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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-21711
THE MARQUEE GROUP, INC.
(Name of Small Business Issuer in Its Charter)
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DELAWARE 13-3878295
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
888 SEVENTH AVENUE, 40TH FLOOR
NEW YORK, NEW YORK 10019
(Address of Principal Executive Offices) (Zip Code)
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(212) 977-0300
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 par value Boston Stock Exchange
Warrants Boston Stock Exchange
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.01 par value
Warrants
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES [X] NO
[ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's gross revenues for its fiscal year ended December 31, 1996 were
$2,868,788.
The aggregate market value of the Common Stock held by non-affiliates of the
registrant based on the closing price of $7.50 on March 27, 1997 was
$32,344,955.
The number of shares of Common Stock outstanding on March 27, 1997 was
8,769,162.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Marquee Group, Inc. ("Marquee" or the "Company") was organized in
July 1995 to provide comprehensive management, marketing, sales, consulting
and production services to sports and entertainment-related businesses,
events, athletes, broadcasters, journalists and executives. In recent years,
significant developments in mass media, including the growth of satellite
communications and cable television, have resulted in increased national and
global exposure for sports personalities and the events and projects in which
they participate, and have created national and international audiences for
sports personalities, products and events. In addition, the recent
proliferation of sports-related television and radio stations has created an
increased demand for sports-related programming. As a result, the promotion
and sponsorship of sports events has become a major area of corporate
advertising and product development. The Company believes that the successful
exploitation of this market by sports personalities and corporations requires
integrated marketing and management services.
The Company was organized by Robert M. Gutkowski, the Company's
President and Chief Executive Officer, who has more than 20 years of
experience in the television, sports and entertainment industries and who
served as President of Madison Square Garden Corporation from November 1991
until September 1994, and The Sillerman Companies, Inc. ("TSC"), which invests
in and provides financial advisory, marketing and consulting services to media
companies and sports and entertainment related businesses. TSC is controlled
by Robert F.X. Sillerman, Chairman of the Company, whose principal occupation
is Executive Chairman of the Board of SFX Broadcasting, Inc., a
publicly-traded company which owns and operates radio stations and concert
promotion businesses.
In furtherance of its business strategy, in December 1996 the Company
acquired Sports Marketing & Television International, Inc. ("SMTI"), which
provides production and marketing services to sporting events, sports
television shows and professional and collegiate leagues and organizations,
and Athletes and Artists, Inc. ("A&A"), a sports and media representation
firm. The Company has begun, and will continue to integrate these businesses
and expand into related areas in sports and events programming and promotion.
The funding for the acquisition of SMTI (the "SMTI Acquisition") and the
acquisition of A&A (the "A&A Acquisition" and, collectively with the SMTI
Acquisition, the "Acquisitions") was provided by the net proceeds the Company
received in December 1996 from the consummation of its initial public
offering. In such offering, the Company sold an aggregate of 3,852,500 Units
(the "Units"), each Unit consisting of one share of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company and one Warrant (the
"Warrants"), each Warrant to purchase one share of Common Stock at an initial
purchase price of $7.50 per share, and received net proceeds of approximately
$15,586,000.
In conjunction with SMTI's production and marketing services, SMTI
develops and implements corporate sponsorship campaigns which are designed to
promote an event, team or sponsor. SMTI's current and recently completed
principal projects include production and marketing of The Breeders' Cup
Championship and implementation of the balloting campaign for Major League
Baseball's 1996 All-Star Game. The Company acquired SMTI, which was formed in
1984 by Michael Trager and Michael Letis, for an aggregate cash purchase price
payable to Messrs. Trager and Letis of $8,000,000, of which $6,500,000 was
paid at the closing of the SMTI Acquisition and $1,500,000 is payable in five
equal annual installments, and the issuance of an aggregate of 1,292,308
shares of Common Stock to Messrs. Trager and Letis. Messrs. Trager and Letis
have entered into long-term employment agreements with the Company pursuant to
which they serve as executive officers and directors of the Company.
A&A, which was founded in 1977 by Arthur C. Kaminsky, is a sports and
media representation firm whose roster of clients includes broadcasters
(including Al Michaels - ABC Sports, Forrest Sawyer - ABC News, Christiane
Amanpour - CNN and CBS News, Dan Dierdorf - ABC Sports and Chris Berman - ESPN
and ABC Sports), athletes (including Brian Leetch - New York Rangers, Eric
Heiden - U.S. Olympic five-time gold medalist in speed skating and
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Rico Brogna - Philadelphia Phillies), authors (including Dick Schaap - author
of Bo Knows Bo and Instant Replay, Rick Reilly - author of The Boz and Missing
Links and a writer for Sports Illustrated and John Powers - author of One Goal
and Mary Lou! and a sportswriter for The Boston Globe) and media executives
(including Terry O'Neil - a sports and news executive producer, Curt Gowdy,
Jr. - ABC Sports and John Faratzis - a sports programming producer who has
worked with ABC, CBS and NBC). The Company acquired A&A for an aggregate cash
purchase price payable to Mr. Kaminsky and Louis J. Oppenheim of $3,500,000,
of which $2,500,000 was paid at the closing of the A&A Acquisition and
$1,000,000 is payable in five equal annual installments, and the issuance to
Messrs. Kaminsky and Oppenheim of an aggregate of 969,230 shares of Common
Stock. Messrs. Kaminsky and Oppenheim have entered into long-term employment
agreements with the Company pursuant to which they serve as executive officers
and directors of the Company.
SPORTS PRODUCTION AND PROMOTION SERVICES
The Company provides production and promotion services to major
sporting events, sports television shows and professional and collegiate
leagues and organizations. In addition, the Company provides services relating
to television production, sale of television rights, program packaging and
video production and distribution, through which it may derive revenue from
commissions on sales of broadcast rights to television networks and cable
stations, commissions for packaging an event for a particular corporate
sponsor, fees for production of television programs or videos and royalties
for video distribution.
Although it may vary from event to event, the Company's activities in
events production 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. For each
client, the Company generally receives a fixed fee and/or commission generally
ranging from 15% to 40% of the contracted amount, although these fees and
commissions are negotiated between the parties on an event-by-event basis and
the amount of fees and/or commissions the Company receives depends to a large
extent upon its performance. The Company's corporate sponsorship projects are
generally on a short-term basis and may not be evidenced by written agreements
in advance of Company expenditures or at all, which the Company believes is
common in its industry.
The Company has agreed to provide certain production and promotional
services in the sports and events programming area, including agreements with
ESPN to produce professional and amateur boxing events, with the UPN
television network to produce the United States Open Professional Figure
Skating Championship and with the Outdoor Life Network to produce The National
Lumberjack Championships, and has entered into an agreement with the
Professional Bowlers Association (the "PBA") to serve as the PBA's exclusive
representative in connection with its negotiations with respect to television
broadcasting.
The Company provides events management services for the following
events:
-- The Breeders' Cup Championship -- In 1984, SMTI, together with the
Thoroughbred Racing Association and NBC Sports, created The Breeders' Cup
Championship, an annual series of thoroughbred horse races held at a rotating
series of racetracks, including Churchill Downs, Santa Anita and Belmont Park.
The Company has entered into a marketing agreement (the "Breeders' Cup
Agreement") with the Breeders' Cup Limited ("BCL"), pursuant to which SMTI was
granted the right to provide general marketing consultation, broadcast and
sponsorship rights sales, advertising production and media placement,
publicity and public relations, television and video production, production of
promotional materials and merchandising and licensing of BCL in connection
with The Breeders' Cup Championship. 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 1996 Breeders' Cup
Championship was held on October 22, 1996, at Woodbine Racetrack, Toronto,
Canada, the first time the event was held outside the United States.
The Breeders' Cup Agreement terminates on December 31, 1997, unless
terminated earlier in accordance with the terms of the agreement, including
the termination, for any reason, of SMTI's employment of Michael Letis or the
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unavailability of Mr. Letis to perform the services necessary to enable SMTI
to comply with the terms of the Breeders' Cup Agreement.
-- Major League Baseball -- The Company represents Major League
Baseball in its negotiations with potential corporate sponsors and in creating
sponsorship campaigns. The Company's agreement with Major League Baseball
expires in December 1997.
-- Celebrity Golf Association -- The Company and NBC have formed
Celebrity Golf Championship, LLC to conduct the annual golfing tournament
known as the Celebrity Golf Championship, an annual celebrity professional
golf tournament, where the competitors include well-known sports,
entertainment and media personalities. In connection therewith, SMTI organized
and conducted the 1996 Celebrity Golf Championship held in Lake Tahoe, Nevada.
SMTI also supervised the televising of the tournament and arranged for the
tournament to be televised on NBC.
-- The Hambletonian -- The Company has entered into an agreement with
The Hambletonian Society to act as exclusive television agent for The
Hambletonian, a premier event in harness racing held annually at The
Meadowlands, which agreement, unless renewed by mutual agreement, will
terminate in March 1998.
-- The Company has entered into an agreement with the PBA Tour
pursuant to which the Company agreed to serve as the exclusive representative
of the PBA in connection with its negotiations with respect to television
broadcasting through December 31, 1999.
--In March 1996, the Company entered into a one-year agreement with
ESPN pursuant to which the Company provided production services with respect
to approximately 30 televised boxing matches which were broadcast on ESPN and
ESPN2. The agreement was extended for a one-year period and, during the term
of such extension, the Company anticipates that it will provide production
services for approximately 50 boxing matches which are to be broadcast on ESPN
and ESPN2. The Company's production services in connection with these boxing
matches include site reviewal, arranging for television cameras, lighting,
audio and video equipment and technical facilities and coordinating the use of
on-air broadcasters.
--The Company has entered into a letter agreement with the
Professional Skaters Association pursuant to which the Professional Skaters
Association licensed to SMTI the rights to the United States Open Professional
Figure Skating Championship (the "Open") and SMTI became the exclusive
promoter of the Open, with full financial and management responsibility for
the operation of the Open. The term of the agreement expires in April 2001,
subject to the right of SMTI to renew for an additional five years. The
Company has also entered into an agreement with the UPN television network
pursuant to which Marquee agreed to produce and deliver annually to UPN one
television special. The television special will consist of the broadcast of
the Open. The agreement expires in January 1999, subject to the right of UPN
to renew for an up to an additional three years.
-- The Company has entered into an agreement (the "PVI Agreement")
with PVI, Inc. ("PVI"), pursuant to which the Company was retained by PVI to
market the PVI System to advertisers and advertising agencies and to sports
teams, leagues and broadcasters. The PVI System allows a sponsor's logo to be
graphically inserted at strategic locations during a televised sporting event
apparent only to the broadcast audience and permits the sale of different
advertising for the same physical space to different audiences in different
geographic locations. The PVI Agreement has a term of two years, subject to
early termination by either party in March 1997 or September 1997.
--The Company has begun producing two television programs for the
Lifetime television network. The programs deal with sports, sports
personalities and sports-related issues. The parties have not yet executed an
agreement relating to the production of the television programs but the
Lifetime television network has advanced the Company money in anticipation of
the Company's delivery of the television programs.
-- The Company has entered into an oral joint venture program
development arrangement with Cosette Productions, which has developed
television, theatrical and movie productions such as The Grammy Awards, The
Will
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Rogers Follies, television specials starring Harry Connick Jr. and Kathie Lee
Gifford, made-for-TV movies starring Valerie Bertinelli and Rick Schroeder and
the television mini-series Alcatraz. To date, no programs have been produced
pursuant to this agreement.
-- The Company has entered into an agreement with a representative of
Subaru of America ("Subaru"), pursuant to which Subaru has engaged the Company
to produce Subaru American Outback, an outdoor programming series of 24
half-hour episodes which are expected to be televised commencing in thesecond
quarter of 1997 on ESPN2 and ESPN.
-- The Company has agreed with The Outdoor Life Network, LLC ("OLN")
to provide production services with respect to 22 half-hour episodes of
Ironjack -- The National Lumberjack Championships for OLN, a new cable network
devoted to outdoor programming. The Company has delivered the finished product
to OLN.
-- The Company organized and promoted a welterweight championship
boxing fight and the undercard fights which were held in October 1996 at the
Sports Arena in Los Angeles, California. Pursuant to an agreement the Company
had entered into with The Univision Network Limited Partnership ("Univision"),
an owner and operator of a Spanish-language television network, Univision was
granted the right to broadcast the fights.
The Company is in active negotiations for the production of a 52-week
half-hour sports magazine show which will most likely be hosted by talent
represented by the Company. Strategically, the Company intends to be active
in the production of sports events and feature-length sport-related movies,
as well as television programming.
A significant portion of the Company's revenues have been derived
from a small number of clients or one-time events. On a pro forma basis,
giving effect to the Acquisitions as if they had occurred on January 1, 1995,
one client would have accounted for approximately 29% and 30% of the Company's
revenues for the years ended December 31, 1995 and 1996, respectively. On a
pro forma basis, three clients accounted for approximately 50% of the
Company's revenues for the year ended December 31, 1996. The Company may
continue to be dependent upon a limited number of customers or projects for a
significant portion of its revenues in future periods.
PERSONAL REPRESENTATION
The Company provides personal representation services for well-known
and up-and-coming broadcasting, sports and entertainment personalities, which
services encompass the negotiation of primary employment agreements and
evaluation of business, promotional and endorsement opportunities for such
personalities. Fees for services can be fixed but ordinarily represent a
percentage of income realized by the Company's clients through its efforts,
typically ranging from three to ten percent. The Company's written
representation agreements with its clients are generally terminable on 30
days' notice and the Company does not have written agreements with many of its
clients, which the Company believes is common in its industry.
At December 31, 1996, the Company represented 77 national
broadcasters, consisting of the following persons.
Al Michaels - ABC Sports
Forrest Sawyer - ABC News
Christiane Amanpour - CNN and CBS News
Dan Dierdorf - ABC Sports
Sean McDonough - CBS Sports and WABU-TV
(Boston)
Chris Berman - ESPN and ABC Sports
Len Berman - NBC Sports and WNBC-TV (New York)
Jim Lampley - NBC Sports and Home Box Office
John Hockenberry - NBC News and MSNBC
Bill Geist - CBS News
Robert Krulwich - ABC News
Hannah Storm - NBC Sports
Al Trautwig - MSG and Classic Sports Network
Fred Hickman - CNN
Mark Jones - ABC Sports and ESPN
Andrea Joyce - CBS Sports
Bob McKeown - NBC News
Craig James - CBS Sports
Sam Wyche - NBC Sports
Willow Bay - ABC News and NBC Sports
Dick Schaap - ABC News and ESPN
Russ Mitchell - CBS News
Brad Nessler - ESPN
Bill Walton - NBC Sports
Antonio Mora - ABC News
John Spagnola - ABC Sports
Thom Brennaman - Fox Sports
Bob Carpenter - ESPN
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John Naber - Television analyst
(U.S. Olympic gold medalist in swimming)
Jane Whitney - Nationally-syndicated
talk-show host
Bud Collins - NBC Sports
Kevin Harlan - Fox Sports
Vince Cellini - CNN and TNT Sports
Bill Clement - ESPN
Mike Emrick - Fox Sports and Sports Channel
Craig Masback - NBC Sports
Todd Blackledge - ABC Sports
Len Dawson - Home Box Office
John Dockery - NBC Sports
Terry Gannon - ABC Sports
Ken Albert - Fox Sports
Jim Gray - NBC Sports
Paul Crane - CNN
Kevin Kiley - TNT Sports
Marty Liquori - ABC Sports
Mike Tirico - ESPN
Joe Micheletti - Fox Sports
Anthony Munoz - Television analyst
(formerly Fox Sports)
Jimmy Roberts - ESPN
Ted Robinson - CBS Sports and USA Network
Danny Sheridan - CBS Sports
Dwight Stones - NBC Sports
Reggie Theus - TNT Sports and NBC Sports
Eric Clemons - Fox Sports
Leon Harris - CNN
Madeline McFadden - Inside Edition
Elizabeth Kaledin - CBS News
Mark Litke - ABC News
Matt Meagher - Inside Edition
Beth Nissen - ABC News
Diana Olick - CBS News
Janice Lieberman - CNBC
Brian Holloway - ABC Sports
Steve Melnyk - ABC Sports
Frank Hannigan - ABC Sports
Larry Beil - ESPN
Gary Miller - ESPN
Lisa Kim - MSNBC
Dan Lothian - NBC News
Jim Axelrod - CBS News
Jody Davis - CNNfn
Craig Miller - MSNBC
Gary Matsumoto - NBC News
Scott Engler - CNN
Kathy Wolff - Fox News
Michael Kim - ESPN
Bill Maas - Fox Sports
At December 31, 1996, the Company represented 30 professional
athletes, consisting of the following persons:
Brian Leetch - New York Rangers
Eric Heiden - U.S. Olympic five-time
gold medalist in speed skating
Ken Dryden - Montreal Canadiens (retired)
and member of the Hockey Hall of Fame
Sergei Zubov - Dallas Stars
Adam Oates - Boston Bruins
Rico Brogna - Philadelphia
Phillies Keith Elias - New York
Giants William Gaines - Washington Redskins
Darren Turcotte - San Jose Sharks
Jeff Blatnick - U.S. Olympic gold medalist
in Greco-Roman wrestling
Sean Jones - Green Bay Packers
Mike Remlinger - Cincinnati Reds
Beth Heiden - U.S. Olympic gold medalist
in speed skating
Joe Grahe - Montreal Expos
Quinn Buckner - Former National Basketball
Association player and coach and CBS
Sports commentator
Calle Johansson - Washington Capitals
Harry Carson - Former New York Giants
linebacker and analyst for the MSG Network
Bernard King - Former National Basketball Association
player and broadcaster on WFAN-FM (New York)
Tim Daggett - U.S. Olympic gold medalist in
gymnastics and NBC Sports commentator
Jody Hull - Florida Panthers
Tommy Albelin - Calgary Flames
Jozef Stumpel - Boston Bruins
Nikolai Khabibulin - Phoenix Coyotes
Kris King - Phoenix Coyotes
Dainius Zubrus - Philadelphia Flyers
Andrei Zyuzin - San Jose Sharks
Alexander Volchkov - Washington Capitals
Sergei Samsonov - Detroit Vipers (International
Hockey League) and projected top-pick in the
1997 National Hockey League draft
Jerry Bailey - Jockey and member of the
Horse Racing Hall of Fame
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Mike Golic - Former National Football League
player and ESPN analyst
At December 31, 1996, the Company represented 37 local broadcasters,
consisting of the following persons:
Dave Jennings - WFAN-AM and MSG
(New York)
Trish Brown - KMOV-TV (St. Louis)
Mike Harris - SportsChannel and WCBS-TV
(New York)
Celeste Ford - WABC-TV (New York)
Eric Thomas - KGO-TV (San Francisco)
Paul Olden - WFAN-AM and WPIX-TV (New York)
Dr. Jay Adlersberg - WABC-TV (New York)
Tracey Neale - WTTG-TV (Washington, D.C.)
Carolyn Gusoff - WNBC-TV (New York)
Leo Alexander - WRC-TV (Washington)
Bob Papa - WOR-AM (New York), ESPN and NBC Sports
Tony Segreto - WTVJ-TV (Miami)
Roseanne Colletti - WNBC-TV (New York)
Monica Kaufman - WSB-TV (Atlanta)
Lara Spencer - WABC-TV (New York)
Vic Carter - WJZ-TV (Baltimore)
Sean Mooney - WWOR-TV (New York)
Kelly Ring - WTVT-TV (Tampa)
Tim Fleischer - WABC-TV (New York)
Beverly Burke - WUSA-TV (Washington, D.C.)
Krista Bradford - WWOR-TV (New York)
Bebe Emerman - KCAL-TV (Los Angeles)
Corey McPherrin - WFLD-TV (Chicago)
Walter Richards - KTLA-TV (Los Angeles)
Ukee Washington - KYW-TV (Philadelphia)
Ileana Varela - WFOR-TV (Miami)
Mike Bush - KSDK-TV (St. Louis)
Angela Davis - KSTP-TV (Minneapolis)
Marion Brooks - WSB-TV (Atlanta)
Randy Paige - KCAL-TV (Los Angeles)
Shern-Min Chow - KPRC-TV (Houston)
Noel Cisneros - KRON-TV (San Francisco)
Sonja Gantt - WGN-TV (Chicago)
Lyanne Melendez - KGO-TV (San Francisco)
Lila Orbach - WDIV-TV (Detroit)
Gretchen Carlson - WOIO-TV (Cleveland)
Michael Barkann - WLVI-TV (Boston), USA
Network and CBS Sports
At December 31, 1996, the Company represented six authors, consisting
of the following persons:
Dick Schaap - author of Bo Knows Bo and Instant Replay
Rick Reilly - author of The Boz and Missing Links and a writer for Sports
Illustrated
John Powers - author of One Goal and Mary Lou! and a sportswriter for The
Boston Globe
Gene Wojociechowski - author of Nothing but Net and I Love Being the Enemy and
a sportswriter for The Chicago Tribune
Ken Dryden - author of The Game and Home Game
Michael Silver - author of Sports with an Attitude and currently working with
Jerry Rice on a project for Sports Illustrated
At December 31, 1996, the Company represented nine television
producers and directors, consisting of the following persons:
Terry O'Neil - executive producer of both sports and news programming
Curt Gowdy, Jr. - ABC Sports
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John Faratzis - a sports-programming producer who has worked with ABC, CBS and
NBC
Craig Silver - CBS Sports
Andy Kindle - Fox Sports
Larry Cavolina - ESPN and NBC Sports
Rick Paiva - ESPN
Joel Feld - a sports-programming producer who has worked with ABC Sports and
Fox Sports
Michael Ireland - ESPN and KTLA-TV (Los Angeles), which broadcasts Los Angeles
Dodgers baseball games
CONSULTING
The Company offers specialized consulting services to entities
engaged in sports- and entertainment-related businesses. The executive
officers of the Company have substantial experience in all aspects of sports
and entertainment management, marketing, sales and television and event
production. The executive officers of the Company also have numerous personal
contacts within the sports and entertainment business who work for companies
that are in need of consulting services or are in a position to refer clients
to the Company. The Company intends to capitalize on these contacts in order
to build its consulting business.
