997, between Buyer and Seller of that certain Side Agreement dated as
of July __, 1997, among Buyer, Seller, ProServ, Inc. and Donald L. Dell; and
3. Claims of the Releasing Parties against the Released Parties out of or
relating to actions of the Released Parties committed in bad faith or with a
fraudulent intent.
For purposes of this release, the term "Affiliate" shall mean, with respect
to a specified person or entity, any person or entity controlling, controlled
by, or under common control with, the specified person or entity.
Any Released Party may plead this Release as a complete defense and bar to
any Claim brought in contravention hereof. In that event, or in the event of
any breach of any representation contained herein, the breaching Releasing
Party will indemnify, defend, and hold harmless the Released Parties from and
against all costs and expenses arising therefrom, including without limitation
reasonable attorneys' and other professionals' fees and expenses.
The Releasing Parties are aware that, under the law of certain
jurisdictions, a general release may not extend to Claims that a person does
not know or suspect exist at the time when the
<PAGE>
release is executed. To the greatest extent permissible, the Releasing Parties
expressly waive the benefit of those laws and acknowledge that they intend this
Release to extend to the fullest measure provided for above.
Each Releasing Party represents and warrants to the Released Parties that
it has not sold, assigned or otherwise transferred to any other person or
entity any Claim which it has, had, or may have, against any Released Party.
This Release shall be binding upon the Releasing Parties and their
respective heirs, representatives, successors, and assigns.
This Release constitutes the full and entire understanding and agreement
among the Releasing Parties and the Released Parties with regard to its subject
matter and supersedes all prior written or oral agreements, understandings,
representations and warranties made with respect thereto. No amendment,
supplement or modification of this Release nor any waiver of any provision
thereof shall be made except in writing executed by Buyer and Seller.
Any pronoun used in this Release shall be deemed to include singular and
plural and masculine, feminine and neuter gender as the case may be. The words
"herein," "hereof," and "hereunder" shall be deemed to refer to this entire
Release, except as the context otherwise requires.
If any provision of this Release, or application thereof to any party or
circumstance, shall be found by a court of competent jurisdiction to be, to any
extent, invalid or unenforceable, the remainder of this Release and the
application of that provision to other parties or circumstances, shall not be
affected thereby, and each provision shall be valid and enforced to the fullest
extent permitted by law.
[SIGNATURE APPEARS ON NEXT PAGE]
2
<PAGE>
EXHIBIT C
---------
GENERAL RELEASE BY DONALD L. DELL AND PROSERV, INC.
---------------------------------------------------
IN CONSIDERATION of that certain General Release dated as of the date
hereof by Briarcliff International Ltd. ("Seller"), inter alia, to ProServ,
Inc. ("PSI") and The Marquee Group, Inc. ("Buyer") and for other consideration,
the receipt and sufficiency of which are acknowledged, each of Donald L. Dell
("DLD") and PSI and their respective successors, heirs, executors and assigns
(collectively, the "Releasing Parties"), release, remise, acquit, and forever
discharge Seller and its Affiliates (as defined below), representatives,
successors, and assigns (collectively, the "Released Parties"), from any and
all claims, actions, and demands of every kind, whether direct or derivative,
choate or inchoate, known or unknown, in law or equity (collectively,
"Claims"), which the Releasing Parties have, have had, or may have, against any
Released Party, except as specifically set forth below:
1. Claims for indemnification or contribution against any Released Party
arising out of a Claim against any Releasing Party by a third party that is not
a Released Party (no such Claim having been brought to the attention of any
Releasing Party as of the date hereof); and
2. Claims of the Releasing Parties against the Released Parties out of or
relating to actions of the Released Parties committed in bad faith or with a
fraudulent intent.
For purposes of this release, the term "Affiliate" shall mean, with respect
to a specified person or entity, any person or entity controlling, controlled
by, or under common control with, the specified person or entity.
Any Released Party may plead this Release as a complete defense and bar to
any Claim brought in contravention hereof. In that event, or in the event of
any breach of any representation contained herein, the breaching Releasing
Party will indemnify, defend, and hold harmless the Released Parties from and
against all costs and expenses arising therefrom, including without limitation
reasonable attorneys' and others professionals' fees and expenses.
The Releasing Parties are aware that, under the law of certain
jurisdictions, a general release may not extend to Claims that a person does
not know or suspect exist at the time when the release is executed. To the
greatest extent permissible, the Releasing parties expressly waive the
<PAGE>
benefit of those laws and acknowledge that they intend this Release to extend
to the fullest measure provided for above.