Sports- and entertainment-related businesses often require expertise
in areas which 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. The Company will seek to enter into agreements with businesses
pursuant to which the Company will provide customized services in these and
other areas. As a consultant, the Company would advise its clients in planning
and selecting a course of action that helps the client realize its business
objective, hiring the necessary employees or contractors, obtaining and
allocating the material required in order for the client to realize its goal,
and/or monitoring results.
The Company is in advanced negotiations with a major league baseball
team with respect to the negotiation of a television rights agreement. The
Company considers this to be typical of the consulting agreements for which
it is extremely well suited and which it will actively pursue.
OPERATING STRATEGY
Offer Comprehensive Packages of Sports Related Services. The Company
intends to maximize the performance of its events production and corporate
sponsorship, personal representation and consulting businesses by constructing
comprehensive packages of sports events and sports personality endorsements.
Seek Additional Acquisitions. The Company intends to explore
opportunities to acquire existing companies in its businesses. The Company
believes that the experience of its management team will allow it to identify
and capitalize on under-valued and/or under-performing companies. In
particular, the Company intends to focus primarily on consolidation
opportunities presented by privately-held competitors of moderate size. The
Company believes that it is the only significant publicly-traded company
within its industry and, as a result, will have certain advantages over its
competitors in negotiating and consummating acquisitions. To date, the Company
has not entered into any agreements relating to acquisitions of other
companies.
Expand Consulting Business. The Company will seek to significantly
expand its existing consulting business in order to fully utilize management's
substantial expertise in all aspects of sports and entertainment management,
marketing, sales, television and event production. 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 management of the Company will work with these
businesses in developing and implementing strategies to meet their objectives.
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COMPETITION
Sports production and promotion and personal representation are
highly-competitive industries. The Company's competitors include several large
companies, such as International Management Group, ProServ, Inc. and Advantage
International Inc. in the sports industry and the William Morris Agency, Inc.
and Creative Artists Agency, Inc. in the entertainment industry, certain of
which have substantially greater financial and other resources than the
Company. In addition, the Company competes with many smaller regional and
local entities. The success of the Company will be dependent upon its ability
to obtain event, client and production 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 the Company offers, including
events production and corporate sponsorship, personal representation and
consulting services.
EMPLOYEES
As of March 24, 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 be good. In addition,
the Company engages independent contractors to provide many of the services
required by its business.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are currently located at 888 Seventh
Avenue, New York, New York, and are occupied pursuant to a lease which
provides for an initial annual rent, commencing in October 1997, of
approximately $537,000, subject to certain increases, and expiring in October
2007. The Company is making certain capital improvements to furnish its new
office space, complete leasehold improvements and install television edit
facilities. The Company believes that its current facility will be sufficient
for its planned operations for the foreseeable future.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock and Warrants of the Company are traded in the
over-the-counter market and are quoted on The Nasdaq Stock Market, Inc.'s
SmallCap Market ("Nasdaq") under the symbols "MRQE" and "MRQEW," respectively,
and are traded on the Boston Stock Exchange under the symbols "MRT" and
"MRT.WS," respectively.
From December 6, 1996 (the first trading day after the effective date
of the registration statement relating to the Company's initial public
offering) until December 13, 1996, the shares of Common Stock and the Warrants
traded only as Units on Nasdaq and did not trade separately. On December 13,
1996, the Units were separated into their constituent parts and the shares of
Common Stock and Warrants began trading separately on Nasdaq. On March 13,
1997, the Common Stock and Warrants commenced trading on the Boston Stock
Exchange.
- 8 -
<PAGE>
The following table sets forth for the periods indicated, the high and
low bid information for the shares of Common Stock and the Warrants of the
Company, as reported by Nasdaq. Bid quotations represent high and low prices
quoted between dealers, do not reflect retail mark-up, mark-down or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
---------------------- ------------------
1996 HIGH LOW HIGH LOW
---- ---- --- ---- ---
<S> <C> <C> <C> <C>
December 13, 1996 to December 31, 1996 $6.00 $5.00 $2.00 $1.25
</TABLE>
On March 25, 1997, the Company had 44 and 22 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 Warrants.
The Company has not paid any cash dividends on its Common Stock since
inception and does not anticipate paying any in the foreseeable future. The
Board of Directors intends to retain any earnings to support the growth of the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
INTRODUCTION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, the limited operating history of the Company,
substantial competition and dependence on certain key contracts with third
parties.
Marquee was formed in July 1995 for the purpose of providing
comprehensive management, marketing, sales, consulting and production services
to sports and entertainment related businesses, events, athletes,
broadcasters, journalists and executives. During 1996 Marquee engaged in
limited activities, primarily consisting of negotiating the agreements
relating to the SMTI Acquisition and the A&A Acquisition and engaging in
limited sports marketing, production and consulting activities.
The primary sources of the Company's revenues are commissions from the
representation of sports and entertainment personalities and fees from
providing marketing, sales and event development, production and consulting
services in the sports and entertainment industry. Commissions from the
Company's personal representation services are recognized as revenue when they
become payable to the Company under the terms of the Company's agreements with
its clients. Generally, such commissions are payable by clients upon their
receipt of payments for performance of services or upon the delivery or use of
material created by them. Commissions on profit or gross receipt
participations are recorded upon the determination of such amounts. Revenues
from production services (television and video) are recognized when the
programs are available for broadcast. Licensing sponsorship and merchandise
revenues are recognized for guaranteed amounts when contractual obligations
thereunder are met.
The Company's most significant costs and expenses are salaries and
production expenditures. Historically, selling, general and administrative
expenses have been impacted by the amount of compensation and related benefits
that the stockholders of A&A and SMTI received from their respective
businesses during the periods when the companies were entrepreneurially
managed.
-9-
<PAGE>
In addition to the four employment agreements entered into in December
1996 upon the completion of the Acquisitions, the Company has entered into
employment agreements with two officers, providing for aggregate annual
compensation in the first year of $725,000, of which $499,520 (based upon the
date employment commenced) has been charged to Marquee's operations for the
year ended December 31, 1996. In addition, the Company has entered into a
lease for office space which requires no payments until October 1997. The
annual minimum charge to operations for rent is $563,000 per year commencing
in October 1996. The Company has also entered into a six-year consulting
agreement with TSC, which is controlled by Robert F.X. Sillerman, the Chairman
of the Company, that provides for a monthly fee of $30,000 commencing in
September 1997. The minimum annual charge to operations for the consulting
arrangement will be $360,000.
The Company's fourth fiscal quarter, during which the Company
recognizes its highest percentage of revenues from its production of The
Breeders' Cup Championship and receives revenues from its representation
agreements with professional hockey players upon the commencement of the
National Hockey League season, generally produces the Company's highest
revenues.
In May 1996, the Company issued 50,000 shares of Common Stock to an
officer in partial consideration of such officer entering into an employment
agreement with the Company. The Company expects that it will recognize
non-cash compensation expense estimated at approximately $118,750 over the
15-month vesting period equal to the estimated fair market value of such
shares on the date of issuance. The Company incurred charges to operations
aggregating approximately $476,000 during the fourth quarter of 1996 as a
result of the automatic conversion of the Debentures issued in the Private
Placement (as such terms are defined in Item 12 hereof) into Units, consisting
of the write-off of the fees and expenses of $193,000 incurred by the Company
in connection with the Private Placement and interest expense of $283,000. In
connection with the Acquisitions, the Company will incur charges to operations
aggregating $530,000 over the five-year period commencing in December 1996
relating to the imputed interest on the indebtedness to be paid to the
stockholders of SMTI and A&A.
The Company contemplates that the release of the Escrow Shares (as such
term is defined in Item 11 hereof) to officers, directors, employees and
consultants of the Company, should it occur, will result in a substantial
non-cash compensation charge to operations, based on the then fair market
value of the shares. Such charge could substantially increase the Company's
loss or reduce or eliminate the Company's net income, if any, for financial
reporting purposes for the period during which such shares are or become
probable of being released from escrow. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity, it may have a depressive effect on the market price of
the Company's securities.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
Marquee commenced operations in January 1996 and during 1996 its
activities consisted of negotiating the agreements relating to the
A&A Acquisition and the SMTI Acquisition and engaging in limited sports
marketing, production and consulting activities. The consolidated financial
statements of the Company which appear at pages F-1 through F-19 include
the results of operations of SMTI and A&A for the period from December 12,
1996, their date of acquisition by the Company, through December 31, 1996.
For the year ended December 31, 1996, Marquee generated revenue of
$2,869,000. The principal sources of such revenue were Marquee's performance
under its contract for the production of ballots for the Major League Baseball
All-Star Balloting Program and Marquee's production of boxing programs
broadcast on ESPN and ESPN2. Revenues were also derived from commissions
earned from talent representation and Marquee's productions of other programs
broadcast on various cable outlets.
Marquee's total operating expenses for the year ended December 31, 1996
were approximately $2,563,000 and principally consisted of production expenses
for the Major League Baseball All-Star Balloting Program and ESPN boxing
production costs. General and administrative expenses of $2,260,000 included
salary and other employee benefit
- 10 -
<PAGE>
expenses of $1,730,000, legal and professional fees of $130,000, office
expenses of $159,000 and other expenses of $241,000. Marquee's operating loss
for the year ended December 31, 1996 was approximately $1,955,000.
For the year ended December 31, 1996, Marquee's loss before taxes was
approximately $2,430,000. Marquee had net interest expense of $283,000 and
financing expense of $193,000 related to the Private Placement of the
Debentures. For the year ended December 31, 1996, the Company had a net
loss of $2,410,000 after giving effect to an income tax benefit of $20,000.
The following unaudited pro forma condensed combined statements of
operations for the years ended December 31, 1996 and 1995 present the
operation of the Company as though the Acquisitions and the consummation of
the Company's initial public offering had occurred on January 1, 1995.
Pro Forma for the Year Ended
December 31,
-----------------------------
1996 1995
---- ----
Revenue $15,184,589 $10,341,827
Operating expenses 9,485,513 5,549,887
General and administrative expenses 5,950,762 3,154,710
---------- ----------
Operating income (loss) (251,686) 1,637,230
Interest expense, net* (368,818) (88,457)
Financing expense* (192,501) --
--------- ----------
Income before taxes (813,005) 1,548,773
Income tax (provision) benefit (100,000) (759,000)
--------- ---------
Net income (loss) ($913,005) $789,773
========= ========
Net income (loss) per share ($.12) $.10
===== ====
- ----------------
* Includes in 1996 one-time charges related to the Debentures of $254,000
for interest and $193,000 for financing expense, or $.06 per share.
On a pro forma basis, the Company would have had revenues for the year
ended December 31, 1996 of $15,185,000, an increase of $4,843,000, or 46.8%,
over pro forma revenues for the year ended December 31, 1995. The increase is
partially due to Marquee-generated revenues of approximately $2,706,000, which
revenues were produced principally by Marquee's performance under its contract
for the production of ballots for the Major League Baseball All-Star Balloting
Program, Marquee's production of boxing programs broadcast on ESPN and ESPN2,
and Marquee's productions of other programs broadcast on various cable
outlets. The Company also experienced an increase of $256,000 in commissions
earned on talent representation, and production and consulting revenue
increased $1,943,000. These increases were partially offset by reduced
revenue of $62,000 from the Celebrity Golf Tournament. Media and sports
representation fees increased as a result of obtaining additional broadcast
personalities as new clients as well as from receiving increased fees from
the existing client base. Production and consulting fees increased on a pro
forma basis as a result of increased fees from the Breeders' Cup and the
addition of revenues from a consulting agreement pursuant to which the Company
handled sports marketing and advertising placement for the True Value
hardware stores.
On a pro forma basis, total operating expenses for the year ended
December 31, 1996 would have been $15,436,000 as compared to $8,705,000
for 1995, an increase of $6,731,000. The increase is primarily the result
of increased production expenses ($3,936,000) resulting from the Company's
new business ventures for the Major League Baseball All-Star Balloting
Program, production expenses associated with the
- 11 -
<PAGE>
True Value hardware stores' advertising campaign, and the production of ESPN
and ESPN2 boxing. General and administrative expenses increased $2,796,000.
The increase in general and administrative expenses was due to increased
costs and expenses associated with Marquee's operations ($2,100,000),
increased salary and commissions ($490,000), increased legal and professional
fees ($78,000) and increased office expenses ($128,000). The pro forma
adjustments for the year ended December 31, 1996 reflect contractually
required reductions in salaries and benefits of approximately $1,485,000.
For the year ended December 31, 1996, the Company's pro forma loss
before taxes was $813,000 compared to pro forma income of $1,549,000 for the
year ended December 31, 1995. Pro forma income tax expense for the year ended
December 31, 1996 was $100,000, compared to an income tax expense of $759,000
for the year ended December 31, 1995. Pro forma net loss for the year ended
1996 was $913,000, compared to pro forma net income of $790,000 for the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Marquee'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 shareholders aggregating $767,000 and net proceeds of
approximately $15,586,000 from Marquee's initial public offering, which was
completed in December 1996. Of the shareholder advances, approximately
$445,000 was exchanged for Debentures in the Private Placement, $75,000 was
repaid from working capital, $125,000 was repaid from the proceeds of the
Private Placement and $122,000 is payable on January 1, 1998. The net proceeds
of the Private Placement reflect the cancellation of the notes referred to
above and expenses and were used for working capital and certain expenses of
the Company's initial public offering. The Private Placement consisted of
$2,000,000 principal amount of Debentures which automatically converted into
666,662 Units upon the closing of the Company's initial public offering in
December 1996. At December 31, 1996, the Company had working capital of
approximately $7,235,000. The Company anticipates that its working capital
together with cash flow expected to be generated from operations will be
sufficient to fund its operations through the end of the 1997 calendar year.
Of the net proceeds of approximately $15,586,000 which the Company
received from its initial public offering, $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 commencing April 1, 1997. Further, the agreement relating to the SMTI
Acquisition provided that, SMTI is to distribute to its shareholders, by means
of a dividend, an amount equal to 40% of the accumulated adjustments account
of SMTI. The amount of such distribution will be approximately $382,000. In
connection with the conversion of the Debentures into Units upon the closing
of the Company's initial public offering in December 1996, the Company paid
interest of approximately $254,000. In connection with the Acquisitions, the
Company entered into five-year employment agreements with the stockholders of
A&A and SMTI, which employment agreements provide for annual salaries
aggregating $1,075,000.
In October 1996, the Company entered into a lease for new facilities
which requires initial annual rent of $537,000 commencing nine months after
occupancy, subject to certain increases. The Company intends to incur capital
expenditures of approximately $700,000 to furnish its new office space,
complete leasehold improvements and install television edit facilities.
The Company has entered into employment agreements with five officers
that provide for annual compensation aggregating $1,550,000 per year. 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 March 1997, SCMC assigned
- 12 -
<PAGE>
its rights, obligations and duties under the consulting agreement to TSC. In
February 1997, the Company advanced to SCMC the sum of $400,000 as an advance
against the Special Advisory Fee.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by Item 7 are included at pages F-1
through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
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 48 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 54 Director and Executive Vice President
James E. Sileo 43 Chief Financial Officer
Howard J. Tytel 50 Director
Arthur R. Barron 62 Director
Myles W. Schumer 50 Director
Kraig G. Fox 28 Secretary
</TABLE>
Robert M Gutkowski has served as President, Chief Executive Officer and
Director of the Company since December 1995. Mr. Gutkowski has more than 20
years of experience in the television, sports and entertainment industries.
From September 1994 until December 1995, Mr. Gutkowski was a consultant to
sports-related businesses. From November 1991 to September 1994, he served as
President and Chief Executive Officer of Madison Square Garden Corporation,
where he oversaw the operations of the New York Knicks, the New York Rangers,
the MSG Entertainment Group, the MSG Cable Network, Madison Square Garden and
the Paramount Theater. From July 1990 to November 1991, Mr. Gutkowski served
as President of MSG Communications Group, having served as Executive Vice
President thereof from September 1987 to July 1990. From October 1985 to
September 1987, he served as President of Madison Square Garden Network. Prior
to his tenure at Madison Square Garden, Mr. Gutkowski was Vice President-Sales
for Paramount Television Domestic Distribution. From February 1981 to
September 1983, Mr. Gutkowski was Vice President-Programming for ESPN. Mr.
Gutkowski earned a B.A. from Hofstra University.
Robert F.X Sillerman has been Chairman of the Company since July 1995.
Mr. Sillerman has been Executive Chairman of SFX Broadcasting, Inc. ("SFX"), a
publicly-traded company which owns and operates radio stations and
- 13 -
<PAGE>
concert venues, since 1995, and from 1992 through 1995 he served as Chairman
and/or Chief Executive Officer of SFX. Since 1985, Mr. Sillerman has been
Chairman of the Board and Chief Executive Officer of SCMC, a private
investment company which makes investments in and provides financial consulting
services to companies engaged in media and sports-related businesses and,
through privately-held entities, he controls the general partner of Sillerman
Communications Partners, L.P. ("SCP"), an investment partnership. Since 1985,
he has been Chairman and Chief Executive Officer of TSC, a private investment
company which provides financial advisory, marketing, consulting and investment
banking services to media companies and sports-related businesses, including
the Company, 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.
Arthur C. Kaminski 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 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 Vice President 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., which
filed a petition under the federal bankruptcy laws in October 1995. Mr. Trager
earned a B.A. and M.S. from Bucknell University.
James E. Sileo has served as the Chief Financial Officer of the Company
since November 1995. From November 1994 to December 1995, Mr. Sileo served as
Chief Financial Officer and a Director of Select Media Communications, Inc.,
which filed a petition under the federal bankruptcy laws in October 1995. From
June 1985 to November 1994, Mr. Sileo held various positions at Madison Square
Garden Corporation, including Vice President-Finance and Network Operations
from April 1992 to November 1994, Vice President-Finance, Communications Group
from June 1988 to March 1992 and Director of Financial Planning for the MSG
Communications Group. Mr. Sileo earned a B.B.A. in accounting from Bernard M.
Baruch College.
Howard J. Tytel has served as a Director of the Company since July 1995.
Mr. Tytel has been a Director, Executive Vice President and Secretary of SFX
since 1992. Mr. Tytel has also been Executive Vice President and General
Counsel of SCMC since 1985, a Director of SCMC since 1989, and Executive Vice
President and General Counsel of TSC since 1985. 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 film 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. 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.
- 14 -
<PAGE>
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 has served as a director of Multi-Market Radio, Inc., a
publicly-traded company engaged in the ownership and operation of radio
stations.
Kraig G. Fox has served as Secretary of the Company since July 1995.
Since December 1993, Mr. Fox has been the Manager-Business and Legal Affairs
for TSC and SFX. From April 1995 until November 1996 and since July 1996, Mr.
Fox has been the Secretary of Multi-Market Radio, Inc. and Triathlon
Broadcasting Company, respectively, both of which are publicly-traded
companies engaged in the ownership and operation of radio stations. Mr. Fox
earned a J.D. from Hofstra University in 1993.
Directors serve until the next annual meeting or until their successors
are elected and qualified subject to the provisions of the Stockholders'
Agreement Officers serve at the discretion of the Board of Directors, subject
to rights, if any, under contracts of employment with the Company.
The lead underwriter in the Company's initial public offering, which
was consummated in December 1996, has the right to appoint an observer to be
present at the Company's Board of Directors meetings for a period of five years
from such date, although it has not yet selected any such observer. Such
observer may be a director, officer, partner, employee or affiliate of such
underwriter. In addition, the Company has agreed with the underwriters in its
initial public offering that for a period of five years commencing December 5,
1996 it will have at least two non-affiliated independent directors on its
Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers and persons who
own more than 10% of a class of the Company's equity securities which are
registered under the Exchange Act to file with the Commission initial reports
of ownership and reports of changes of ownership of such registered
securities. To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company, no person required to file such a
report failed to file on a timely basis, except for Mr. Schumer, who failed to
timely file a report on Form 5 disclosing one transaction.
ITEM 10. EXECUTIVE COMPENSATION.
The table below sets forth information with respect to the compensation
paid to Robert M. Gutkowski, the President and Chief Executive Officer of the
Company, during the year ended December 31, 1996 and the next most highly
compensated executive officers, on an annual basis (collectively, the "Named
Executive Officers"). No executive officer of the Company, other than
Mr. Gutkowski, received compensation in excess of $100,000 during the year
ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------------
SECURITIES UNDERLYING
NAME SALARY ($) BONUS ($) OPTION/SARS (#)
---- --------- --------- ---------------
<S> <C> <C> <C>
Robert M. Gutkowski, 231,250 122,500 20,000
President and Chief Executive Officer
Arthur C. Kaminsky 12,500(1) -- 20,000
Executive Vice President
Michael Letis 12,500(2) -- 20,000
Executive Vice President
Louis J. Oppenheim 7,292(3) -- 10,000
Executive Vice President
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ---------------------
SECURITIES UNDERLYING
NAME SALARY ($) BONUS ($) OPTION/SARS (#)
---- --------- -------- ----------------
<S> <C> <C> <C>
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 and entered
into an employment agreement providing for an initial annual salary of
$300,000.
(2) Mr. Letis became an Executive Vice President of the Company effective
December 11, 1996 upon the consummation of the SMTI Acquisition and
entered into an employment agreement providing for an initial annual
salary of $300,000.
(3) Mr. Oppenheim became an Executive Vice President of the Company effective
December 11, 1996 upon the consummation of the A&A Acquisition and entered
into an employment agreement providing for an initial annual salary
of $175,000.
(4) Mr. Trager became an Executive Vice President of the Company effective
December 11, 1996 upon the consummation of the SMTI Acquisition and
entered into an employment agreement providing for an initial annual
salary of $300,000.
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 PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS/SARS TO EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED 1996 PRICE 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% $6.25 October 1, 2001
</TABLE>
The table below sets forth information with respect to the exercise of
stock options and SARs by the Named Executive Officers during the year ended
December 31, 1996 and the value at December 31, 1996 of unexercised stock
options and SARs held by the Named Executive Officers.
- 16 -
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#); FY-END ($);
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) 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) The closing price of the Common Stock on December 31, 1996 was $6.00.
EMPLOYMENT AGREEMENTS
The Company and Robert M. Gutkowski have entered into an employment
agreement dated as of March 21, 1996 pursuant to which Mr. Gutkowski agreed to
serve as the Company's President and Chief Executive Officer for an initial
term of five years. The employment agreement also provides that Mr. Gutkowski
shall serve as a director of each of A&A and SMTI at such time as the Company
causes his election to such positions. The employment agreement provides that
Mr. Gutkowski shall receive an annual base salary of $325,000 plus an annual
bonus of at least $ 150,000 (which bonus may be increased in the discretion of
the Board of Directors of the Company).
The employment agreement provides that the Company may terminate Mr.
Gutkowski's employment agreement prior to the expiration of its term in the
event of his death, disability for a period of 26 consecutive weeks or for
"cause," which, for purposes of the employment agreement, is defined as the
conviction of a felony, the commission of an act of fraud or embezzlement upon
the Company, a material breach by Mr. Gutkowski of his agreement not to
compete with the Company or the wilful malfeasance or gross negligence by Mr.
Gutkowski in the performance of his duties under the employment agreement or
his failure to perform his duties thereunder, which malfeasance, negligence or
failure has a material adverse effect on the business of the Company and which
shall remain uncured for a period of 15 days following written notice from the
Company.
Pursuant to his employment agreement, Mr. Gutkowski has agreed not to
compete with the Company or solicit any of the Company's clients or employees
(the "Prohibited Activities") during the term of the agreement. In addition,
the employment agreement provides that Mr. Gutkowski is prohibited from
engaging in the Prohibited Activities for certain periods of time in the event
he voluntarily terminates his employment agreement, the Company terminates his
employment agreement or the employment agreement is not extended on
substantially similar terms.
Upon the consummation of the Company's initial public offering in
December 1996, 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. In addition,
pursuant to such agreements, the Company has agreed to cause Messrs. Letis and
Trager to be elected to the Board of Directors
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of SMTI, has agreed to cause Messrs. Kaminsky and Oppenheim to be elected to
the Board of Directors of A&A, and has agreed to use its best efforts to cause
each of such persons to be nominated to serve as a member of the Board of
Directors of the Company. The employment agreements provided that each of
Messrs. Kaminsky, Letis and Trager will receive an annual base salary of
$300,000 and the employment agreement with Mr. Oppenheim provides that he will
receive an annual base salary of $175,000.
DIRECTOR COMPENSATION
Each Director who is not an employee of the Company receives, in
addition to reimbursement for travel expenses, $1,500 for each Board of
Directors' meeting attended and $750 for each committee meeting attended.
1996 STOCK OPTION PLAN
The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 Stock Option Plan (the "Plan"). The Plan, which
provides for grants of non-qualified and incentive stock options to purchase
up to 500,000 shares of Common Stock to eligible employees and consultants, is
designed to attract and retain the best available personnel for the positions
of substantial responsibility, to provide additional incentive to key
employees, officers, and consultants of the Company and its subsidiaries and
to promote the success of the Company's business.
In October 1996, options to purchase an aggregate of 230,000 shares of
Common Stock were granted under the Plan. Of such options, 100,000 have been
granted to 14 employees of the Company and have an exercise price of $5.00 per
share, and 130,000 have been granted to the Company's executive officers and
directors and have an exercise price of $6.25 per share, all of which options
vest in annual installments over a three to five year period commencing one
year from the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership
of Common Stock, including the Escrow Shares, by (i) each person known by the
Company to own beneficially more than five percent of the outstanding Common
Stock, (ii) each director of the Company and (iii) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------- ------------------ ------------------
<S> <C> <C>
Robert F.X. Sillerman (2) 1,369,230(2) 15.6%
Robert M. Gutkowski 684,615(3) 7.8
Arthur C. Kaminsky 684,615(4) 7.8
Louis J. Oppenheim 342,306(5) 3.9
Michael Letis 684,615(6) 7.8
Michael Trager 684,615(7) 7.8
Myles W. Schumer 3,000(8) *
Howard J. Tytel -- --
Arthur R. Barron -- --
All executive officers and directors of the
Company as a group (ten persons) 4,462,996(9) 50.9%
</TABLE>
- --------------
* less than 1%
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<PAGE>
(1) The address of each beneficial owner is c/o The Marquee Group, Inc.,
888 Seventh Avenue, 40th Floor, New York, New York. Unless otherwise
noted, the Company believes that all persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Robert F.X. Sillerman, the Chairman of the Company, is the Chairman,
Chief Executive Officer and controlling stockholder of TSC, which
beneficially owns 1,369,230 shares of Common Stock. Includes 392,308
shares of Common Stock which are held in escrow but in respect of which
TSC retains the power to vote. See "--Escrow Shares." Does not include
76,922 shares of Common Stock issuable upon exercise of an equal number
of Warrants, which are not exercisable until 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.
(3) Includes 196,154 shares of Common Stock which are held in escrow but in
respect of which Mr. Gutkowski retains the power to vote. See "--Escrow
Shares." Does not include 38,461 shares of Common Stock which are
issuable upon exercise of an equal number of Warrants, which are not
exercisable until 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.
(4) Includes 196,154 shares of Common Stock which Mr. Kaminsky placed in
escrow but in respect of which he retains the power to vote. See
"--Escrow Shares." Does not include 38,461 shares of Common Stock which
are issuable upon exercise of an equal number of Warrants, which are
not exercisable until 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.
(5) Includes 98,076 shares of Common Stock Mr. Oppenheim placed in escrow
but in respect of which he retains the power to vote. See "--Escrow
Shares." Does not include 19,230 shares of Common Stock issuable upon
exercise of an equal number of Warrants, which are not exercisable
until 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.
(6) Includes 196,154 shares of Common Stock which Mr. Letis placed in
escrow but in respect of which he retains the power to vote. See
"--Escrow Shares." Does not include 38,461 shares of Common Stock which
are issuable upon exercise of an equal number of Warrants, which are
not exercisable until 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 which Mr. Trager placed in
escrow but in respect of which he retains the power to vote. See
"--Escrow Shares." Does not include 38,461 shares of Common Stock which
are issuable upon exercise of an equal number of Warrants, which are
not exercisable until 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 1,500 Shares of Common Stock issuable upon exercise of an
equal number of Warrants, which are currently exercisable.
(9) Includes 6,500 Shares of Common Stock issuable upon exercise of an
equal number of Warrants, which are currently exercisable. Does not
include 750,000 shares of Common Stock which are issuable upon exercise
of an equal number of Warrants, which Warrants are not exercisable
until December 5, 1997, or 137,500 shares of Common Stock issuable upon
the exercise of options which are not exercisable within 60 days.
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<PAGE>
ESCROW SHARES
Certain existing stockholders deposited or agreed to deposit an aggregate
of 1,275,000 shares of Common Stock into escrow (the "Escrow Shares"). The
Escrow Shares are not assignable or transferable. Of the Escrow Shares,
(i) 425,000 shall be released from escrow if; for the fiscal year
ending December 31, 1997, the Company's income before provision for taxes (the
"Minimum Pretax Income") equals or exceeds $1,400,000;
(ii) 425,000 Escrow Shares (or, if the condition set forth in (i) above
was not met, 850,000 Escrow Shares) shall be released, if; for the fiscal year
ending December 31, 1998, the Minimum Pretax Income equals or exceeds
$2,400,000;
(iii) 425,000 Escrow Shares (or, if the conditions set forth in either
(i) or (ii) were not met, the remaining Escrow Shares) shall be released if;
for the fiscal year ending December 31, 1999, the Minimum Pretax Income equals
or exceeds $3,400,000; and
(iv) all of the Escrow Shares will be released from escrow if one or
more of the following conditions is/are met:
(a) the Closing Price (as defined in the escrow agreement) of the
Company's Common Stock averages in excess of $15.00 per share
for 20 consecutive trading days during the period from December
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 of exceeds $15.00 per share.
The Minimum Pretax Income amounts set forth above shall be (i)
calculated exclusive of (x) any extraordinary earnings or charges (including
any charges incurred in connection with the release from escrow of the Escrow
Shares and any Escrow Property (as defined 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, if any, and (iii) audited by the Company's
independent public accountants. The Closing Price amount set forth above is
subject to adjustment in the event of any stock splits, reverse stock splits
or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Shares shall be received by the escrow agent, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution or total or partial liquidation of the Company
(the "Escrow Property"); provided however, that with the exception of any
securities of the Company or any successor to the Company issued as a result
of any of the foregoing, such property shall be delivered to the holders of
the Escrow Shares promptly upon the escrow agent's receipt thereof. If the
applicable Minimum Pretax Income levels or Closing Price level set forth above
have not been met by March 31, 2000, the Escrow Shares, as well as any
dividends or other distributions made with respect thereto, will be canceled
and contributed to the capital of the Company. The Company expects that the
release of the Escrow Shares to officers, directors, employees and consultants
of the Company will be deemed compensatory and, accordingly, will result in a
substantial charge to operations, which would equal the then fair market value
of such shares. Such charge could substantially increase the loss or reduce or
eliminate the Company's net income for financial reporting purposes for the
period during which such shares are, or become probable of being, released
from escrow. Although the amount of compensation expense recognized by the
Company will not affect the Company's total stockholders' equity, it may have
a negative effect on the market price of the Company's securities.
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<PAGE>
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the underwriters in the
Company's initial public offering 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
FOUNDERS' STOCK
In connection with the organization of the Company, in July 1995 the
Company sold 333 shares of Common Stock and in August 1995 the Company sold
666 shares of Common Stock, respectively, to Robert M. Gutkowski, the
Company's President and Chief Executive Officer, and to TSC, which is
controlled by Robert F.X. Sillerman, the Company's Chairman, for an aggregate
purchase price of $19,980, or approximately $.01 per share (on a post-Stock
Split basis). In May 1996, the Company sold one share of Common Stock to an
officer of the Company, for a purchase price of $500 or $.01 per share (on a
post-Stock Split basis). In August 1996, the Company increased by means of a
stock split (the "Stock Split") the number of shares held by Mr. Gutkowski to
646,154 shares, TSC to 1,292,308 shares and such officer to 50,000 shares.
PRIVATE PLACEMENT AND CORPORATE INDEBTEDNESS
In August 1996 the Company consummated a private placement (the
"Private Placement") of $2,000,000 aggregate principal amount of debentures
(the "Debentures"). The $2,000,000 aggregate principal amount of Debentures
were converted into and aggregate of 666,662 Units upon the consummation of
the Company's initial public offering 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 initial public offering 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, 1997.
From May 15, 1996 through August 12, 1996, TSC incurred expenses and
made loans to the Company in the aggregate principal amount of $196,385, which
indebtedness accrued interest at the rate of 12% per annum and which interest
was waived by TSC, and which were used by the Company for working capital
purposes, including rent payable to TSC. In August 1996, TSC purchased
$230,768 in principal amount of Debentures through the payment of $34,383 and
the cancellation of such indebtedness, which Debentures automatically
converted upon the consummation of the Company's initial public offering 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, 1997.
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 an
Executive Vice President and a Director of the Company, made a loan to the
Company in the aggregate principal amount of $100,000, which loan accrued
interest at the rate of 12% per annum and which interest was waived by Messrs.
Trager and Letis, and which was used by the Company for working capital
purposes. In August 1996, Messrs. Trager and Letis each purchased $115,385 in
principal amount of Debentures through
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<PAGE>
the payment of an aggregate of $130,770 and the cancellation of such
indebtedness, which Debentures automatically converted upon the consummation
of the Company's initial public offering 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, 1997.
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, which loan accrued
interest at the rate of 12% per annum and which interest was waived by Mr.
Oppenheim, and which was used by the Company for working capital purposes. In
August 1996, Mr. Oppenheim purchased $57,692 in principal amount of Debentures
through the payment of $24,358 and the cancellation of such indebtedness,
which Debentures automatically converted upon the consummation of the
Company's initial public offering 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, 1997.
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 Company's initial public
offering 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, 1997.
SMTI ACQUISITION AGREEMENT
The Company, SMTI, Michael Trager, Michael Letis, Robert M. 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 Company's initial public
offering. 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 which
is payable in five equal annual installments commencing April 1, 1997 and (ii)
the issuance to each of Messrs. Trager and Letis of 646,154 shares of Common
Stock. The Company also entered into five-year employment agreements with each
of Messrs. Trager and Letis.
The SMTI Acquisition Agreement provides that the representations and
warranties contained therein shall survive for a period of six months
following the closing, after which time the indemnification obligations for
breaches of representations and warranties will be limited to claims asserted
during such six-month period. Each of Messrs. Trager and Letis has agreed to
indemnify the Company against losses, claims and damages which the Company may
suffer or incur and which arise out of the breach by SMTI or Messrs. Trager or
Letis of any representation, warranty, covenant or agreement in the SMTI
Acquisition Agreement, provided, however, that the amount of each of Messrs.
Trager's and Letis' indemnity shall be limited to $1,000,000. Each of Mr.
Gutkowski and TSC has agreed to indemnify each of Messrs. Trager and Letis and
SMTI from any losses, claims or damages which either such party shall suffer
or incur and which arise out of the breach by Mr. Gutkowski, TSC or the
Company of any representation, warranty, covenant or agreement in the SMTI
Acquisition Agreement, provided that each of Mr. Gutkowski's and TSC's
indemnity shall be limited to $250,000.
From its inception until immediately prior to the completion of the
SMTI Acquisition, SMTI was treated as a closely-held corporation under
Subchapter S of the Code, and, therefore, did not pay federal income taxes on
amounts earned during such period. Accordingly, SMTI distributed through
dividends to its shareholders substantially all of its earnings during such
period. 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
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accumulated adjustments account, as defined in the Code, which amount
approximates the amount the shareholders of SMTI expected to pay personally
for income taxes based on such earnings. The amount of the dividend which
was declared was approximately $382,311.
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 AGREEMENT
The Company, A&A, Arthur C. Kaminsky, Louis J. Oppenheim, Robert M.
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 Company's initial public
offering. 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.
The A&A Acquisition Agreement provides that the representations and
warranties contained therein shall survive for a period of six months
following the closing, after which time the indemnification obligations for
breaches of representations and warranties will be limited to claims asserted
during such six-month period. Each of Messrs. Kaminsky and Oppenheim has
agreed to indemnify the Company against losses, claims and damages which the
Company may suffer or incur and which arise out of the breach by A&A or
Messrs. Kaminsky or Oppenheim of any representation, warranty, covenant or
agreement in the A&A Acquisition Agreement, provided, however, that the amount
of Messrs. Kaminsky's and Oppenheim's indemnity shall be limited to $500,000
and $250,000, respectively. Each of Mr. Gutkowski and TSC has agreed to
indemnify each of Messrs. Kaminsky and Oppenheim and A&A from any losses,
claims or damages which either such party shall suffer or incur and which
arise out of the breach by Mr. Gutkowski, TSC or the Company of any
representation, warranty, covenant or agreement in the A&A Acquisition
Agreement, provided that each of Mr. Gutkowski's and TSC's indemnity shall be
limited to $250,000.
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.
The A&A Acquisition constituted a tax-free exchange to the extent of
the receipt of Common Stock under Section 351 of the Code.
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 has agreed to
serve for a period of six years as the Company's financial consultant to
provide customary financial and advisory services, which agreement may be
renewed by mutual agreement of the Company and TSC for an additional period of
four years. Robert F.X. Sillerman, the Chairman and a principal stockholder of
the Company, is the Chairman, Chief Executive Officer and controlling
stockholder of SCMC and 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,
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including companies in which Mr. Sillerman or his affiliates have substantial
interests. The Company has agreed to pay to TSC as compensation for its
services under the Consulting Agreement the sum of $30,000 per month from the
date commencing nine months from December 11, 1996 (the date of the closing of
the Company's initial public offering), which amount shall be increased
annually by an amount equal to the percentage increase in the Consumer Price
Index for New York, New York. Under the 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 of 1933, as amended, 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 Company's initial
public offering, the Acquisitions or the Private Placement. 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. In February 1997, the Company
advanced to SCMC the sum of $400,000 as an advance against the Special
Advisory Fee.
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 by Mr. Tytel. Mr. Tytel's primary employment is as an officer of
SCMC.
In January 1996, the Company entered into a month-to-month lease with
TSC providing for a monthly rent of approximately $4,000, which lease was
terminated in September 1996.
STOCKHOLDERS' AGREEMENT
In March 1996, the Company entered into a stockholders' agreement with
each of TSC, Robert M. Gutkowski, Arthur C. Kaminsky, Louis J. Oppenheim,
Michael Trager and Michael Letis (the "Stockholders' Agreement"). The
Stockholders' Agreement generally covers certain corporate governance matters.
Pursuant to the Stockholders Agreement, TSC is entitled to nominate two
directors to the Company's Board of Directors, Messrs. Kaminsky and Oppenheim
are entitled to nominate 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 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
Company's initial public offering), provided that such Stockholder shall
remain obligated to vote his shares of Common Stock in accordance with the
terms of the Stockholders' Agreement.
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EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs.
Gutkowski, Kaminsky, Letis, Oppenheim and Trager.
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.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Exhibit
No. Description of Exhibit
--- ----------------------
3.1 Amended and Restated Certificate of Incorporation of The Marquee
Group, Inc. (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 Marquee Group, Inc. (incorporated
by reference to Exhibit 3.2 to Amendment No. 1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission
on October 25, 1996).
4.1* 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.
4.2* Unit Purchase Option, dated December 11, 1996, issued by The Marquee
Group, Inc. to Royce Investment Group, Inc.
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.
10.4* Employment Agreement, dated as of December 11, 1996, between The
Marquee Group, Inc. and Michael Letis.
10.5* Employment Agreement, dated as of December 11, 1996, between The
Marquee Group, Inc. and Arthur Kaminsky.
10.6* Employment Agreement, dated as of December 11, 1996, between The
Marquee Group, Inc. and Louis J. Oppenheim.
10.7 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).
-25-
<PAGE>
Exhibit
No. Description of Exhibit
- --- ----------------------
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.
10.8B* Amendment No. 2 to Escrow Agreement.
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.
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.
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).+
10.13* Subscription Agreement, dated August 15, 1996, between The Marquee
Group, Inc. and Robert Gutkowski. **
10.14 Promissory Note from The Marquee Group, Inc. to Robert M. Gutkowski
(incorporated by reference to Exhibit 10.14 of Amendment No. 1 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, 1997, between The Marquee
Group, Inc. and Royce Investment Group, Inc.
21* List of subsidiaries of the Registrant.
27* Financial Data Schedule.
- -----------------
* Filed herewith.
** The Company has entered into substantially similar agreements
with other parties.
+ Portions of this agreement are subject to confidential treatment.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the last quarter of 1996.
-26-
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE MARQUEE GROUP, INC.
Dated: March 31, 1997
/s/ Robert Gutkowski
------------------------------------------
Name: Robert Gutkowski
Title: President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Robert Gutkowski President, Chief Executive Officer and March 31, 1997
- ------------------------------- Director (principal executive officer)
Robert M. Gutkowski
/s/ Robert F.X. Sillerman
------------------------------ Chairman March 31, 1997
Robert F.X. Sillerman
- ------------------------------- Executive Vice President and Director March __, 1997
Arthur Kaminsky
/s/ Michael Letis Executive Vice President and Director March 27, 1997
- ------------------------------
Michael Letis
- ------------------------------ Executive Vice President and Director March __, 1997
Louis J. Oppenheim
/s/ Michael Trager Executive Vice President and Director March 27, 1997
- ------------------------------
Michael Trager
/s/ James E. Sileo Chief Financial Officer (principal March 31, 1997
- ------------------------------ financial and accounting officer)
James E. Sileo
/s/ Howard J. Tytel
- ------------------------------ Director March 31, 1997
Howard J. Tytel
/s/ Arthur R. Barron Director March 27, 1997
- ------------------------------
Arthur R. Barron
/s/ Myles W. Schumer
- ------------------------------ Director March 27, 1997
Myles W. Schumer
</TABLE>
- 27 -
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Financial Statements
Year ended December 31, 1996 and for the Period
from July 11, 1995 (Inception) to December
31, 1995
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....................................................................... F-1
Consolidated Balance Sheets.......................................................................... F-2
Consolidated Statements of Operations................................................................ F-3
Consolidated Statements of Stockholders' Equity...................................................... F-4
Consolidated Statements of Cash Flows................................................................ F-5
Notes to Consolidated Financial Statements........................................................... F-7
</TABLE>
<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.
/s/ Ernst & Young
February 14, 1997
F-1
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,230,526
Accounts receivable 1,295,894
Due from related parties 138,699
Due from Celebrity Golf Championship, LLC 169,100
Prepaid expenses and other current assets 250,363
----------------------
Total current assets 9,084,582
Property and equipment, net 218,604
Other assets 57,612
======================
Total assets $ 9,360,798
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 866,442
Income taxes payable 268,250
Distribution payable to stockholders 382,311
Acquisition indebtedness--current portion 332,500
----------------------
Total current liabilities 1,849,503
Loan payable to officer/stockholder 121,615
Acquisition indebtedness--stockholders 1,637,500
Deferred taxes 343,000
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
Additional paid-in capital 7,795,199
Deferred compensation (63,334)
Accumulated deficit (2,410,377)
----------------------
5,409,180
----------------------
Total liabilities and stockholders' equity $ 9,360,798
======================
</TABLE>
See accompanying notes.
F-2
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 11, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31 DECEMBER 31,
1996 1995
-------------------------------------------------
<S> <C> <C>
Revenue:
Commissions and fee income $ 2,868,788 $ -
Income from joint venture - -
-------------------------------------------------
2,868,788 -
Operating expenses 2,563,682 -
General and administrative expenses 2,259,760 -
-------------------------------------------------
Loss from operations (1,954,654) -
Interest expense, net 283,222 -
Financing expense 192,501 -
-------------------------------------------------
Loss before income taxes (2,430,377) -
Income tax benefit 20,000 -
=================================================
Net loss $ (2,410,377) $ -
=================================================
Net loss per share $ (1.03) $ -
=================================================
Weighted average common stock
and common stock equivalents outstanding 2,346,717 2,066,662
=================================================
See accompanying notes.