Each Releasing Party represents and warrants to the Released Parties that
it has not sold, assigned or otherwise transferred to any other person or
entity any Claim which it has, had, or may have, against any Released Party.
This Release shall be binding upon the Released Parties and their
respective heirs, representatives, successors, and assigns.
This Release constitutes the full and entire understanding and agreement
among the Releasing Parties and the Released Parties with regard to its subject
matter and supersedes all prior written or oral agreements, understandings,
representations and warranties made with respect thereto. No amendment,
supplement or modification of this Release nor any waiver of any provision
thereof shall be made except in writing executed by Seller, PSI and DLD.
Any pronoun used in this Release shall be deemed to include singular and
plural and masculine, feminine and neuter gender as the case may be. The words
"herein," "hereof," and "hereunder" shall be deemed to refer to this entire
Release, except as the context otherwise requires.
If any provision of this Release, or the application thereof to any party
or circumstance, shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Release and the
application of that provision to other parties or circumstances, shall not be
affected thereby, and each provision shall be valid and enforced to the fullest
extent permitted by law.
[SIGNATURE APPEARS ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Release to be
executed as of this ____ day of ________________ , 19 __ .
PROSERV, INC.
By:
--------------------------------
Name: Donald L. Dell
Title: Chairman of the Board
and Chief Executive
Officer
-----------------------------------
DONALD L. DELL
3
<PAGE>
STATE OF__________________________)
) ss:
COUNTY OF_________________________)
I, ____________________ a Notary Public in and for said County and State,
certify that Donald L. Dell personally appeared before me and acknowledged that
he is the Chairman of the Board and Chief Executive Officer of ProServ, Inc., a
Delaware corporation, and that the above instrument was executed by him by
order of its board of directors, sealed with its corporate seal, and attested
by him as its Chairman of the Board and Chief Executive Officer.
Witness my hand and Notarial Seal, this ____________ day of
__________________, 1997.
[SEAL]
____________________________________
Notary Public
My commission expires: ____________________
STATE OF__________________________)
) ss:
COUNTY OF_________________________)
I, ____________________ a Notary Public in and for said County and State,
certify that Donald L. Dell personally appeared before me and acknowledged that
he executed the above instrument.
Witness my hand and Notarial Seal, this ____________ day of
__________________, 1997.
[SEAL]
____________________________________
Notary Public
My commission expires: ____________________
4
<PAGE>
EXHIBIT D
---------
SIDE AGREEMENT
--------------
This Side Agreement is made and entered into as of July 2, 1997 by and
among Donald L. Dell ("Dell"), ProServ, Inc., a Delaware corporation (the
"Company"), Briarcliff International Ltd., a British Virgin Islands corporation
("Seller") and The Marquee Group, Inc., a Delaware corporation ("Buyer").
WHEREAS, Seller is the owner of 250 shares (the "Shares") of common stock,
par value $1.00, of the Company;
WHEREAS, by Stock Purchase Agreement dated the date hereof, a copy of which
is attached hereto and incorporated herein as Exhibit A (the "Purchase
Agreement"), Seller has agreed to sell and Buyer has agreed to purchase the
Shares;
WHEREAS, by the terms of that certain Common Stock Subscription and
Shareholder Agreement (the "Subscription Agreement") dated July 9, 1996 among
the Company, Dell and Seller, Seller may not sell the Shares without the
consent of Dell and the Company;
WHEREAS, Dell and the Company wish to consent to the sale and purchase of
the Shares pursuant to the Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company, Dell, Buyer and Seller agree as follows:
1. Dell and Company Consent. Each of Dell and the Company agrees with each of
the Buyer and Seller that each of Dell and the Company:
(i) consents to Seller's sale and Buyer's purchase of the Shares under the
Purchase Agreement;
(ii) waives any and all rights that any of Dell and the Company may have with
respect to the Shares under the Subscription Agreement; and
(iii) agrees that Seller's sale and Buyer's purchase of the Shares under the
Purchase Agreement is made in full compliance with the provisions of the
Subscription Agreement.
2. Representations and Warranties. Each of the Company and Dell represents and
warrants to Buyer and Seller as follows:
(i) it has full power and authority to enter into this Side Agreement and to
carry out the transactions contemplated herein; and
(ii) the Side Agreement has been duly and validly executed and delivered by
it, does not violate any document or agreement, does not require the
filing with or consent
<PAGE>
of any person and constitutes its legal, valid and binding obligation
enforceable in accordance with its terms.