F-3
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
</TABLE>
<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
===========================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 11, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER DECEMBER
31, 1996 31, 1995
-------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,410,377) $ -
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 5,620 -
Non-cash compensation 55,416 -
Deferred income taxes (40,000)
Changes in operating assets and liabilities:
Accounts receivable 974,169 -
Due from related parties (67,810) -
Prepaids and other current assets (178,318) -
Accounts payable and accrued liabilities (192,630) -
Income taxes payable 20,250
-------------------------------------------
Net cash used in operating activities (1,833,680) -
-------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (122,422) -
Other assets (44,760) -
-------------------------------------------
Net cash used in investing activities (167,182) -
-------------------------------------------
FINANCING ACTIVITIES
Proceeds from loans payable to related parties 766,718 -
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
Distribution to Subsidiary stockholders (9,000,000) -
Cash acquired through acquisition of Subsidiaries 503,767 -
-------------------------------------------
Net cash provided by financing activities 9,211,408 19,980
Increase in cash and cash equivalents 7,210,546 19,980
Cash and cash equivalents at beginning of year 19,980 -
===========================================
Cash and cash equivalents at end of year $ 7,230,526 $ 19,980
===========================================
</TABLE>
F-5
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 11, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER DECEMBER
31, 1996 31, 1995
-------------------------------------------
<S> <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 $ - $ -
===========================================
Interest $ 254,000 $ -
===========================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
The Marquee Group, Inc. (the "Company"), which began operations in 1996, was
organized in the State of Delaware on July 11, 1995 for the purpose of
providing comprehensive management, marketing, sales, consulting and
production services to sports and entertainment-related businesses, events,
athletes, broadcasters, journalists and executives,.
In furtherance of its business strategy, on December 12, 1996, the Company
acquired by merger, concurrently with the closing of its initial public
offering ("Offering"), Sports Marketing & Television International, Inc.
("SMTI") which provides production and marketing services to sporting events,
sports television shows and professional and collegiate leagues and
organizations, and Athletes and Artists, Inc. ("A&A"), a sports and media
representation firm. The SMTI stockholders received cash of $6,500,000 from
the Offering, an additional $1,500,000 payable in five equal installments over
five years and 1,292,307 shares of the Company's stock. The A&A stockholders
received cash of $2,500,000 from the Offering, 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.
F-7
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Fee revenue from production services (television, broadcast and video) is
recognized when the program is available for broadcast. Licensing, sponsorship
and merchandise revenues are recognized for guaranteed amounts when
contractual obligations thereunder are met (subsequent royalties are recorded
when received). Fee revenue from advertising services is recognized in the
month the advertisement is broadcast or printed. Consulting revenue is
recognized as services are provided.
The Company recognizes 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.
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.
F-8
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash investments and trade accounts
receivable.
At December 31, 1996, approximately 90% 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.
F-9
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 public offering 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.
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. In addition, all shares have been adjusted to give effect to the stock
split discussed in Note 4.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 118,172
Leasehold improvements 79,413
Vehicles 26,639
-------------------
224,224
Accumulated depreciation and amortization 5,620
===================
$ 218,604
===================
</TABLE>
3. RELATED PARTY TRANSACTIONS
At 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.
F-10
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
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 shares, and 5,000,000
shares of preferred stock, par value $.01 per share. Furthermore, in August
1996 the Board of Directors and stockholders of the Company approved a stock
split whereby 999 shares of the 1,000 shares of common stock outstanding at
that time were split on the basis of approximately 1,940-for-1 and the
remaining one share of common stock outstanding at that time was split on the
basis of 50,000-for-1. All share information in the financial statements has
been restated to reflect such stock split.
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 initial
public offering. The Debentures were automatically converted into Units (see
Note 6) identical in all respects to those offered in the initial public
offering 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-11
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS
In December 1996, the Company closed on an initial public offering of
3,852,500 units (the "IPO Units"), each unit consisting of one share of common
stock and one redeemable warrant, at a price of $5.00 per IPO Unit. Each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $7.50, subject to adjustment, for a period up to five years
from the date the common stock and warrants are separately transferable. The
warrants are redeemable by the Company under certain circumstances at a
redemption price of $.05 per warrant.
The Company also granted to the underwriters or their designees options (the
"Unit Purchase Options") to purchase up to 335,000 units. The units
purchaseable upon exercise of the Unit Purchase Options are identical to the
units described above, except that the underlying warrants are redeemable only
by the Company under limited circumstances. The Unit Purchase Options are
exercisable during a three-year period commencing two years from the date of
the public offering at an exercise price of $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 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.
F-12
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS (CONTINUED)
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 initial public offering 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>
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>
F-13
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
6. INITIAL PUBLIC OFFERING AND ACQUISITIONS (CONTINUED)
<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 public offering date, 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.
F-14
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
7. INCOME TAXES
The income tax benefit for the year ended December 31, 1996 consists of:
Current:
Federal $ -
State and local (20,000)
-----------------------
$ (20,000)
-----------------------
Deferred:
Federal 30,000
State and local 10,000
-----------------------
$ 40,000
-----------------------
$ 20,000
========================
A reconciliation of the federal statutory tax rate to the actual effective
rate for the year ended December 31, 1996 is as follows:
Statutory rate (34.0)%
State and local income taxes, net of federal
benefit .4
Valuation allowance 31.8
Permanent differences 1.0
=======================
(.8)%
=======================
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>
F-15
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
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.
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
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
F-16
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
8. STOCK OPTION PLAN
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:
Pro forma net loss $ (2,453,995)
======================
Pro forma net loss per share $ (1.05)
======================
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
$6.25 to $5.00. The weighted average remaining contractual life of those
options is 9.75 years. At December 31, 1996 none of the options are
exercisable.
F-17
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
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 for the year ended December 31, 1996.
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. Furthermore, the Company
agreed that prior to the public offering 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, which is controlled by
Robert F.X. Sillerman, the Chairman of the Company and the controlling
stockholder of The Sillerman Companies, Inc., a principal stockholder of the
Company, that provides for a monthly fee of $30,000 commencing nine months
F-18
<PAGE>
The Marquee Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
from the closing of the public offering. The monthly fee shall be increased
annually by the percentage increase in the consumer price index.
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> <C>
Cash $ 169,100
============
Due to SMTI $ (169,100)
============
YEAR ENDED DECEMBER 31, 1995
1996 1995
--------------------- --------------------
Revenues $ 2,743,700 $ 2,875,600
Costs and expenses (2,067,400) (1,928,300)
--------------------- --------------------
Net income $ 676,300 $ 947,300
===================== ====================
</TABLE>
F-19
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this 5th day of December, 1996, by and
among The Marquee Group, Inc., a Delaware corporation ("Company"), Continental
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"), Royce
Investment Group, Inc., a New York corporation ("Royce") and Continental
Broker-Dealer Corporation, a New Jersey corporation ("CBDC", and together with
Royce, the "Underwriters").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of up to
3,852,500 units ("Units"), each unit consisting of one (1) share of the
Company's Common Stock, $.01 par value ("Common Stock"), and one (1) redeemable
Warrant ("Warrants") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated December 5, 1996 between the Company and the Underwriters,
(ii) the issuance to the Underwriters or their designees of Unit Purchase
Options to purchase an aggregate of 335,000 additional Units, to be dated as of
December 11, 1996 (the "Unit Purchase Options"), and (iii) the issuance of
666,662 Warrants (the "Private Placement Warrants") to certain securityholders
of the Company upon conversion of $2 million principal amount of debentures
acquired by them in a private placement in August 1996, the Company may issue
up to 4,854,162 Warrants; and
WHEREAS, each Warrant initially entitles the Registered
Holder thereof to purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and redemption
of the Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
the holders of certificates representing the Warrants and the Warrant Agent,
the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the distribution of earnings and
-1-
<PAGE>
assets of the Company without limit as to amount or percentage, which at the
date hereof consists of 25,000,000 shares of Common Stock, $.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at Two
Broadway, 19th Floor, New York, NY 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean as to each
Warrant the Separation Date (as herein defined).
(e) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $7.50, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce
the Purchase Price upon notice to all Registered Holders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the
Warrants, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) "Separation Date" shall mean December 13, 1996.
(i) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on December 5, 2001 or, with respect to Warrants which are outstanding as
of the applicable Redemption Date (as defined in Section 8) and specifically
excluding Warrants issuable upon exercise of Unit Purchase Options if the Unit
Purchase Options have not been exercised, the Redemption Date, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M.
(New York time) on the next following day which in the State of New York is not
a holiday or a day on
-2-
<PAGE>
which banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of Units will not
be detachable or immediately separately transferable from the shares of Common
Stock constituting part of such Units until the Separation Date.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
plus the number of Private Placement Warrants shall be executed by the Company
and delivered to the Warrant Agent. Upon written order of the Company signed by
its President or Chairman or a Vice President and by its Secretary or an
Assistant Secretary, the Warrant Certificates shall be countersigned, issued
and delivered by the Warrant Agent as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 4,854,162 shares
of Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date,
upon the exercise of fewer than all Warrants represented by any Warrant
Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7; (v) those issued pursuant
to the Unit Purchase Options; and (vi) at the option of the Company, in such
form as may be approved by the its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common
Stock purchasable upon exercise of the Warrants or the Target Price(s) therefor
made pursuant to Section 9 hereof.
(f) Pursuant to the terms of the Unit Purchase Options, the
Underwriters, or their designees, may purchase up to 335,000 Units, which
include up to 335,000 Warrants. Notwithstanding anything to the contrary
contained herein, the Warrants underlying the Unit
-3-
<PAGE>
Purchase Option shall not be subject to redemption by the Company except under
the terms and conditions set forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of the Nasdaq Stock Market or any stock
exchange on which the Warrants may be listed, or to conform to usage or to the
requirements of Section 2(d). The Warrant Certificates shall be dated the date
of issuance thereof (whether upon initial issuance, transfer, exchange or in
lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued
in registered form. Warrant Certificates shall be numbered serially with the
letter W on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates shall
be delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
-4-
<PAGE>
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons
entitled to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a Warrant Certificate for any remaining
unexercised Warrants of the Registered Holder), unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of Royce or CBDC or such other investment banks and
brokerage houses as the Company shall approve in writing to the Warrant Agent,
certificates shall immediately be issued without prior notice to the Company or
any delay. Upon the exercise of any Warrant and clearance of the funds
received, the Warrant Agent shall promptly remit the payment received for the
Warrant (the "Warrant Proceeds") to the Company or as the Company may direct in
writing, subject to the provisions of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of
any Warrant after December 5, 1997, (i) the market price of the Company's
Common Stock is greater than the then Purchase Price of the Warrant, (ii) the
exercise of the Warrant was solicited by a member of the National Association
of Securities Dealers, Inc. ("NASD") as designated in writing on the Warrant
Certificate Subscription Form, (iii) the Warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was made
both at the time of the original offering and at the time of exercise; and (v)
the solicitation of the exercise of the Warrant was not in violation of Rule
10b-6 (as such rule or any successor rule may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934, then the
Warrant Agent, simultaneously with the distribution of the Warrant Proceeds to
the Company shall, on behalf of the Company, pay from the Warrant Proceeds, a
fee of five percent (5%) (the "Solicitation Fee") of the Purchase Price to
Royce, as Representative of the Underwriters; provided that either Royce or
CBDC shall have solicited the exercise of the applicable warrant as evidenced
in writing in the Warrant Certificate Subscription Form. Upon receipt of the
solicitation fee from the Warrant Agent, Royce shall in turn, if and as
applicable, forward all (in the event that CBDC solicited the exercise of the
applicable warrant as evidenced in writing in the Warrant Certificate
Subscription Form) or, if unclear whether CBDC solicited the exercise of the
applicable warrant, a portion of the Solicitation Fee to CBDC, to the extent
that Royce, in its sole discretion shall determine (of which a portion may be
reallowed to the dealer who solicited the exercise, which may also be an
Underwriter). In the event the Solicitation Fee is not received within five
days of the date on which the Company receives Warrant Proceeds, then the
Solicitation Fee shall begin accruing interest at an annual rate of prime plus
four percent (4%), payable by the Company to the Underwriters at the time the
Underwriters receives the Solicitation Fee. Within five days after exercise the
Warrant Agent shall send to the Underwriters a copy of the reverse side of each
Warrant exercised. The Underwriters shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this Section
4(b). In addition, the Underwriters and the Company may at any time during
business hours, examine the records of the Warrant
-5-
<PAGE>
Agent, including its ledger of original Warrant Certificates returned to the
Warrant Agent upon exercise of Warrants. The provisions of this paragraph may
not be modified, amended or deleted without the prior written consent of the
Underwriters.
(c) In order to enforce the provisions of Section 4(b) above,
in the event there is any dispute or question as to the amount or payment of
the Solicitation Fee, the Warrant Agent is hereby expressly authorized to
withhold payment to the Company of the Warrant Proceeds unless and until the
Company establishes an escrow account for the purpose of depositing the entire
amount of the Solicitation Fee, which amount will be deducted from the net
Warrant Proceeds to be paid to the Company. The funds placed in the escrow
account may not be released to the Company without a written agreement from
Royce that the required Solicitation Fee has been received by Royce.
SECTION 5. Reservation of Shares; Listing; Payment of
Taxes; etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery, be duly and validly
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, (other than those which the Company shall
promptly pay or discharge), and that upon issuance such shares shall be listed
on each national securities exchange on which the other shares of outstanding
Common Stock of the Company are then listed or shall be eligible for inclusion
in the Nasdaq National Market or the Nasdaq SmallCap Market if the other shares
of outstanding Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval. The
Company will use reasonable efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws. With respect to any such
securities, however, Warrants may not be exercised by, or shares of Common
Stock issued to, any Registered Holder in any state in which such exercise
would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery
-6-
<PAGE>
shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions. The Company will file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or
his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of the Underwriters, disposed of or destroyed, at the
direction of the Company.
-7-
<PAGE>
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
loss, theft, destruction or mutilation of any Warrant Certificate and (in case
of loss, theft or destruction) of indemnity satisfactory to them, and (in the
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(f) hereof, on
not less than thirty (30) days notice given at any time after December 5, 1997
(the "Redemption Notice"), to Registered Holders of the Warrants being
redeemed, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the Market Price of the Common
Stock receivable upon exercise of such Warrants shall exceed $11.50 (the
"Target Price"), subject to adjustment as set forth in Section 8(f), below.
Market Price shall mean (i) the average of the closing bid price of the Common
Stock, as reported by Nasdaq, if the Common Stock is traded on the Nasdaq
SmallCap Market, or (ii) the average of the closing sales prices as reported by
the primary exchange on which the Common Stock is traded, if the Common Stock
is traded on a national securities exchange, or by Nasdaq, if the Common Stock
is traded on the Nasdaq National Market in any case for twenty (20) consecutive
business days ending on the Calculation Date. All Warrants of a class must be
redeemed if any of that class are redeemed, provided that the Warrants
underlying the Unit Purchase Option may only be redeemed in compliance with and
subject to the terms and conditions of the Unit Purchase Option. For purposes
of this Section 8, the Calculation Date shall mean a date within five days of
the mailing of the Redemption Notice. The date fixed for redemption of the
Warrants is referred to herein as the "Redemption Date".
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall
request Royce to mail a Redemption Notice to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). Any notice
mailed in the manner
-8-
<PAGE>
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, (iv) that the Underwriters
will assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Registered Holder (a) to whom notice was not mailed
or (b) whose notice was defective. An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Underwriters or the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Registered Holders of the Warrants
shall have no further rights except to receive, upon surrender of the Warrant,
the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants
shall expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price,
shall cease.
(f) If the shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, the Target Price shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares
of Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8, except
that for purposes of Section 9, the Calculation Date shall mean the date of the
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sale or other transaction referred to in this Section 9) on the Calculation
Date or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the number of shares of Common
Stock which the aggregate consideration received (determined as provided in
subsection 9(f)(F) below) for the issuance of such additional shares would
purchase at the Market Price and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant, shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(b) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) equal to the fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such
adjustment.
(c) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company
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with or into another corporation (other than a consolidation or merger in which
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock), or in case of any sale or conveyance to another corporation
of the property of the Company as, or substantially as, an entirety (other than
a sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable upon such reclassification, capital reorganization
or other change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon exercise
of such Warrant immediately prior to such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 9. The Company shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the successor
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the Warrant Agent, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and the other obligations of the Company
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(f) hereof, continue to express the Purchase
Price per share, the number of shares purchasable thereunder and the Redemption
Price therefor as the Purchase Price per share, and the number of shares
purchasable and the Redemption Price therefor were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a
statement of the facts accounting for such adjustment and showing in detail the
method of calculation and the facts upon which such adjustment or readjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any securities issued or sold or deemed to have
been issued, (b) the number of shares of Common
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Stock outstanding or deemed to be outstanding, and (c) the Purchase Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 9) on account thereof. The Company will promptly file
such certificate with the Warrant Agent and furnish a copy thereof to be sent
by ordinary first class mail to the Underwriters and to each Registered Holder
of Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The Company will, upon the written request at any time
of the Underwriters, furnish to the Underwriters a report by Ernst & Young LLP,
or other independent public accountants of recognized national standing (which
may be the regular auditors of the Company) selected by the Company to verify
such computation and setting forth such adjustment or readjustment and showing
in detail the method of calculation and the facts upon which such adjustment or
readjustment is based. The Company will also keep copies of all such
certificates and reports at its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned
or held by or for the account of the Company and the sale or
issuance of such treasury shares or the distribution of any
such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or
decrease of at least $.10 in the Purchase Price; provided
that any adjustments which by reason of this clause (B) are
not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash
(or as a component of a unit being sold for cash) of any
rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities
convertible into or exchangeable for Common Stock without the
payment of any further consideration other than cash, if any
(such securities convertible, exercisable or exchangeable
into Common Stock being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any
rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights,
warrants or options shall consist of cash, whether or not
such rights,
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warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the
minimum aggregate consideration payable to the Company upon
the exercise of such rights, warrants or options, plus the
consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus,
in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, other than such
Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of
such Convertible Securities issuable upon the exercise of
such rights, warrants or options) is less than the Market
Price of the Common Stock on the date of the issuance or
sale of such rights, warrants or options, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities
(as of the date of the issuance or sale of such rights,
warrants or options) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a)
and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(D) In case of the sale by the Company for cash of
any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately exercisable,
and the price per share for which Common Stock is issuable
upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof,
by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible
Securities) is less than the Market Price of the Common Stock
on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount
equal to such price per share.
(E) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities
referred to in (C) or (D) above or any other securities of
the Company convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event
that would require adjustment to prevent dilution, so that
the consideration per share received by the
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Company after such modification is less than the Market Price
on the date prior to such modification, the Purchase Price to
be in effect after such modification shall be determined by
multiplying the Purchase Price in effect immediately prior to
such event by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the date
prior to the modification plus the number of shares of Common
Stock which the aggregate consideration receivable by the
Company for the securities affected by the modification would
purchase at the Market Price and of which the denominator
shall be the number of shares of Common Stock outstanding on
such date plus the number of shares of Common Stock to be
issued upon conversion, exchange or exercise of the modified
securities at the modified rate. Such adjustment shall become
effective as of the date upon which such modification shall
take effect. On the expiration of any such right, warrant or
option or the termination of any such right to convert or
exchange any such Convertible Securities referred to in
Paragraph (C) or (D) above, the Purchase Price then in effect
hereunder shall forthwith be readjusted to such Purchase
Price as would have obtained (a) had the adjustments made
upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the
issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on
the basis of the Purchase Price as adjusted under clause (a)
for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting
therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(G) In case any event shall occur as to which the
provisions of Section 9 are not strictly applicable but the
failure to make any adjustment would not fairly protect the
purchase rights represented by the Warrants in accordance
with the essential intent and principles of such Sections,
then, in each such case, the Board of Directors of the
Company shall in good faith by resolution provide for the
adjustment, if any, on a basis consistent with the essential
intent and principles established in Section 9, necessary to
preserve, without dilution, the purchase rights represented
by the Warrants. The Company will promptly make the
adjustments described therein.
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(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options
outstanding as of the date of this Agreement under the
Company's 1996 Stock Option Plan (the "Plan") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other
securities which may hereafter be granted or exercised under
the Plan or under any other employee benefit plan of the
Company approved by stockholders of the Company; or
(iii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of
the Warrants comprising the Unit Purchase Option or upon the
sale or exercise of the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock or
Convertible Securities in a firm commitment underwritten
public offering, including, without limitation, shares sold
upon the exercise of any overallotment option granted to the
underwriters in connection with such offering; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether
or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were
thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether
or not any adjustment in the Purchase Price was made or
required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of the original sale
of the Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include only shares of
such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the
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case of any reclassification or change in the outstanding shares of Common
Stock issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no
par value, or from no par value to par value, such shares of Common Stock as
so reclassified or changed.
(i) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
of the Warrants outstanding, as of the record date for such transaction the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(i), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon the exercise of any Warrant, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading
privileges on such exchange or is traded on the Nasdaq
National Market, the current market value shall be the last
reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise
of this Warrant or if no such sale is made on such day, the
average of the closing bid and asked prices for such day on
such exchange or market; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges on a national securities exchange
or is not traded on the Nasdaq National Market, the current
market value shall be the mean of the last reported bid and
asked prices reported by the Nasdaq SmallCap Market or, if
not traded thereon, by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of
this Warrant; or
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(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No
holder of Warrants shall, as such, be entitled to vote or to receive dividends
or be deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of
the Warrants, and any Registered Holder of a Warrant, without consent of the
Warrant Agent or of the holder of any other Warrant, may, in his own behalf and
for his own benefit, enforce against the Company his right to exercise his
Warrants for the purchase of shares of Common Stock in the manner provided in
the Warrant Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates
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evidencing the same shall thereupon be delivered to the Warrant Agent and
cancelled by it and retired. The Warrant Agent shall also cancel the Warrant
Certificate or Warrant Certificates following exercise of any or all of the
Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary, (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to
be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save
it harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the
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Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising
as a result of the Warrant Agent's own negligence or wilful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company that
is a registered transfer agent under the Securities Exchange Act of 1934, as
amended. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any
of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
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SECTION 16. Modification of Agreement. Subject to the
provisions of Section 4(b), the parties hereto and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Warrants which are to
be governed by this Agreement resulting from a subsequent public offering of
Company securities which includes Warrants having the same terms and conditions
as the Warrants originally covered by or subsequently added to this Agreement
under this Section 16; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or the Purchase Price therefor, or the acceleration of the
Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been made when delivered or mailed first class registered or certified mail,
postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 888 Seventh Avenue, 40th
Floor, New York, New York 10019, attention: Robert M. Gutkowski, President, or
at such other address as may have been furnished to the Warrant Agent in
writing by the Company; if to the Warrant Agent, at its Corporate Office; if to
Royce, at Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, NY
11797; if to CBDC, at Continental Broker-Dealer Corporation, One Old Country
Road, Carle Place, NY 11514.
SECTION 18. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at
the close of business on the earlier of the Warrant Expiration Date or the date
upon which all Warrants (including the warrants issuable upon exercise of the
Unit Purchase Options) have been exercised,
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<PAGE>
except that the Warrant Agent shall account to the Company for cash held by it
and the provisions of Section 15 hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
THE MARQUEE GROUP, INC.
By: /s/ Robert Gutkowski
------------------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: /s/ Steve Nelson
------------------------------
Authorized Officer
ROYCE INVESTMENT GROUP, INC.
By: /s/ Anthony Sarkis
------------------------------
Authorized Officer
CONTINENTAL BROKER-DEALER
CORPORATION
By: ______________________________
Authorized Officer
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ____ Warrants
VOID AFTER December 5, 2001
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
The Marquee Group, Inc.
This certifies that FOR VALUE RECEIVED __________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value ("Common Stock"), of The Marquee Group, Inc., a Delaware
corporation (the "Company"), at any time between the Separation Date (as
defined in the Warrant Agreement) and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $7.50 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to The Marquee Group, Inc.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
December 5, 1996 by and among the Company, the Warrant Agent, Royce Investment
Group, Inc. ("Royce") and Continental Broker-Dealer Corporation ("CBDC").
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate
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<PAGE>
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant Agent
shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on December 5, 2001 or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. The Warrants represented
hereby shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment with
of any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Warrant at any time after
December 5, 1997 provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $11.50 per share. Notice of
redemption shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants represented hereby except to receive the $.05 per
Warrant upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of
A-2
<PAGE>
each Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed
in accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
THE MARQUEE GROUP, INC.
Dated: ____________ By: ______________________________
By: ______________________________
[seal]
Countersigned:
_________________________________
as Warrant Agent
By ______________________________
Authorized Officer
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<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
[TRANSFER FEE: $_______ PER CERTIFICATE ISSUED]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects
to exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
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<PAGE>
The undersigned represents that the exercise of the Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the
name of another NASD member firm, it will be assumed that the exercise was
solicited by Royce Investment Group, Inc.
____________________________________
(Name of NASD Member)
Dated: X _________________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
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<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
_________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints
____________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:________________ X ______________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE>
Option to Purchase
335,000 Units
The Marquee Group, Inc.
Unit Purchase Option
Dated: December 11, 1996.
THIS CERTIFIES THAT Royce Investment Group, Inc. (herein
sometimes called the "Holder") is entitled to purchase from The Marquee Group,
Inc., a Delaware corporation (hereinafter called the "Company"), at the prices
and during the periods as hereinafter specified, up to three hundred thirty
five thousand (335,000) Units ("Units"), each Unit consisting of one share of
the Company's Common Stock, $.01 par value, as now constituted ("Common
Stock"), and one warrant ("Warrants"). Each Warrant is exercisable to purchase
one share of Common Stock at an exercise price of $7.50, subject to adjustment
at any time from the Separation Date (as defined in the Warrant Agreement)
until December 4, 2001.
The Units have been registered under a Registration Statement
on Form SB-2, (File No. 333-11287) declared effective by the Securities and
Exchange Commission on December 5, 1996 (the "Registration Statement"). This
Option, together with options of like tenor, constituting in the aggregate
options (the "Options") to purchase 335,000 Units, subject to adjustment in
accordance with Section 8 of this Option (the "Option Units"), was originally
issued pursuant to an underwriting agreement between the Company and Royce
Investment Group, Inc. and Continental Broker-Dealer Corporation, as
underwriters (the "Underwriters") in connection with a public offering (the
"Offering") of 3,350,000 Units (the "Public Units") through the Underwriters,
in consideration of $335 received for the Options.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to the Options shall bear the same terms
and conditions as described under the caption "Description of Securities" in
the Registration Statement, and the Warrants shall be governed by the terms of
the Warrant Agreement dated as of December 5, 1996 executed in connection with
such public offering (the "Warrant Agreement"), except that (i) the holder
shall have registration rights under the Securities Act of 1933, as amended
(the "Act"), for the Option, the Common Stock and the Warrants included in the
Option Units, and the shares of Common Stock underlying the Warrants, as more
fully described in Section 6 of this Option and (ii) the Warrants issuable upon
exercise of the Option will be subject to redemption by the Company pursuant to
the Warrant Agreement at any time after the Option has been exercised and the
Warrants underlying the Option Units are outstanding. Any such redemption shall
be on the same terms and conditions as the Warrants included in the Public
Units (the "Public Warrants"). The Company will use its best efforts to list
the Common Stock underlying this Option and, at the Holder's request the
Warrants, on the Nasdaq National Market, the Nasdaq SmallCap Market or such
other exchange or market as the Common Stock or Public Warrants may then be
listed or
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<PAGE>
quoted. In the event of any extension of the expiration date or reduction of
the exercise price of the Public Warrants, the same changes to the Warrants
included in the Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised
at the prices, subject to adjustment in accordance with Section 8 of this
Option ("the "Exercise Price"), and during the periods as follows:
(a) During the period from December 5, 1996
to December 4, 1998 inclusive, the Holder shall have
no right to purchase any Option Units hereunder,
except that in the event of any merger,
consolidation or sale of all or substantially all
the capital stock or assets of the Company or in the
case of any statutory exchange of securities with
another corporation (including any exchange effected
in connection with a merger of another corporation
into the Company) subsequent to December 5, 1996,
the Holder shall have the right to exercise this
Option and the Warrants included herein at such time
or thereafter and receive the kind and amount of
shares of stock and other securities and property
(including cash) which a holder of the number of
shares of Common Stock underlying this Option and
the Warrants included in this Option would have
owned or been entitled to receive had this Option
been exercised immediately prior thereto.
(b) Between December 5, 1997 and December
4, 2001, inclusive, the Holder shall have the option
to purchase Option Units hereunder at a price of
$8.25 per Unit. For purposes of the adjustments
under Section 8 hereof, the Per Share Exercise Price
shall be deemed to be $7.50, subject to further
adjustment as provided in such Section 8.
(c) After December 4, 2001 the Holder shall
have no right to purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised
at any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company);
(ii) payment to the Company of the exercise price then in effect for the number
of Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 herein. This
Option shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to
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<PAGE>
the close of business on the date this Option is surrendered and payment is
made in accordance with the foregoing provisions of this Section 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock and Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock and Warrants at that time and date.
The certificates for the Common Stock and Warrants so purchased shall be
delivered to the Holder as soon as practicable but not later than ten (10) days
after the rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during
which this Option may be exercised, the Holder may, at its option, exchange
this Option, in whole or in part (an "Option Exchange"), into the number of
Option Units determined in accordance with this Section (b), by surrendering
this Option at the principal office of the Company or at the office of its
stock transfer agent, accompanied by a notice stating such Holder's intent to
effect such exchange, the number of Option Units into which this Option is to
be exchanged and the date on which the Holder requests that such Option
Exchange occur (the "Notice of Exchange"). The Option Exchange shall take place
on the date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares of Common Stock and Warrants issuable upon such
Option Exchange and, if applicable, a new Option of like tenor evidencing the
balance of the Option Units remaining subject to this Option, shall be issued
as of the Exchange Date and delivered to the Holder within ten (10) days
following the Exchange Date. In connection with any Option Exchange, this
Option shall represent the right to subscribe for and acquire the number of
Option Units (rounded to the next highest integer) equal to (x) the number of
Option Units specified by the Holder in its Notice of Exchange up to the
maximum number of Option Units subject to this option (the "Total Number") less
(y) the number of Option Units equal to the quotient obtained by dividing (A)
the product of the Total Number and the existing Exercise Price by (B) the Fair
Market Value. "Fair Market Value" shall mean first, if there is a trading
market as indicated in Subsection (i) below for the Units, such Fair Market
Value of the Units and if there is no such trading market in the Units, then
Fair Market Value shall have the meaning indicated in Subsections (ii) through
(v) below for the aggregate value of all shares of Common Stock and Warrants
which comprise a Unit:
(i) If the Units are listed on a national securities
exchange or listed or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value
shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked
prices, respectively, of the Units on such exchange or market
for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the
Nasdaq National Market or the Nasdaq SmallCap Market, the
Fair Market Value shall be the average of the last reported
sale prices or the average of
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<PAGE>
the means of the last reported bid and asked prices,
respectively, of Common Stock or Warrants, respectively,
on such exchange or market for the twenty (20) business
days ending on the last business day prior to the Exchange
Date; or
(iii) If the Common Stock or Warrants are not so
listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the means of the last
reported bid and asked prices of the Common Stock or
Warrants, respectively, for the twenty (20) business days
ending on the last business day prior to the Exchange Date;
or
(iv) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the Fair Market Value shall be an
amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the
Exchange Date, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company; or
(v) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid and asked prices are not
so reported for Warrants, then Fair Market Value for the
Warrants shall be an amount equal to the difference between
(i) the Fair Market Value of the shares of Common Stock and
Warrants which may be received upon the exercise of the
Warrants, as determined herein, and (ii) the Warrant Exercise
Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of one year
commencing on the effective date of the Registration Statement except that they
may be transferred to successors of the Holder, and may be assigned in whole or
in part to any person who is an officer of the Holder, any member participating
in the selling group relating to the Offering or any officer of such selling
group member. Any such assignment shall be effected by the Holder (i) executing
the form of assignment at the end hereof and (ii) surrendering this Option for
cancellation at the office or agency of the Company referred to in Section 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation), stating that each transferee is a permitted
transferee under this Section 3 hereof; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new Option
or Options of like tenor and representing in the aggregate rights to purchase
the same number of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common
Stock which may be issued as part of the Option Units purchased hereunder and
the Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
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<PAGE>
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will haveauthorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Units.
5. This Option shall not entitle the Holder to any voting
rights or any other rights, or subject to the Holder to any liabilities, as a
stockholder of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds
Option Units or any of the securities underlying the Option Units, by written
notice at least four weeks prior to the filing of any post-effective amendment
to the Registration Statement or of any new registration statement or
post-effective amendment thereto under the Act covering any securities of the
Company, for its own account or for the account of others, and will for a
period of seven years from the effective date of the Registration Statement,
upon the request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of the Options, all or any of the Option Units, the Common Stock or
Warrants included in the Option Units or the Common Stock issuable upon the
exercise of the Warrants (the "Registrable Securities").
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time to the effect that such holder desires to register
under the Act this Option, the Option Units or any of the underlying securities
contained in the Option Units under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved then the Company will promptly, but no later than two weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement on such form as may be
permitted under the Act and as may be selected by the Company, to the end that
the Options, the Option Units and/or any of the securities underlying the
Option Units may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order); provided, that such 50%
holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% holder may,
at its option, request the filing of a post-effective amendment to the current
Registration Statement or a new registration statement under the Act on one
occasion during the four year period beginning one year from the effective date
of the Registration Statement. The 50% holder may, at its option request the
registration of the Option and/or any of the securities underlying the Option
in a registration statement made by the Company as contemplated by Section 6(a)
or in connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Option Units issuable upon exercise of the Option and even
though the 50% holder has not given notice of exercise of the Option. The 50%
holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Common Stock and/or
Warrants included in the
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<PAGE>
Option Units and/or the Common Stock issuable upon the exercise of the
Warrants, and such registration rights may be exercised by the 50% holder prior
to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to
this Section 6(b), the Company shall give notice to the other holders of the
Options, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein the
securities underlying the Options of the other holders, provided that they
shall furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the first such
post-effective amendment or new registration statement under this paragraph
6(b) shall be borne by the Company, except that the holders shall bear the fees
of their own counsel and any underwriting discounts or commissions and expense
allowances applicable to any of the securities sold by them.
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) The term "50% holder" as used in this Section 6 shall
mean the holder of at least 50% of the Common Stock and the Warrants underlying
the Options (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common Stock held by such owner or
owners as well as the number of shares then issuable upon exercise of the
Warrants.
(d) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, (ii) use its
best efforts to register and qualify any of the Registrable Securities for sale
in such states as such Holder designates; provided however, that the Company
shall not for any purpose be required to execute a general consent to service
of process or be obligated to qualify as a dealer in any jurisdiction in which
it is not so qualified, (iii) furnish indemnification in the manner provided in
Section 7 hereof, (iv) notify each Holder of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the
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<PAGE>
statements therein not misleading and (v) do any and all other acts and things
which may be necessary or desirable to enable such Holders to consummate the
public sale or other disposition of the Registrable Securities, The Holder
shall furnish appropriate information in connection therewith and
indemnification as set forth in Section 7.
(e) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 6(b) hereof without the prior
written consent of the 50% holder.
(f) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) if such
registration includes an underwritten public offering, a "cold comfort" letter
dated the effective date of such registration statement and dated the date of
the closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially
the same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of securities.
(g) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration
statement relating to the Registrable Securities is filed under the Act,
amended or supplemented, the Company will indemnify and hold harmless each
holder of the Registrable Securities covered by such registration statement,
amendment or supplement (such holder being hereinafter called the "Distributing
Holder"), and each person, if any, who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act)
of such securities and each person, if any, who controls (within the meaning of
the Act) any such underwriter, against any losses,
-7-
<PAGE>
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished by such
Distributing Holder specifically for use in the preparation thereof.
(b) Each Distributing Holder will, severally but not jointly,
to indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder specifically for
use in the preparation thereof; except that the maximum amount which may be
recovered from the Distributing Holder pursuant to this Section 7 or otherwise
shall be limited to the amount of net proceeds received by the Distributing
Holder from the sale of the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified to assume the defense thereof, with counsel reasonably satisfactory to
such
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<PAGE>
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(8) In addition to the provisions of Section 1(a) of this
Option, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Options shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by
multiplying the Exercise Price by a fraction, the denominator
of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(b) Whenever the Exercise Price payable upon
exercise of each Option is adjusted pursuant to Subsection
(a) above, (i) the number of shares of Common Stock included
in an Option Unit shall simultaneously be adjusted by
multiplying the number of shares of Common Stock included in
Option Unit immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price,
as adjusted and (ii) the number of shares of Common Stock or
other securities issuable upon exercise of the Warrants
included in the Option Units and the exercise price of such
Warrants shall be adjusted in accordance with the applicable
terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (c)(i) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the contrary notwithstanding,
the Company shall be entitled, but shall not be required,
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<PAGE>
to make such changes in the Exercise Price, in addition to
those required by this Section 8, as it shall determine,
in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in
any Federal Income tax liability to the holders of Common
Stock or securities convertible into Common Stock
(including Warrants issuable upon exercise of this
Option).
(d) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon
exercise of each Option and if requested information
describing the transactions giving rise to such adjustments
to be mailed to the Holders, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the
Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section 8, and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder
of this Option thereafter shall become entitled to receive
any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon
exercise of this Option shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (d), inclusive above.
(f) In case any event shall occur as to which the
other provisions of this Section 8 or Section 1(a) hereof are
not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the
Holders of Options representing the right to purchase a
majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the
Company, which shall give their opinion as to the adjustment,
if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the
purchase rights represented by the Options. Upon receipt of
such opinion, the Company will promptly mail a copy thereof
to the Holder of this Option and shall make the adjustments
described therein. The fees and expenses of such independent
public accountants shall be borne by the Company.
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<PAGE>
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, The Marquee Group, Inc. has caused this
Option to be signed by its duly authorized officers under its corporate seal,
and this Option to be dated as of the date first written above.
THE MARQUEE GROUP, INC.
By: /s/ Robert Gutkowski
------------------------------
Robert M. Gutkowski, President
(Corporate Seal)
Attest:
/s/ Kraig Fox
- --------------------------
Kraig Fox, Secretary
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of The Marquee Group, Inc., each Unit
consisting of ___ shares of $.01 Par Value Common Stock and one Warrant to
purchase ___ share of Common Stock and herewith makes payment of $_________
thereof
Dated: _________, 19__. Instructions for Registration of Stock and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing
Option, hereby elects to exchange its Option for _________ Units of The Marquee
Group, Inc., each Unit consisting of ___ shares of $.01 Par Value Common Stock
and one Warrant to purchase ___ shares of Common Stock, pursuant to the Option
Exchange provisions of the Option.
Dated: _____________, 19__.
------------------------------------------
Print Name
------------------------------------------
Address
------------------------------------------
Signature
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns,
and transfers unto the right to purchase Units represented by the foregoing
Option to the extent of ______ Units , and appoints _____________ attorney to
transfer such rights on the books of The Marquee Group, Inc., with full power
of substitution in the premises.
Dated: _______________, 19__
ROYCE INVESTMENT GROUP, INC.
By: _____________________________________
----------------------------------------
Address
In the presence of:
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as
of December 11, 1996, by and between THE MARQUEE GROUP INC., a Delaware
corporation having a place of business at 150 East 58th Street, New York, New
York 10155 ("Employer"), and MICHAEL TRAGER, an individual having a place of
business at 410 Greenwich Avenue, Greenwich, Connecticut 06830 ("Executive").
WHEREAS, Employer has been established to engage in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent;
and
WHEREAS, Employer desires to employ Executive as its
Executive Vice President, and Executive is willing to be employed in such
capacity;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants contained herein, it is agreed as follows:
1. EMPLOYMENT; DUTIES.
(a) Employer hereby agrees to employ Executive,
and Executive hereby agrees to accept employment during the term hereof, as
Executive Vice President, and shall perform such services in accordance with
the standards observed by senior executives in comparable businesses, subject
at all times to the direction of the Board of Directors of Employer (the
"Board").
(b) During the term of this Agreement, Employer
agrees to cause Executive to be elected to the Board of Directors of Sports
Marketing & Television International, Inc. ("SMTI"), a wholly-owned subsidiary
of Employer, and to use its best efforts to cause Executive to be nominated to
the Board. Executive agrees to serve in such capacities upon appointment on
the same terms and conditions as the other executive officer/directors serving
on the respective Board of Directors.
(c) In addition to any obligations Executive
may have to vote his shares of Employer in the manner set forth in that
certain Shareholders' Agreement (the "Shareholders' Agreement"), dated as of
March 21, 1996, by and among The Sillerman Companies, Inc., Robert M.
Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Executive, Michael Letis and
Employer, Executive agrees that, during the Employment Term, as hereinafter
defined, he will vote his shares of Employer in the manner set forth in
Section 3.01(d) of the Shareholders' Agreement.
2. TERM OF EMPLOYMENT. Executive's employment
hereunder shall commence on the date of this Agreement and shall continue for
a period of five (5) years therefrom (the "Employment Term").
<PAGE>
3. COMPENSATION.
(a) As consideration for all of the services
performed by Executive under this Agreement, Employer shall pay Executive, as
an annual salary payable in accordance with Employer's ordinary payroll
practices, the sum of three hundred thousand dollars ($300,000).
(b) Employer shall reimburse Executive for all
ordinary, reasonable and necessary expenses incurred by Executive in
connection with his duties hereunder upon presentation by Executive of the
details of and vouchers for such expenses. During the term of this Agreement,
Executive shall be entitled to participate in all pension, group insurance,
hospitalization, medical, health, accident and disability plans of Employer
and shall be eligible to be granted options and other benefits under stock
option and similar incentive plans maintained by Employer (it being understood
that the foregoing is not a guarantee that Executive will be granted options
or other benefits under such plans).
4. NON-COMPETITION.
(a) As used herein, the term "Competitive
Activities" means any attempt by Executive, without the prior written consent
of Employer, directly or indirectly, for his own account or as an employee,
officer, director, partner, joint venturer, shareholder, investor (except that
Executive may purchase up to five percent of the outstanding capital stock of
any publicly-traded corporation) or otherwise to engage or participate in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent, in
any area. As used herein, the term "Client Solicitation" means any attempt by
Executive, without the prior written consent of Employer, directly or
indirectly, for his own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor of otherwise to interfere with, disrupt,
or attempt to disrupt, any past, present or prospective relationship,
contractual or otherwise, between Employer and any client, customer, vendor or
supplier of Employer. As used herein, the term "Employee Solicitation" means
any attempt by Executive, without the prior written consent of Employer,
directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor or otherwise to
employ or solicit the employment or engagement by others of any employee of
Employer who was an employee as of the date of the termination of this
Agreement or within six (6) months prior thereto.
(b) (i) During the term of this Agreement,
Executive will not engage in any Competitive Activities,
Client Solicitation or Employee Solicitation.
(ii) If Executive voluntarily terminates
this Agreement during the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of one hundred and eighty (180) days after such termination
or engage in any Client Solicitation or Employee
Solicitation for a period of eighteen (18) months after such
termination.
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<PAGE>
(iii) If Executive voluntarily terminates
this Agreement after the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of ninety (90) days after such termination or engage in any
Client Solicitation or Employee Solicitation for a period
one (1) year after such termination.
(iv) If Employer terminates this Agreement
for "Cause" (as hereinafter defined), Executive will not
engage in any Competitive Activities for a period of ninety
(90) days after such termination or engage in any Client
Solicitation or Employee Solicitation for a period of one
(1) year after such termination.
(v) If Employer terminates this Agreement
without Cause, Executive will not be subject to any
prohibitions (other than those, if any, provided under
applicable law) regarding Competitive Activities, Client
Solicitation or Employee Solicitation.
(vi) If, after the end of the Employment
Term, Executive refuses a good faith offer of Employer to
extend Executive's employment on terms substantially similar
to those set forth herein (other than those terms relating
to the length of employment), Executive will not, for a
period of eighteen (18) months after the end of the
Employment Term, engage in any Client Solicitation or
Employee Solicitation.
(vii) If, after the end of the employment
term, Employer does not make a good faith offer to Executive
to extend Executive's employment on terms substantially
similar to those set forth herein (other than those terms
relating to the length of employment), Executive will not
(A) for a period of one (1) year after the end of the
Employment Term, engage in any Client Solicitation, or (B)
for a period of ninety (90) days after the end of Employment
Term, engage in any Employee Solicitation.