3. Miscellaneous. This Side Agreement:
(i) may only be amended or modified by a written instrument executed by each
of the parties hereto;
(ii) shall inure to the benefit of and be binding upon the parties hereto and
their respective successors, legal representatives and permitted assigns;
(iii) shall be governed by and construed in accordance with the internal laws
of the State of New York without giving effect to its conflicts of law
principles.
(iv) shall be kept strictly confidential by all parties hereto;
(v) may not be assigned without the prior written consent of the other
parties hereto, which may be granted or withheld for any reason or no
reason; and
(vi) may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the undersigned has caused this Side
Agreement to be duly executed on the date first written above.
BRIARCLIFF INTERNATIONAL LTD.
/s/ Donald L. Dell By: /s/ John J. Hogan, Jr.
- ---------------------------------- ------------------------------------
DONALD L. DELL Name: John J. Hogan, Jr.
Title: Vice President
PROSERV, INC. THE MARQUEE GROUP, INC.
By: /s/ Donald L. Dell By: /s/ Robert M. Gutkowski
------------------------------- ------------------------------------
Name: Donald L. Dell Name: Robert M. Gutkowski
Title: Chairman of the Board Title: President and Chief Executive
and Chief Executive Officer Officer
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
Assignment and Assumption Agreement, dated as of ___ day of
March 1997, by and between Sillerman Management Communications Corporation
("SCMC") and The Sillerman Companies, Inc. ("TSC").
W I T N E S S E T H:
WHEREAS, Marquee and SCMC have entered into a Financial
Consulting Agreement, dated as of August 15, 1996 (the "Financial Consulting
Agreement"), pursuant to which the Company retained SCMC to serve as its
financial consultant;
WHEREAS, in a letter agreement dated February 13, 1997 (the
"Letter Agreement") the Company agreed to advance SCMC the sum of $400,000 as
an advance against certain fees that may become payable to SCMC pursuant to
the terms of the Financial Consulting Agreement (the Letter Agreement and the
Financial Consulting Agreement are collectively referred to herein as the
"Consulting Agreement");
WHEREAS, Section 9 of the Financial Consulting Agreement
provides that all right, title and interest of SCMC in and under such
Agreement shall be freely transferable and assignable and may be transferred
or assigned by SCMC to any other entity or person selected by SCMC, provided
that Robert F.X. Sillerman is a principal of the assignee;
WHEREAS, Robert F.X. Sillerman is a principal of TSC by
virtue of the fact that he controls TSC;
WHEREAS, SCMC wishes to assign, and TSC wishes to assume,
all of SCMC's rights, duties and obligations under the Consulting Agreement.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. SCMC hereby grants, transfers and assigns to TSC all of
its rights, duties and obligations under the Consulting Agreement (including,
but not limited to, the obligation of SCMC to repay the sum of $400,000
advanced to it by the Company pursuant to the Letter Agreement under certain
circumstances).
2. TSC hereby accepts, assumes and agrees to perform,
discharge and satisfy all of SCMC's rights, duties and obligations under the
Consulting Agreement (including, but not limited to, the obligation of SCMC to
repay the sum of $400,000 advanced to it by the Company pursuant to the Letter
Agreement under certain circumstances).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment and Assumption Agreement as of the date first-above written.
SILLERMAN COMMUNICATIONS
MANAGEMENT CORPORATION
By: /s/ Robert F.X. Sillerman
--------------------------------
Name: Robert F.X. Sillerman
Title: Chief Executive Officer
THE SILLERMAN COMPANIES, INC.
By: /s/ Howard J. Tytel
--------------------------------
Name: Howard J. Tytel
Title: Executive Vice President
- 2 -
<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.
New York, New York
July 22, 1997
/s/ Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
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.
July 21, 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 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
July 22, 1997
<PAGE>
[Donald L. Dell Letterhead]
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated under the
Securities Act of 1933, as amended, to being named in The Marquee Group, Inc.'s
Registration Statement on Form SB-2 as about to become a director of such
company.
July 14, 1997 /s/ Donald L. Dell
- ------------- ------------------
Date Donald L. Dell
<PAGE>
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated under the
Securities Act of 1933, as amended, to being named in The Marquee Group, Inc.'s
Registration Statement on Form SB-2 as about to become a director of such
company.
/s/ William J. Allard 7/18/97
- --------------------- --------
William Allard Date