(viii) For purposes of paragraphs (vi) and
(vii) of this Section 4(b), "employment on terms
substantially similar to those set forth herein" shall
include employment with a salary at least as great as the
greater of (A) those set forth in Section 3(a) hereof or (B)
those then payable pursuant to an amendment (whether oral or
written) to the salary provisions set forth in Section 3(a)
hereof. Notwithstanding the foregoing, if, at the end of the
Employment Term, each of the other parties to the
Shareholders' Agreement who then has an employment agreement
with the Company (the "Other Employees") agrees, or has
previously agreed, to a reduction in the salary then payable
to him by Employer, then "employment on terms substantially
similar to those set forth herein" shall include employment
with a salary at least as great as the greater of clause (A)
or (B) above, reduced by the same percentage amount by which
the Other Employees agree, or have previously agreed, to a
reduction in their salary; provided, however, that such
salary will not be less than that specified in clause (A)
above.
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<PAGE>
(ix) Nothing in paragraphs (ii) or (iii)
of this Section 4(b) is intended to confer upon Executive
any right to terminate this Agreement other than for the
reasons set forth in Section 7(c) hereof.
(c) In the event that Executive breaches any
provisions of this paragraph or there is a threatened breach, then, in
addition to any other rights which Employer may have, Employer shall be
entitled to injunctive relief to enforce the restrictions contained herein. In
the event that an actual proceeding is brought in equity to enforce the
provisions of this paragraph, Executive shall not argue as a defense that
there is an adequate remedy at law nor shall Employer be prevented from
seeking any other remedies which may be available.
5. CONFIDENTIALITY. During the term of this Agreement
and thereafter, Executive agrees to hold in strictest confidence, and not to
use, except for the benefit of Employer, or to disclose to any person, firm or
corporation, without the prior written authorization of the Board, any trade
secrets, confidential knowledge, data or other proprietary information of
Employer.
6. VACATION; BENEFITS. Executive shall be entitled to
paid vacation time at the rate of not less than four (4) weeks per calendar
year during the term of his employment hereunder. In addition, Executive will
be permitted to observe religious holidays as personal days and such days off
will not be applied against Executive's vacation time. During the term of this
Agreement, Employer shall maintain medical and dental insurance plans similar
in scope and coverage to those maintained by comparable businesses and
Executive shall be entitled to participate in such plans.
7. TERMINATION.
(a) Anything to the contrary notwithstanding,
this Agreement shall terminate before the expiration of the term hereof in the
event of Executive's (i) death or (ii) at the discretion of Employer, upon
Executive's disability for a period of twenty six (26) consecutive weeks. For
the purposes of this Agreement, "disability" shall mean the incapacitation or
disablement by accident, sickness or otherwise so as to render Executive
mentally or physically incapable of performing the services required to be
performed by him under this Agreement. If, in the discretion of Employer,
Executive has recovered from a disability for which he was terminated and the
Employment Term has not expired, then Employer may, at its option, rehire
Executive on the terms of this Agreement for the period that ends with the
expiration of the Employment Term. If Executive declines such offer to rehire
him, he shall do so without any liability or obligation to Employer, except as
set forth in the next two (2) sentences. If Executive declines such offer to
rehire him, then, if such offer to rehire is extended on or prior to the third
(3rd) anniversary of the date of this Agreement, Executive will not engage in
any Competitive Activities for a period of one hundred and eighty (180) days
after such offer to rehire is extended or engage in any Client Solicitation or
Employee Solicitation for a period of eighteen (18) months after such offer to
rehire is extended. If Executive declines such offer to rehire him, then, if
such offer to rehire is extended after the third (3rd) anniversary of the date
of this Agreement, Executive will not engage in any Competitive Activities for
a period of ninety (90) days after such offer to rehire is extended or engage
in any
- 4 -
<PAGE>
Client Solicitation or Employee Solicitation for a period of one (1) year
after such offer to rehire is extended.
(b) Executive's employment hereunder may also
be terminated by the Employer before the expiration of the Employment Term
only for Cause, as herein defined. "Cause" shall mean only one or more of the
following occurrences:
(i) Executive's conviction of a felony by
a court of competent jurisdiction (which conviction, through
lapse of time or otherwise, is not subject to appeal);
(ii) Executive's commission of an act of
fraud or embezzlement upon the Employer;
(iii) the material breach by Executive of
Section 4(b)(i) hereof; or
(iv) in the event of the wilful
malfeasance or gross negligence in the performance of
Executive's duties hereunder or the wilful failure of
Executive to perform his duties hereunder, which
malfeasance, negligence or failure has a material adverse
effect on the business of Employer and continues for a
period of fifteen (15) days after written notice is given to
Executive specifying such malfeasance, negligence or
failure.
(c) Executive may terminate his employment
hereunder only if:
(i) at two (2) consecutive annual meetings
of the stockholders of Employer, or in written consents in
lieu thereof, Executive fails to win election to the Board;
(ii) at two (2) consecutive annual
meetings of the stockholders of SMTI, or in written consents
in lieu thereof, Executive fails to win election to the
Board of Directors of SMTI;
(iii) Employer fails to pay Executive's
salary for a period of sixty (60) consecutive days; or
(iv) Employer materially breaches any
other covenant by Employer herein contained and such breach
continues for a period of fifteen (15) days following
written notice by Executive to Employer of such breach.
In the event of any termination by Executive of his
employment hereunder pursuant to this Section 7(c), all of Executive's
obligations to Employer set forth herein shall terminate; provided, however,
that Employer shall remain liable for all salary accrued hereunder up to the
date of such termination which shall be payable no later than thirty (30) days
after the date of
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<PAGE>
such termination. The foregoing shall not be deemed to restrict Executive's
rights at law or in equity in the event of any breach of this Agreement by
Employer.
8. NOTICES. All notices hereunder shall be in writing
and shall be delivered in person or given by registered or certified mail,
postage prepaid, and sent to the parties at the respective addresses above set
forth. Either party may designate any other address to which notice shall be
given by giving notice to the other of such change of address in the manner
herein provided.
9. SEVERABILITY OF PROVISIONS. If any provision of this
agreement shall be declared by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced in whole or in part, the
remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
10. GOVERNING LAW. This Agreement shall be construed
and governed by the internal laws of the State of New York.
11. NON-WAIVER. The failure of either party to insist
upon the strict performance of any term or condition in this Agreement shall
not be considered a waiver or relinquishment of future compliance therewith.
12. ATTORNEY'S FEES. In the event of a dispute arising
hereunder, each party shall bear its own fees and expenses (including legal
fees and expenses).
13. ENTIRE AGREEMENT; MODIFICATION. This Agreement
contains the entire agreement between the parties relating to the subject
matter hereof. No modification of this Agreement shall be valid unless it is
made in writing and signed by the parties hereto and, if such modification
takes effect within one (1) year from the date hereof, the other Shareholders
(as such term is defined in the Shareholders' Agreement) who are employed by
Employer as of the date of such modification.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
----------------------------------
Robert Gutkowski
President and Chief Executive Officer
/s/ Michael Trager
-------------------------------------
MICHAEL TRAGER
- 6 -
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as
of December 11, 1996, by and between THE MARQUEE GROUP INC., a Delaware
corporation having a place of business at 150 East 58th Street, New York, New
York 10155 ("Employer"), and MICHAEL LETIS, having a place of business at 410
Greenwich Avenue, Greenwich, Connecticut 06830 ("Executive").
WHEREAS, Employer has been established to engage in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent;
and
WHEREAS, Employer desires to employ Executive as its
Executive Vice President, and Executive is willing to be employed in such
capacity;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants contained herein, it is agreed as follows:
1. EMPLOYMENT; DUTIES.
(a) Employer hereby agrees to employ Executive,
and Executive hereby agrees to accept employment during the term hereof, as
Executive Vice President, and shall perform such services in accordance with
the standards observed by senior executives in comparable businesses, subject
at all times to the direction of the Board of Directors of Employer (the
"Board").
(b) During the term of this Agreement, Employer
agrees to cause Executive to be elected to the Board of Directors of Sports
Marketing & Television International, Inc. ("SMTI"), a wholly-owned subsidiary
of Employer, and to use its best efforts to cause Executive to be nominated to
the Board. Executive agrees to serve in such capacities upon appointment on
the same terms and conditions as the other executive officer/directors serving
on the respective Board of Directors.
(c) In addition to any obligations Executive
may have to vote his shares of Employer in the manner set forth in that
certain Shareholders' Agreement (the "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, Executive and
Employer, Executive agrees that, during the Employment Term, as hereinafter
defined, he will vote his shares of Employer in the manner set forth in
Section 3.01(d) of the Shareholders' Agreement.
2. TERM OF EMPLOYMENT. Executive's employment
hereunder shall commence on the date of this Agreement and shall continue for
a period of five (5) years therefrom (the "Employment Term").
<PAGE>
3. COMPENSATION.
(a) As consideration for all of the services
performed by Executive under this Agreement, Employer shall pay Executive, as
an annual salary payable in accordance with Employer's ordinary payroll
practices, the sum of three hundred thousand dollars ($300,000).
(b) Employer shall reimburse Executive for all
ordinary, reasonable and necessary expenses incurred by Executive in
connection with his duties hereunder upon presentation by Executive of the
details of and vouchers for such expenses. During the term of this Agreement,
Executive shall be entitled to participate in all pension, group insurance,
hospitalization, medical, health, accident and disability plans of Employer
and shall be eligible to be granted options and other benefits under stock
option and similar incentive plans maintained by Employer (it being understood
that the foregoing is not a guarantee that Executive will be granted options
or other benefits under such plans).
4. NON-COMPETITION.
(a) As used herein, the term "Competitive
Activities" means any attempt by Executive, without the prior written consent
of Employer, directly or indirectly, for his own account or as an employee,
officer, director, partner, joint venturer, shareholder, investor (except that
Executive may purchase up to five percent of the outstanding capital stock of
any publicly-traded corporation) or otherwise to engage or participate in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent, in
any area. As used herein, the term "Client Solicitation" means any attempt by
Executive, without the prior written consent of Employer, directly or
indirectly, for his own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor or otherwise to interfere with, disrupt,
or attempt to disrupt, any past, present or prospective relationship,
contractual or otherwise, between Employer and any client, customer, vendor or
supplier of Employer. As used herein, the term "Employee Solicitation" means
any attempt by Executive, without the prior written consent of Employer,
directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor or otherwise to
employ or solicit the employment or engagement by others of any employee of
Employer who was an employee as of the date of the termination of this
Agreement or within six (6) months prior thereto.
(b) (i) During the term of this Agreement,
Executive will not engage in any Competitive Activities,
Client Solicitation or Employee Solicitation.
(ii) If Executive voluntarily terminates
this Agreement during the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of one hundred and eighty (180) days after such termination
or engage in any Client Solicitation or Employee
Solicitation for a period of eighteen (18) months after such
termination.
- 2 -
<PAGE>
(iii) If Executive voluntarily terminates
this Agreement after the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of ninety (90) days after such termination or engage in any
Client Solicitation or Employee Solicitation for a period
one (1) year after such termination.
(iv) If Employer terminates this Agreement
for "Cause" (as hereinafter defined), Executive will not
engage in any Competitive Activities for a period of ninety
(90) days after such termination or engage in any Client
Solicitation or Employee Solicitation for a period of one
(1) year after such termination.
(v) If Employer terminates this Agreement
without Cause, Executive will not be subject to any
prohibitions (other than those, if any, provided under
applicable law) regarding Competitive Activities, Client
Solicitation or Employee Solicitation.
(vi) If, after the end of the Employment
Term, Executive refuses a good faith offer of Employer to
extend Executive's employment on terms substantially similar
to those set forth herein (other than those terms relating
to the length of employment), Executive will not, for a
period of eighteen (18) months after the end of the
Employment Term, engage in any Client Solicitation or
Employee Solicitation.
(vii) If, after the end of the Employment
Term, Employer does not make a good faith offer to Executive
to extend Executive's employment on terms substantially
similar to those set forth herein (other than those terms
relating to the length of employment), Executive will not
(A) for a period of one (1) year after the end of the
Employment Term, engage in any Client Solicitation or (B)
for a period of ninety (90) days after the end of Employment
Term, engage in any Employee Solicitation.
(viii) For purposes of paragraphs (vi) and
(vii) of this Section 4(b), "employment on terms
substantially similar to those set forth herein" shall
include employment with a salary at least as great as the
greater of (A) those set forth in Section 3(a) hereof or (B)
those then payable pursuant to an amendment (whether oral or
written) to the salary provisions set forth in Section 3(a)
hereof. Notwithstanding the foregoing, if, at the end of the
Employment Term, each of the other parties to the
Shareholders' Agreement who then has an employment agreement
with the Company (the "Other Employees") agrees, or has
previously agreed, to a reduction in the salary then payable
to him by Employer, then "employment on terms substantially
similar to those set forth herein" shall include employment
with a salary at least as great as the greater of clause (A)
or (B) above, reduced by the same percentage amount by which
the Other Employees agree, or have previously agreed,
- 3 -
<PAGE>
to a reduction in their salary; provided, however, that such
salary will not be less than that specified in clause (A)
above.
(ix) Nothing in paragraphs (ii) or (iii)
of this Section 4(b) is intended to confer upon Executive
any right to terminate this Agreement other than for the
reasons set forth in Section 7(c) hereof.
(c) In the event that Executive breaches any
provisions of this Section 4 or there is a threatened breach, then, in
addition to any other rights which Employer may have, Employer shall be
entitled to injunctive relief to enforce the restrictions contained herein. In
the event that an actual proceeding is brought in equity to enforce the
provisions of this paragraph, Executive shall not argue as a defense that
there is an adequate remedy at law nor shall Employer be prevented from
seeking any other remedies which may be available.
5. CONFIDENTIALITY. During the term of this Agreement
and thereafter, Executive agrees to hold in strictest confidence, and not to
use, except for the benefit of Employer, or to disclose to any person, firm or
corporation, without the prior written authorization of the Board, any trade
secrets, confidential knowledge, data or other proprietary information of
Employer.
6. VACATION; BENEFITS. Executive shall be entitled to
paid vacation time at the rate of not less than four (4) weeks per calendar
year during the term of his employment hereunder. In addition, Executive will
be permitted to observe religious holidays as personal days and such days off
will not be applied against Executive's vacation time. During the term of this
Agreement, Employer shall maintain medical and dental insurance plans similar
in scope and coverage to those maintained by comparable businesses and
Executive shall be entitled to participate in such plans.
7. TERMINATION.
(a) Anything to the contrary notwithstanding,
this Agreement shall terminate before the expiration of the term hereof in the
event of Executive's (i) death or (ii) at the discretion of Employer, upon
Executive's disability for a period of twenty six (26) consecutive weeks. For
the purposes of this Agreement, "disability" shall mean the incapacitation or
disablement by accident, sickness or otherwise so as to render Executive
mentally or physically incapable of performing the services required to be
performed by him under this Agreement. If, in the discretion of Employer,
Executive has recovered from a disability for which he was terminated and the
Employment Term has not expired, then Employer may, at its option, rehire
Executive on the terms of this Agreement for the period that ends with the
expiration of the Employment Term. If Executive declines such offer to rehire
him, he shall do so without any liability or obligation to Employer, except as
set forth in the next two (2) sentences. If Executive declines such offer to
rehire him, then, if such offer to rehire is extended on or prior to the third
(3rd) anniversary of the date of this Agreement, Executive will not engage in
any Competitive Activities for a period of one hundred and eighty (180) days
after such offer to rehire is extended or engage in any Client Solicitation or
- 4 -
<PAGE>
Employee Solicitation for a period of eighteen (18) months after such offer to
rehire is extended. If Executive declines such offer to rehire him, then, if
such offer to rehire is extended after the third (3rd) anniversary of the date
of this Agreement, Executive will not engage in any Competitive Activities for
a period of ninety (90) days after such offer to rehire is extended or engage
in any Client Solicitation or Employee Solicitation for a period of one (1)
year after such offer to rehire is extended.
(b) Executive's employment hereunder may also
be terminated by Employer before the expiration of the Employment Term only
for Cause, as herein defined. "Cause" shall mean only one or more of the
following occurrences:
(i) Executive's conviction of a felony by
a court of competent jurisdiction (which conviction, through
lapse of time or otherwise, is not subject to appeal);
(ii) Executive's commission of an act of
fraud or embezzlement upon Employer;
(iii) the material breach by Executive of
Section 4(b)(i) hereof; or
(iv) in the event of the wilful
malfeasance or gross negligence in the performance of
Executive's duties hereunder or the wilful failure of
Executive to perform his duties hereunder, which
malfeasance, negligence or failure has a material adverse
effect on the business of Employer and continues for a
period of fifteen (15) days after written notice is given to
Executive specifying such malfeasance, negligence or
failure.
(c) Executive may terminate his employment
hereunder only if:
(i) at two (2) consecutive annual meetings
of the stockholders of Employer, or in written consents in
lieu thereof, Executive fails to win election to the Board;
(ii) at two (2) consecutive annual
meetings of the stockholders of SMTI, or in written consents
in lieu thereof, Executive fails to win election to the
Board of Directors of SMTI;
(iii) Employer fails to pay Executive's
salary for a period of sixty (60) consecutive days; or
(iv) Employer materially breaches any
other covenant by Employer herein contained and such breach
continues for a period of fifteen (15) days following
written notice by Executive to Employer of such breach.
- 5 -
<PAGE>
In the event of any termination by Executive of his
employment hereunder pursuant to this Section 7(c), all of Executive's
obligations to Employer set forth herein shall terminate ; provided, however,
that Employer shall remain liable for all salary accrued hereunder up to the
date of such termination which shall be payable no later than thirty (30) days
after the date of such termination. The foregoing shall not be deemed to
restrict Executive's rights at law or in equity in the event of any breach of
this Agreement by Employer.
8. NOTICES. All notices hereunder shall be in writing
and shall be delivered in person or given by registered or certified mail,
postage prepaid, and sent to the parties at the respective addresses above set
forth. Either party may designate any other address to which notice shall be
given by giving notice to the other of such change of address in the manner
herein provided.
9. SEVERABILITY OF PROVISIONS. If any provision of this
agreement shall be declared by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced in whole or in part, the
remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
10. GOVERNING LAW. This Agreement shall be construed
and governed by the internal laws of the State of New York.
11. NON-WAIVER. The failure of either party to insist
upon the strict performance of any term or condition in this Agreement shall
not be considered a waiver or relinquishment of future compliance therewith.
12. ATTORNEY'S FEES. In the event of a dispute arising
hereunder, each party shall bear its own fees and expenses (including legal
fees and expenses).
13. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains
the entire agreement between the parties relating to the subject matter
hereof. No modification of this Agreement shall be valid unless it is made in
writing and signed by the parties hereto and, if such modification takes
effect within one (1) year from the date hereof, the other Shareholders (as
such term is defined in the Shareholders' Agreement) who are employed by
Employer as of the date of such modification.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
----------------------------------
Robert Gutkowski
President and Chief Executive Officer
/s/ Michael Letis
-------------------------------------
MICHAEL LETIS
- 7 -
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as
of December 11, 1996, by and between THE MARQUEE GROUP INC., a Delaware
corporation having a place of business at 150 East 58th Street, New York, New
York 10155 ("Employer"), and ARTHUR KAMINSKY, an individual having a place of
business at 421 Seventh Avenue, Suite 1410, New York, New York 10001
("Executive").
WHEREAS, Employer has been established to engage in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent;
and
WHEREAS, Employer desires to employ Executive as its
Executive Vice President, and Executive is willing to be employed in such
capacity;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants contained herein, it is agreed as follows:
1. EMPLOYMENT; DUTIES.
(a) Employer hereby agrees to employ Executive,
and Executive hereby agrees to accept employment during the term hereof, as
Executive Vice President, and shall perform such services in accordance with
the standards observed by senior executives in comparable businesses, subject
at all times to the direction of the Board of Directors of Employer (the
"Board").
(b) During the term of this Agreement, Employer
agrees to cause Executive to be elected to the Board of Directors of Athletes
and Artists, Inc. ("A&A"), a wholly-owned subsidiary of Employer, and to use
its best efforts to cause Executive to be nominated to the Board. Executive
agrees to serve in such capacities upon appointment on the same terms and
conditions as the other executive officers/directors serving on the respective
Board of Directors.
(c) In addition to any obligations Executive
may have to vote his shares of Employer in the manner set forth in that
certain Shareholders' Agreement (the "Shareholders' Agreement"), dated as of
March 21, 1996, by and among The Sillerman Companies, Inc., Robert M.
Gutkowski, Executive, Louis J. Oppenheim, Michael Trager, Michael Letis and
Employer, Executive agrees that, during the Employment Term, as hereinafter
defined, he will vote his shares of Employer in the manner set forth in
Section 3.01(d) of the Shareholders' Agreement.
<PAGE>
2. TERM OF EMPLOYMENT. Executive's employment
hereunder shall commence on the date of this Agreement and shall continue for
a period of five (5) years therefrom (the "Employment Term").
3. COMPENSATION.
(a) As consideration for all of the services
performed by Executive under this Agreement, Employer shall pay Executive, as
an annual salary payable in accordance with Employer's ordinary payroll
practices, the sum of three hundred thousand dollars ($300,000).
(b) Employer shall reimburse Executive for all
ordinary, reasonable and necessary expenses incurred by Executive in
connection with his duties hereunder upon presentation by Executive of the
details of and vouchers for such expenses. During the term of this Agreement,
Executive shall be entitled to participate in all pension, group insurance,
hospitalization, medical, health, accident and disability plans of Employer
and shall be eligible to be granted options and other benefits under stock
option and similar incentive plans maintained by Employer (it being understood
that the foregoing is not a guarantee that Executive will be granted options
or other benefits under such plans).
4. NON-COMPETITION.
(a) As used herein, the term "Competitive
Activities" means any attempt by Executive, without the prior written consent
of Employer, directly or indirectly, for his own account or as an employee,
officer, director, partner, joint venturer, shareholder, investor (except that
Executive may purchase up to five percent of the outstanding capital stock of
any publicly-traded corporation) or otherwise to engage or participate in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent, in
any area. As used herein, the term "Client Solicitation" means any attempt by
Executive, without the prior written consent of Employer, directly or
indirectly, for his own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor or otherwise to interfere with, disrupt,
or attempt to disrupt, any past, present or prospective relationship,
contractual or otherwise, between Employer and any client, customer, vendor or
supplier of Employer. As used herein, the term "Employee Solicitation" means
any attempt by Executive, without the prior written consent of Employer,
directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor or otherwise to
employ or solicit the employment or engagement by others of any employee of
Employer who was an employee as of the date of the termination of this
Agreement or within six (6) months prior thereto.
(b) (i) During the term of this Agreement,
Executive will not engage in any Competitive Activities,
Client Solicitation or Employee Solicitation.
- 2 -
<PAGE>
(ii) If Executive voluntarily terminates
this Agreement during the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of one hundred and eighty (180) days after such termination
or engage in any Client Solicitation or Employee
Solicitation for a period of eighteen (18) months after such
termination.
(iii) If Executive voluntarily terminates
this Agreement after the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of ninety (90) days after such termination or engage in any
Client Solicitation or Employee Solicitation for a period
one (1) year after such termination.
(iv) If Employer terminates this Agreement
for "Cause" (as hereinafter defined), Executive will not
engage in any Competitive Activities for a period of ninety
(90) days after such termination or engage in any Client
Solicitation or Employee Solicitation for a period of one
(1) year after such termination.
(v) If Employer terminates this Agreement
without Cause, Executive will not be subject to any
prohibitions (other than those, if any, provided under
applicable law) regarding Competitive Activities, Client
Solicitation or Employee Solicitation.
(vi) If, after the end of the Employment
Term, Executive refuses a good faith offer of Employer to
extend Executive's employment on terms substantially similar
to those set forth herein (other than those terms relating
to the length of employment), Executive will not, for a
period of eighteen (18) months after the end of the
Employment Term, engage in any Client Solicitation or
Employee Solicitation.
(vii) If, after the end of the Employment
Term, Employer does not make a good faith offer to Executive
to extend Executive's employment on terms substantially
similar to those set forth herein (other than those terms
relating to the length of employment), Executive will not
(A) for a period of one (1) year after the end of the
Employment Term, engage in any Client Solicitation, or (B)
for a period of ninety (90) days after the end of Employment
Term, engage in any Employee Solicitation.
(viii) For purposes of paragraphs (vi) and
(vii) of this Section 4(b), "employment on terms
substantially similar to those set forth herein" shall
include employment with a salary at least as great as the
greater of (A) those set forth in Section 3(a) hereof or (B)
those then payable pursuant to an amendment (whether oral or
written) to the salary provisions set forth in Section 3(a)
hereof.
- 3 -
<PAGE>
Notwithstanding the foregoing, if, at the end of the
Employment Term, each of the other parties to the
Shareholders' Agreement who then has an employment agreement
with the Company (the "Other Employees") agrees, or has
previously agreed, to a reduction in the salary then payable
to him by Employer, then "employment on terms substantially
similar to those set forth herein" shall include employment
with a salary at least as great as the greater of clause (A)
or (B) above, reduced by the same percentage amount by which
the Other Employees agree, or have previously agreed, to a
reduction in their salary; provided, however, that such
salary will not be less than that specified in clause (A)
above.
(ix) Nothing in paragraphs (ii) or (iii)
of this Section 4(b) is intended to confer upon Executive
any right to terminate this Agreement other than for the
reasons set forth in Section 7(c) hereof.
(c) In the event that Executive breaches any
provisions of this Section 4 or there is a threatened breach, then, in
addition to any other rights which Employer may have, Employer shall be
entitled to injunctive relief to enforce the restrictions contained herein. In
the event that an actual proceeding is brought in equity to enforce the
provisions of this paragraph, Executive shall not argue as a defense that
there is an adequate remedy at law nor shall Employer be prevented from
seeking any other remedies which may be available.
5. CONFIDENTIALITY. During the term of this Agreement and
thereafter, Executive agrees to hold in strictest confidence, and not to use,
except for the benefit of Employer, or to disclose to any person, firm or
corporation, without the prior written authorization of the Board, any trade
secrets, confidential knowledge, data or other proprietary information of
Employer.
6. VACATION; BENEFITS. Executive shall be entitled to paid
vacation time at the rate of not less than four (4) weeks per calendar year
during the term of his employment hereunder. In addition, Executive will be
permitted to observe religious holidays as personal days and such days off
will not be applied against Executive's vacation time. During the term of this
Agreement, Employer shall maintain medical and dental insurance plans similar
in scope and coverage to those maintained by comparable businesses and
Executive shall be entitled to participate in such plans.
7. TERMINATION.
(a) Anything to the contrary notwithstanding,
this Agreement shall terminate before the expiration of the term hereof in the
event of Executive's (i) death or (ii) at the discretion of Employer, upon
Executive's disability for a period of twenty six (26) consecutive weeks. For
the purposes of this Agreement, "disability" shall mean the incapacitation or
disablement by accident, sickness or otherwise so as to render Executive
mentally or physically incapable of performing the services required to be
performed by him under this Agreement. If,
- 4 -
<PAGE>
in the discretion of Employer, Executive has recovered from a disability for
which he was terminated and the Employment Term has not expired, then Employer
may, at its option, rehire Executive on the terms of this Agreement for the
period that ends with the expiration of the Employment Term. If Executive
declines such offer to rehire him, he shall do so without any liability or
obligation to Employer, except as set forth in the next two (2) sentences. If
Executive declines such offer to rehire him, then, if such offer to rehire is
extended on or prior to the third (3rd) anniversary of the date of this
Agreement, Executive will not engage in any Competitive Activities for a
period of one hundred and eighty (180) days after such offer to rehire is
extended or engage in any Client Solicitation or Employee Solicitation for a
period of eighteen (18) months after such offer to rehire is extended. If
Executive declines such offer to rehire him, then, if such offer to rehire is
extended after the third (3rd) anniversary of the date of this Agreement,
Executive will not engage in any Competitive Activities for a period of ninety
(90) days after such offer to rehire is extended or engage in any Client
Solicitation or Employee Solicitation for a period of one (1) year after such
offer to rehire is extended.
(b) Executive's employment hereunder may also
be terminated by Employer before the expiration of the Employment Term only
for Cause, as herein defined. "Cause" shall mean only one or more of the
following occurrences:
(i) Executive's conviction of a felony by
a court of competent jurisdiction (which conviction, through
lapse of time or otherwise, is not subject to appeal);
(ii) Executive's commission of an act of
fraud or embezzlement upon Employer;
(iii) the material breach by Executive of
Section 4(b)(i) hereof; or
(iv) in the event of the wilful
malfeasance or gross negligence in the performance of
Executive's duties hereunder or the wilful failure of
Executive to perform his duties hereunder, which
malfeasance, negligence or failure has a material adverse
effect on the business of Employer and continues for a
period of fifteen (15) days after written notice is given to
Executive specifying such malfeasance, negligence or
failure.
(c) Executive may terminate his employment
hereunder only if:
(i) at two (2) consecutive annual meetings
of the stockholders of Employer, or in written consents in
lieu thereof, Executive fails to win election to the Board;
- 5 -
<PAGE>
(ii) at two (2) consecutive annual
meetings of the stockholders of A&A, or in written consents
in lieu thereof, Executive fails to win election to the
Board of Directors of A&A;
(iii) Employer fails to pay Executive's
salary for a period of sixty (60) consecutive days; or
(iv) Employer materially breaches any
other covenant by Employer herein contained and such breach
continues for a period of fifteen (15) days following
written notice by Executive to Employer of such breach.
In the event of any termination by Executive of his
employment hereunder pursuant to this Section 7(c), all of Executive's
obligations to Employer set forth herein shall terminate; provided, however,
that Employer shall remain liable for all salary accrued hereunder up to the
date of such termination which shall be payable no later than thirty (30) days
after the date of such termination. The foregoing shall not be deemed to
restrict Executive's rights at law or in equity in the event of any breach of
this Agreement by Employer.
8. NOTICES. All notices hereunder shall be in writing
and shall be delivered in person or given by registered or certified mail,
postage prepaid, and sent to the parties at the respective addresses above set
forth. Either party may designate any other address to which notice shall be
given by giving notice to the other of such change of address in the manner
herein provided.
9. SEVERABILITY OF PROVISIONS. If any provision of this
agreement shall be declared by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced in whole or in part, the
remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
10. GOVERNING LAW. This Agreement shall be construed
and governed by the internal laws of the State of New York.
11. NON-WAIVER. The failure of either party to insist
upon the strict performance of any term or condition in this Agreement shall
not be considered a waiver or relinquishment of future compliance therewith.
12. ATTORNEY'S FEES. In the event of a dispute arising
hereunder, each party shall bear its own fees and expense (including legal
fees and expenses).
- 6 -
<PAGE>
13. ENTIRE AGREEMENT; MODIFICATION. This Agreement
contains the entire agreement between the parties relating to the subject
matter hereof. No modification of this Agreement shall be valid unless it is
made in writing and signed by the parties hereto and, if such modification
takes effect within one (1) year from the date hereof, the other Shareholders
(as such term is defined in the Shareholders' Agreement) who are employed by
Employer as of the date of such modification.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
----------------------------------
Robert Gutkowski
President and Chief Executive Officer
/s/ Arthur Kaminsky
-------------------------------------
ARTHUR KAMINSKY
- 7 -
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as
of December 11, 1996, by and between THE MARQUEE GROUP INC., a Delaware
corporation having a place of business at 150 East 58th Street, New York, New
York 10155 ("Employer"), and LOUIS J. OPPENHEIM, an individual having a place
of business at 421 Seventh Avenue, Suite 1410, New York, New York 10001
("Executive").
WHEREAS, Employer has been established to engage in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent;
and
WHEREAS, Employer desires to employ Executive as its
Executive Vice President, and Executive is willing to be employed in such
capacity;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants contained herein, it is agreed as follows:
1. EMPLOYMENT; DUTIES.
(a) Employer hereby agrees to employ Executive,
and Executive hereby agrees to accept employment during the term hereof, as
Executive Vice President, and shall perform such services in accordance with
the standards observed by senior executives in comparable businesses, subject
at all times to the direction of the Board of Directors of Employer (the
"Board").
(b) During the term of this Agreement, Employer
agrees to cause Executive to be elected to the Board of Directors of Athletes
and Artists, Inc. ("A&A"), a wholly-owned subsidiary of Employer, and to use
its best efforts to cause Executive to be nominated to the Board. Executive
agrees to serve in such capacities upon appointment on the same terms and
conditions as the other executive officer/directors serving on the respective
Board of Directors.
(c) In addition to any obligations Executive
may have to vote his shares of Employer in the manner set forth in that
certain Shareholders' Agreement (the "Shareholders' Agreement"), dated as of
March 21, 1996, by and among The Sillerman Companies, Inc., Robert M.
Gutkowski, Arthur Kaminsky, Executive, Michael Trager, Michael Letis and
Employer, Executive agrees that, during the Employment Term, as hereinafter
defined, he will vote his shares of Employer in the manner set forth in
Section 3.01(d) of the Shareholders' Agreement.
2. TERM OF EMPLOYMENT. Executive's employment
hereunder shall commence on the date of this Agreement and shall continue for
a period of five (5) years therefrom (the "Employment Term").
- 1 -
<PAGE>
3. COMPENSATION.
(a) As consideration for all of the services
performed by Executive under this Agreement, Employer shall pay Executive, as
an annual salary payable in accordance with Employer's ordinary payroll
practices, the sum of one hundred and seventy five thousand dollars
($175,000).
(b) Employer shall reimburse Executive for all
ordinary, reasonable and necessary expenses incurred by Executive in
connection with his duties hereunder upon presentation by Executive of the
details of and vouchers for such expenses. During the term of this Agreement,
Executive shall be entitled to participate in all pension, group insurance,
hospitalization, medical, health, accident and disability plans of Employer
and shall be eligible to be granted options and other benefits under stock
option and similar incentive plans maintained by Employer (it being understood
that the foregoing is not a guarantee that Executive will be granted options
or other benefits under such plans).
4. NON-COMPETITION.
(a) As used herein, the term "Competitive
Activities" means any attempt by Executive, without the prior written consent
of Employer, directly or indirectly, for his own account or as an employee,
officer, director, partner, joint venturer, shareholder, investor (except that
Executive may purchase up to five percent of the outstanding capital stock of
any publicly-traded corporation) or otherwise to engage or participate in the
business of providing management, licensing, sponsorship sales, marketing,
consulting and production services to sports related businesses and talent, in
any area. As used herein, the term "Client Solicitation" means any attempt by
Executive, without the prior written consent of Employer, directly or
indirectly, for his own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor or otherwise to interfere with, disrupt,
or attempt to disrupt, any past, present or prospective relationship,
contractual or otherwise, between Employer and any client, customer, vendor or
supplier of Employer. As used herein, the term "Employee Solicitation" means
any attempt by Executive, without the prior written consent of Employer,
directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor or otherwise to
employ or solicit the employment or engagement by others of any employee of
Employer who was an employee as of the date of the termination of this
Agreement or within six (6) months prior thereto.
(b) (i) During the term of this Agreement,
Executive will not engage in any Competitive Activities,
Client Solicitation or Employee Solicitation.
(ii) If Executive voluntarily terminates
this Agreement during the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of one hundred and eighty (180) days after such termination
or engage in any Client Solicitation or Employee
Solicitation for a period of eighteen (18) months after such
termination.
- 2 -
<PAGE>
(iii) If Executive voluntarily terminates
this Agreement after the first three (3) years hereof, he
will not engage in any Competitive Activities for a period
of ninety (90) days after such termination or engage in any
Client Solicitation or Employee Solicitation for a period
one (1) year after such termination.
(iv) If Employer terminates this Agreement
for "Cause" (as hereinafter defined), Executive will not
engage in any Competitive Activities for a period of ninety
(90) days after such termination or engage in any Client
Solicitation or Employee Solicitation for a period of one
(1) year after such termination.
(v) If Employer terminates this Agreement
without Cause, Executive will not be subject to any
prohibitions (other than those, if any, provided under
applicable law) regarding Competitive Activities, Client
Solicitation or Employee Solicitation.
(vi) If, after the end of the Employment
Term, Executive refuses a good faith offer of Employer to
extend Executive's employment on terms substantially similar
to those set forth herein (other than those terms relating
to the length of employment), Executive will not for a
period of eighteen (18) months after the end of the
Employment Term, engage in any Client Solicitation or
Employee Solicitation.
(vii) If, after the end of the Employment
Term, Employer does not make a good faith offer to Executive
to extend Executive's employment on terms substantially
similar to those set forth herein (other than those terms
relating to the length of employment), Executive will not
(A) for a period of one (1) year after the end of the
Employment Term, engage in any Client Solicitation, or (B)
for a period of ninety (90) days after the end of Employment
Term, engage in any Employee Solicitation.
(viii) For purposes of paragraphs (vi) and
(vii) of this Section 4(b), "employment on terms
substantially similar to those set forth herein" shall
include employment with a salary at least as great as the
greater of (A) those set forth in Section 3(a) hereof or (B)
those then payable pursuant to an amendment (whether oral or
written) to the salary provisions set forth in Section 3(a)
hereof. Notwithstanding the foregoing, if, at the end of the
Employment Term, each of the other parties to the
Shareholders' Agreement who then has an employment agreement
with the Company (the "Other Employees") agrees, or has
previously agreed, to a reduction in the salary then payable
to him by Employer, then "employment or terms substantially
similar to those set forth herein" shall include employment
with a salary at least as great as the greater of clause (A)
or (B) above, reduced by the same percentage amount by which
the Other Employees agree, or have previously agreed, to a
reduction in their salary; provided, however, that such
salary will not be less than that specified in clause (A)
above.
- 3 -
<PAGE>
(ix) Nothing in paragraphs (ii) or (iii)
of this Section 4(b) is intended to confer upon Executive
any right to terminate this Agreement other than for the
reasons set forth in Section 7(c) hereof.
(c) In the event that Executive breaches any
provisions of this Section 4 or there is a threatened breach, then, in
addition to any other rights which Employer may have, Employer shall be
entitled to injunctive relief to enforce the restrictions contained herein. In
the event that an actual proceeding is brought in equity to enforce the
provisions of this paragraph, Executive shall not argue as a defense that
there is an adequate remedy at law nor shall Employer be prevented from
seeking any other remedies which may be available.
5. CONFIDENTIALITY. During the term of this Agreement
and thereafter, Executive agrees to hold in strictest confidence, and not to
use, except for the benefit of Employer, or to disclose to any person, firm or
corporation, without the prior written authorization of the Board, any trade
secrets, confidential knowledge, data or other proprietary information of
Employer.
6. VACATION; BENEFITS. Executive shall be entitled to
paid vacation time at the rate of not less than four (4) weeks per calendar
year during the term of his employment hereunder. In addition, Executive will
be permitted to observe religious holidays as personal days and such days off
will not be applied against Executive's vacation time. During the term of this
Agreement, Employer shall maintain medical and dental insurance plans similar
in scope and coverage to those maintained by comparable businesses and
Executive shall be entitled to participate in such plans.
7. TERMINATION.
(a) Anything to the contrary notwithstanding,
this Agreement shall terminate before the expiration of the term hereof in the
event of Executive's (i) death or (ii) at the discretion of Employer, upon
Executive's disability for a period of twenty six (26) consecutive weeks. For
the purposes of this Agreement, "disability" shall mean the incapacitation or
disablement by accident, sickness or otherwise so as to render Executive
mentally or physically incapable of performing the services required to be
performed by him under this Agreement. If, in the discretion of Employer,
Executive has recovered from a disability for which he was terminated and the
Employment Term has not expired, then Employer may, at its option, rehire
Executive on the terms of this Agreement for the period that ends with the
expiration of the Employment Term. If Executive declines such offer to rehire
him, he shall do so without any liability or obligation to Employer, except as
set forth in the next two (2) sentences. If Executive declines such offer to
rehire him, then, if such offer to rehire is extended on or prior to the third
(3rd) anniversary of the date of this Agreement, Executive will not engage in
any Competitive Activities for a period of one hundred and eighty (180) days
after such offer to rehire is extended or engage in any Client Solicitation or
Employee Solicitation for a period of eighteen (18) months after such offer to
rehire is extended. If Executive declines such offer to rehire him, then, if
such offer to rehire is extended after the third (3rd) anniversary of the date
of this Agreement, Executive will not engage in any Competitive Activities for
a period of ninety (90) days after such offer to rehire is extended or engage
in any
- 4 -
<PAGE>
Client Solicitation or Employee Solicitation for a period of one (1) year
after such offer to rehire is extended.
(b) Executive's employment hereunder may also
be terminated by Employer before the expiration of the Employee Term only for
Cause, as herein defined. "Cause" shall mean only one or more of the following
occurrences:
(i) Executive's conviction of a felony by
a court of competent jurisdiction (which conviction, through
lapse of time or otherwise, is not subject to appeal);
(ii) Executive's commission of an act of
fraud or embezzlement upon the Employer;
(iii) the material breach by Executive of
Section 4(b)(i) hereof; or
(iv) in the event of the wilful
malfeasance or gross negligence in the performance of
Executive's duties hereunder or the wilful failure of
Executive to perform his duties hereunder, which
malfeasance, negligence or failure has a material adverse
effect on the business of Employer and continues for a
period of fifteen (15) days after written notice is given to
Executive specifying such malfeasance, negligence or
failure.
(c) Executive may terminate his employment
hereunder only if:
(i) at two (2) consecutive annual meetings
of the stockholders of Employer, or in written consents in
lieu thereof, Executive fails to win election to the Board;
(ii) at two (2) consecutive annual
meetings of the stockholders of A&A, or in written consents
in lieu thereof, Executive fails to win election to the
Board of Directors of A&A;
(iii) Employer fails to pay Executive's
salary for a period of sixty (60) consecutive days; or
(iv) Employer materially breaches any
other covenant by Employer herein contained and such breach
continues for a period of fifteen (15) days following
written notice by Executive to Employer of such breach.
In the event of any termination by Executive of his
employment hereunder pursuant to this Section 7(c), all of Executive's
obligations to Employer set forth herein shall terminate; provided, however,
that Employer shall remain liable for all salary accrued hereunder up to the
date of such termination which shall be payable no later than thirty (30) days
after the date of such
- 5 -
<PAGE>
termination. The foregoing shall not be deemed to restrict Executive's rights
at law or in equity in the event of any breach of this Agreement by Employer.
8. NOTICES. All notices hereunder shall be in writing
and shall be delivered in person or given by registered or certified mail,
postage prepaid, and sent to the parties at the respective addresses above set
forth. Either party may designate any other address to which notice shall be
given by giving notice to the other of such change of address in the manner
herein provided.
9. SEVERABILITY OF PROVISIONS. If any provision of this
agreement shall be declared by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced in whole or in part, the
remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
10. GOVERNING LAW. This Agreement shall be construed
and governed by the internal laws of the State of Delaware.
11. NON-WAIVER. The failure of either party to insist
upon the strict performance of any term or condition in this Agreement shall
not be considered a waiver or relinquishment of future compliance therewith.
12. ATTORNEY'S FEES. In the event of a dispute arising
hereunder, each party shall bear its own fees and expenses (including legal
fees and expenses).
13. ENTIRE AGREEMENT; MODIFICATION. This Agreement
contains the entire agreement between the parties relating to the subject
matter hereof. No modification of this Agreement shall be valid unless it is
made in writing and signed by the parties hereto and, if such modification
takes effect within one (1) year from the date hereof, the other Shareholders
(as such term is defined in the Shareholders' Agreement) who are employed by
Employer as of the date of such modification.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
-------------------------------------
Robert M. Gutkowski
President and Chief Executive Officer
/s/ Louis J. Oppenheim
-------------------------------------
LOUIS J. OPPENHEIM
- 7 -
<PAGE>
AMENDMENT NO. 1 TO
ESCROW AGREEMENT
Reference is hereby made to that certain Agreement (the "Escrow
Agreement"), dated as of the 15th day of August, 1996, by and among
Continental Stock Transfer & Trust Company, a New York corporation
(hereinafter referred to as the "Escrow Agent"), The Marquee Group, Inc., a
Delaware corporation (the "Company"), and the individuals and entities listed
on Exhibit A to the Escrow Agreement (the "Stockholders"). The undersigned
each being a party to the Escrow Agreement and collectively being all of such
parties thereto, do hereby amend (the "Amendment") the Escrow Agreement as
follows:
By striking Section 4 thereof in its entirety and by substituting in
lieu of said Section the following new Section:
4. (a) The Escrow Shares are subject to release to the Stockholders to
the extent and only in the event the conditions set forth herein are met. The
Escrow Agent, upon notice to such effect from the Company as provided in
paragraph 5 hereof, shall deliver the Escrow Shares, together with stock
powers executed in blank, and the Escrow Property deposited in escrow with
respect to such Escrow Shares, to the respective Stockholders, only if, and to
the extent that, one of the following conditions is met:
(i) 425,000 Escrow Shares shall be released if, for the fiscal year
ending December 31, 1997, the Company's income before provision
for taxes ("Minimum Pretax Income") equals or exceeds $1,400,000;
(ii) 425,000 Escrow Shares (or, if the conditions set forth in (i)
above were not met, 850,000 Escrow Shares) shall be released if,
for the fiscal year
<PAGE>
ending December 31, 1998, the Minimum Pretax Income equals or
exceeds $2,400,000;
(iii) 425,000 Escrow Shares (or, if the conditions set forth in either
(i) or (ii) were not met, the remaining Escrow Shares) shall be
released if, for the fiscal year ending December 31, 1999, the
Minimum Pretax Income equals or exceeds $3,400,000;
(iv) All of the Escrow Shares shall be released if the Closing Price
(as defined herein) of the Common Stock shall average in excess of
$15.00 per share for any 20 consecutive trading days during the
period commencing 24 months after the Effective Date and ending
December 31, 1999; or
(v) All of the Escrow Shares shall be released if the Company is
acquired by or merged into another entity in a transaction in
which stockholders of the Company receive per share consideration
at least equal to the amount set forth in (iv) above.
(b) As used in this Section 4, the term "Closing Price" shall be
subject to adjustments in the event of any stock dividend,
stock distribution, stock split or other similar event and
shall mean:
(1) If the principal market for the Common Stock is a
national securities exchange or the Nasdaq National
Market, the closing sales price of the Common Stock as
reported by such exchange or market, or on a
consolidated tape reflecting transactions on such
exchange or market; or
(2) if the principal market for the Common Stock is not a
national securities exchange or the Nasdaq National
Market and the Common Stock is quoted on the Nasdaq
SmallCap Market, the closing bid price of the Common
Stock as quoted on the Nasdaq SmallCap Market; or
(3) if the principal market for the Common Stock is not a
national securities exchange or the Nasdaq National
Market and the Common Stock is not quoted on the
Nasdaq SmallCap Market, the closing bid for the Common
Stock as reported by the National Quotation Bureau,
Inc. ("NQB") or at least two market makers in the
Common Stock if quotations are not available from NQB
but are available from market makers.
2
<PAGE>
(c) The determination of Minimum Pretax Income shall be (i)
calculated exclusive of any extraordinary earnings or
charges (including any charges incurred in connection with
the release from escrow of the Escrow Shares and any Escrow
Property in respect thereof pursuant to the provisions of
this paragraph 4); (ii) derived solely from the businesses
owned and operated by the Company as of the closing date of
the Public Offering and upon consummation of the
Acquisitions and shall not give effect to any operations
relating to businesses or assets acquired after such date;
and (iii) audited by the Company's independent public
accountants.
(d) If the Escrow Agent has not received the notice provided for
in Paragraph 5 hereof and delivered all of the Escrow shares
and related Escrow Property in accordance with the
provisions of this Paragraph 4 on or prior to March 31,
2000, the Escrow Agent shall deliver the certificates
representing all or the remaining Escrow Shares, together
with stock powers executed in blank, and any related Escrow
Property to the Company to be placed in the Company's
treasury for cancellation thereof as a contribution to
capital. After such date, the Stockholders shall have no
further rights as a stockholder of the Company with respect
to any of the cancelled Escrow Shares.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Escrow Agreement to be executed by their duly authorized officers on
this day of October, 1996.
THE MARQUEE GROUP, INC.
By: /s/ Robert Gutkowski
-------------------------------
Robert M. Gutkowski, President
and Chief Executive Officer
Continental Stock Transfer & Trust Company
By: /s/ Steve Nelson
------------------------------
STOCKHOLDERS
The Sillerman Companies, Inc.
By: /s/ Robert F. X. Sillerman /s/ Louis J. Oppenheim
----------------------------- ------------------------------
Robert F. X. Sillerman Louis J. Oppenheim
/s/ Robert Gutkowski /s/ Michael Letis
----------------------------- -------------------------------
Robert M. Gutkowski Michael Letis
/s/ Arthur C. Kaminsky /s/ Michael Trager
----------------------------- -------------------------------
Arthur C. Kaminsky Michael Trager
4
<PAGE>
AMENDMENT NO. 2 TO
ESCROW AGREEMENT
Reference is hereby made to that certain Agreement dated as
of the 15th day of August, 1996 and amended by Amendment No. 1 thereto (the
"Escrow Agreement"), by and among Continental Stock Transfer & Trust Company,
a New York corporation (hereinafter referred to as the "Escrow Agent"), The
Marquee Group, Inc., a Delaware corporation (the "Company"), and the
individuals and entities listed on Exhibit A to the Escrow Agreement (the
"Stockholders"). The undersigned each being a party to the Escrow Agreement
and collectively being all of such parties thereto, do hereby amend
("Amendment No. 2") the Escrow Agreement as follows:
A. By striking Section 3 thereof in its entirety and by
substituting in lieu thereof the following new Section 3:
"3. During the Escrow Period, the Escrow Agent
shall receive all of the money, securities, rights or
property distributed in respect of the Escrow Shares then
held in escrow, including any such property distributed as
dividends or pursuant to any stock split, stock
distribution, merger, recapitalization, dissolution, or
total or partial liquidation of the Company provided
however, that with the exception of any securities of the
Company or any successor to the Company issued as a result
of any of the foregoing (which shall be held and distributed
as herein provided and hereinafter referred to collectively
as the "Escrow Property"), such property shall be delivered
to the Stockholders promptly upon the Escrow Agent's receipt
thereof."
B. By striking Section 4(c) of the Escrow Agreement in
its entirety and by substituting in lieu thereof the following Section 4(c):
"(c) The determination of Minimum Pretax Income
shall be (i) calculated exclusive of (x) any extraordinary
earnings or charges (including any charges incurred in
connection with the release from escrow of the Escrow Shares
and any Escrow Property in respect thereof pursuant to the
provisions of this paragraph 4) and (y) any interest expense
relating to the debentures issued by the Company in
connection with the Company's August 1996 private placement;
(ii) derived solely from the businesses owned and operated
by the Company as of the closing date of the Public Offering
and upon consummation of the
<PAGE>
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 MARQUEE GROUP, INC.
By: /s/ Robert Gutkowski
-------------------------------
Robert M. Gutkowski, President
And Chief Executive Officer
Continental Stock Transfer & Trust Company
By: /s/ Steve Nelson
-------------------------------
STOCKHOLDERS:
The Sillerman Companies, Inc.
By: /s/ Robert F.X. Sillerman
-------------------------------
Robert F.X. Sillerman
/s/ Robert Gutkowski
-------------------------------
Robert M. Gutkowski
/S/ Arthur C. Kaminsky
-------------------------------
Arthur C. Kaminsky
/S/ Louis J. Oppenheim
-------------------------------
Louis J. Oppenheim
/S/ Michael Letis
-------------------------------
Michael Letis
/S/ Michael Trager
-------------------------------
Michael Trager
- 2 -
<PAGE>
AMENDED AND RESTATED ACQUISITION AGREEMENT
AMENDED AND RESTATED ACQUISITION AGREEMENT, dated as of the
21st day of March, 1996, by and among The Marquee Group, Inc., a Delaware
corporation, having an office at 150 East 58th Street, New York, New York
10155 ("Marquee"); Athletes and Artists, Inc., a New York corporation, having
an office at 421 Seventh Avenue, Suite 1410, New York, New York 10001
("Athletes"); Arthur Kaminsky ("Kaminsky") and Louis J. Oppenheim
("Oppenheim"), individuals having an address at 421 Seventh Avenue, New York,
New York 10001 (Kaminsky and Oppenheim are collectively referred to herein as
the "Sellers" and individually as a "Seller"); Robert Gutkowski ("Gutkowski"),
an individual having an address at 152 West 57th Street, New York, New York
10019; and The Sillerman Companies, Inc. ("TSC"), a corporation having an
address at 150 East 58th Street, New York, New York 10155.
WHEREAS, Marquee and Athletes have entered into a letter
agreement dated December 7, 1995 (the "Letter Agreement"), whereby Marquee has
agreed to acquire Athletes, and Athletes has agreed to be acquired by Marquee,
on the terms and conditions hereinafter set forth;
WHEREAS, the boards of directors and stockholders of Marquee
and Athletes each have adopted resolutions declaring advisable the acquisition
of Athletes by Marquee on the terms and conditions hereinafter set forth,
whereby the outstanding Common Stock of Athletes will be converted into Common
Stock of Marquee and cash in a transaction which, when considered with other
related transactions occurring on or about the same time, is intended to
qualify as a tax-free exchange to the extent of the receipt of stock of
Marquee under Section 351 of the United States Internal Revenue Code of 1986,
as amended (the "Code"); and
WHEREAS, the parties hereto have previously entered into an
Amended and Restated Acquisition Agreement, dated as of March 21, 1996, and
such parties deem it to be in their respective best interests to amend and
restate certain provisions in such agreement and, to that end, the parties
hereby amend and restate such agreement.
NOW, THEREFORE, the parties to this Agreement agree as
follows:
SECTION 1 -- MERGER
1.1 Agreement to Merger. Subject to the terms and conditions
herein set forth, Athletes and Marquee agree to effect a merger (the "Merger")
of a wholly-owned subsidiary of Marquee to be formed for the purpose of
effecting the Merger (the "Subsidiary") with and into Athletes, with Athletes
as the surviving corporation, in accordance with the Agreement and Plan of
Merger attached hereto as Exhibit A (the "Merger Agreement").
<PAGE>
1.2 Purchase Price. The aggregate purchase price for all of
the issued and outstanding shares of capital stock of Athletes shall be
$3,500,000, which shall be payable in accordance with the provisions set forth
in Section 10.3 hereof, and that number of shares of the Common Stock, par
value $.01 per share (the "Common Stock"), of Marquee as is equal to
three-thirteenths (3/13) of the total number of shares of Common Stock of
Marquee held by (i) the shareholders of Athletes, (ii) the shareholders of
SMTI (as defined in Section 4.3 hereof), (iii) Gutkowski and (iv) TSC in the
aggregate (collectively, the "Management Stock") immediately after the Closing
Date (as defined in Section 10.1 hereof). If necessary, on or prior to the
Closing Date, Marquee will make whatever adjustments in its issued and
outstanding shares of Common Stock as are required so that, immediately after
the Closing Date, the shareholders of Athletes will own, in the aggregate,
that number of shares of Common Stock of Marquee equal to three-thirteenths
(3/13) of the total number of shares of Management Stock.
1.3 Marquee Common Stock. Marquee will make available to
Subsidiary a sufficient number of shares of Common Stock of Marquee and a
sufficient amount of cash in order to effect the Merger pursuant to the Merger
Agreement.
1.4 Per Share Purchase Price. The number of shares of Common
Stock of Marquee to be received for each issued and outstanding share of
capital stock of Athletes, as set forth in Section 2.2 of the Merger
Agreement, shall be calculated on or prior to the Closing Date.
SECTION 2 -- CONVERSION OF STOCK OF ATHLETES
2.1 Conversion of Shares. The manner of converting the
shares of Athletes into shares of Common Stock of Marquee and cash shall be as
set forth in Section 2 of the Merger Agreement.
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND ATHLETES
The Sellers and Athletes jointly and severally represent and
warrant to Marquee that:
3.1 Organization and Good Standing. Athletes is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of New York and has corporate power to own its property and
to carry on its business as it is now being conducted. Copies of Athletes'
Certificate of Incorporation and Bylaws (certified to be correct by the
Secretary of Athletes) have been delivered to Marquee and are complete and
correct as at the date hereof. Athletes' minute books contain a complete and
accurate record of all meetings and other corporate action of its shareholders
and board of directors.
3.2 Capitalization. Athletes' authorized capital stock
consists of 20,000 shares of Common Stock, par value $1.00 per share, 15 of
which are issued and outstanding. No shares are held in Athletes' treasury.
All of the outstanding shares of Common Stock of Athletes are validly issued,
fully paid, and nonassessable. There are no outstanding options, agreements,
contracts, calls,
2
<PAGE>
or commitments of any character which would require the issuance by Athletes
of any capital stock. All of the issued and outstanding Common Stock of
Athletes are owned by Kaminsky and Oppenheim, free and clear of any liens,
claims or encumbrances of any nature. Their ownership of shares of Common
Stock of Athletes is as set forth below:
NAME NO. OF SHARES
---- -------------
Arthur Kaminsky 10
Louis J. Oppenheim 5
3.3 Subsidiaries. Athletes has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association or
other business entity.
3.4 Financial Statements. Athletes has delivered to Marquee
copies of the following financial statements, all of which have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods indicated:
(1) 1995 Financial Statements. Balance sheet
of Athletes as of December 31, 1995 (the "Athletes Balance Sheet"), together
with the related statement of operations, which present fairly as of their
date the financial condition of Athletes and its results of operations for the
period indicated and which are unaudited. The parties hereto acknowledge their
understanding that the retained earnings, if any, of Athletes have been paid
out as compensation prior to the date hereof.
(2) 1993 and 1994 Financial Statements. Balance
sheet of Athletes as of December 31, 1993 and 1994, together with the related
statements of operations, which present fairly as of their date the financial
condition of Athletes and its results of operations for the periods indicated
and which have been audited by independent certified public accountants.
3.5 Absence of Undisclosed Liabilities. Athletes did not
have at the date of the Athletes Balance Sheet any liabilities or obligations,
secured or unsecured (whether accrued, absolute, contingent, or otherwise), of
a nature that would be reflected or reserved against in a corporate balance
sheet or disclosed in the notes thereto prepared in accordance with generally
accepted accounting principles that are not reflected or reserved against in
the Athletes Balance Sheet or disclosed in the notes thereto.
3.6 Absence of Certain Changes. There have not been since
the date of the Athletes Balance Sheet any changes of the following nature:
(1) Business, properties and financial
condition. Any material adverse change in Athletes' properties, business,
financial condition, or results of operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Athletes; any granting of any stock option or right
3
<PAGE>
to purchase shares of capital stock or any issuance of any security
convertible into shares of capital stock of Athletes; any purchase,
redemption, retirement, or other acquisition of any shares of capital stock by
Athletes; any agreement to do any of the foregoing; or any declaration,
setting aside, or payment of any dividend or other distribution in respect of
the capital stock of Athletes.
(3) Sales, leases, borrowings and so forth. Any
sale or lease of Athletes' property or assets with an original cost in excess
of $10,000 for any single item or any mortgage or pledge of any properties or
assets of Athletes, or any borrowing incurred, assumed, or guaranteed by
Athletes.
(4) Employee benefit plans and certain
salaries. Any employment contract in excess of $50,000 per year, bonus, stock
option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefits or similar arrangement or plan instituted,
agreed to, or amended, nor any contributions or other payments made (nor
contribution or other obligations incurred) with respect to existing
arrangements and plans of the aforementioned types, except in accordance with
past practices (and no such plans have any unfunded liability).
3.7 Litigation and so forth. Except as set forth on Schedule
13 described in Section 3.8(13) hereof, there is no litigation, proceeding, or
governmental investigation pending or, to the knowledge of Athletes,
threatened against or relating to Athletes, its properties or business or the
transactions contemplated by this Agreement; nor, to the knowledge of
Athletes, is there any reasonable basis for any such actions or for any
claims; and Athletes is not a party to or subject to the provisions of any
judicial decree or judgment or any order of any governmental agency.
3.8 Lists of properties, contracts and so forth. Athletes
has delivered to Marquee lists or summary descriptions (certified as correct
to the best of their knowledge by authorized officers of Athletes), each of
which is complete and accurate in all material respects as of the date hereof,
of the following:
(1) Real property. All real property owned of
record or beneficially or leased by Athletes ("Schedule 1"), accompanied by
copies of the deeds, title insurance policies, and leases relating thereto.
(2) Other property. Inventories and tangible
fixed assets, as shown on Athletes' books, showing, with respect to
inventories, the amounts of raw materials, work-in-process, and finished
goods, and with respect to fixed assets, the total of each of the following
categories: leasehold improvements, machinery and equipment, furniture and
fixtures, and automotive equipment ("Schedule 2").
(3) Insurance policies. All policies of
insurance with respect to Athletes' properties, buildings, machinery,
equipment, furniture, fixtures, operations, and the lives of its directors,
officers, and employees ("Schedule 3").
4
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(4) Certain leases and contracts. Each
existing lease, contract, or other commitment of Athletes involving an
aggregate payment by Athletes of more than $25,000 or to Athletes of more than
$50,000 other than leases, contracts, or commitments furnished pursuant to
other paragraphs of this Section 3.8 ("Schedule 4").
(5) Certain salaried employees. The names and
1995 annual compensation of Athletes' directors, officers, employees, and
agents whose annual rate of compensation for 1995 was $50,000 or more
("Schedule 5").
(6) Labor contracts. Each existing labor
contract to which Athletes is a party ("Schedule 6").
(7) Intellectual property. All of Athletes'
patents, trademarks, trade names, service marks, service names, copyrights,
and registrations and applications therefor; and all patent, trademark, trade
name, service mark, service name, or copyright licenses, assignments, or
royalty agreements to which Athletes is a party ("Schedule 7").
(8) Profit sharing plans and so forth. All
employment contracts, bonus, stock option, profit sharing, pension,
retirement, incentive, medical, health, disability or other employee benefit
plans or arrangements of Athletes ("Schedule 8").
(9) Banks. The name of each bank in which
Athletes has an account or safe deposit box, and the names of all persons
authorized to draw thereon or having access thereto ("Schedule 9").
(10) Powers of attorney. The names of all
persons, if any, holding powers of attorney from Athletes ("Schedule 10").
(11) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar instruments to which Athletes is a party, and all
amendments or modifications of any thereof ("Schedule 11"), with a statement
of any as to which there is any existing default by Athletes.
(12) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Athletes and, with respect to each, the date of grant or issue, the expiration
date, the number and class of shares subject thereto, and the purchase price
("Schedule 12").
(13) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Athletes is a party (whether as plaintiff,
defendant, or otherwise), including the damages or relief sought therein, the
name of counsel for Athletes in charge of such matter, and its current status
("Schedule 13").
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(14) Material assets. A list of every material
asset used by Athletes in the conduct of its business that is not either owned
by Athletes or leased by or licensed to it under an agreement listed on
Schedules 1 through 13 ("Schedule 14").
(15) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Marquee
pursuant to this Section 3.8) that Athletes would be required to file or
describe in a Registration Statement on Form S-1 filed by Athletes under the
Securities Act of 1933 Act, as amended ("Schedule 15").
3.9 Title. With respect to the property listed in Schedules
1 and 2, Athletes has good and marketable title to the real property stated to
be owned by it, has good title to the leasehold interests in real property
stated to be held by it, and good title to all of the tangible property stated
to be owned by it, in each case free and clear of all liens and encumbrances,
except for (1) liens and encumbrances disclosed in Schedules 1 and 2; (2) the
lien of current taxes not yet due and payable; and (3) such liens by operation
of law and such imperfections of title, and other liens and encumbrances, if
any, as are not substantial in character, amount, or extent and do not
interfere with the present or future use by Athletes of the properties subject
thereto or affected thereby.
Athletes has received no notice of violation of any
applicable zoning regulation, ordinance, or other law, order, regulation, or
requirement relating to its operations or its properties and, so far as is
known to Athletes (1) there is no such violation of a material nature and (2)
all buildings and structures used by Athletes substantially conform with all
applicable ordinances, codes, and regulations.
Except as stated in Schedule 7, Athletes (1) has clear
record title to the patents, trademarks, trade names, service marks, service
names, and copyrights, and registrations and applications therefor, and
copyright registrations listed in Schedule 7 as owned by it; (2) has not
entered into any agreements, contracts, or licenses that would impair free and
unencumbered use by Marquee of the patents, trademarks, trade names, service
marks, service names, or copyrights enumerated in Schedule 7; (3) does not
know of any asserted infringement by it of any patent, trademark, trade name,
service mark, service name, or copyright of another; and (4) does not believe
that it is infringing a patent, trademark, trade name, service mark, service
name, or copyright of another.
3.10 Tax Returns. Except for liabilities with respect to
taxes and interest thereon, to which reference is made in notes to the
Athletes Balance Sheet, the provision for taxes therein is sufficient for the
payment of all accrued and unpaid federal, state, county, and local taxes of
Athletes (including any penalties or interest payable in respect of such
taxes), whether or not disputed, for the period ended December 31, 1995, and
for all fiscal years prior thereto.
3.11 No Violation. The execution of this Agreement and the
Merger Agreement does not, and performance hereof and thereof will not,
violate the provisions of Athletes' Certificate of Incorporation, Bylaws, or
any indenture, agreement, or other instrument to which Athletes is a
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party, except insofar as any such instrument may require consent by a lender,
mortgagee, lessor, or other party to such actions, whose consent Athletes
agrees to obtain before the Closing Date.
3.12 Authorization. The execution, delivery, and performance
of this Agreement and the Merger Agreement have been duly authorized and
approved by Athletes' board of directors and by all of Athletes' shareholders;
this Agreement and the Merger Agreement and the consummation of the
transactions contemplated herein and therein have been duly and validly
authorized by all necessary corporate action on the part of Athletes; and this
Agreement is, and (upon execution and delivery as provided herein) the Merger
Agreement will be, binding upon and enforceable against Athletes in accordance
with their respective terms.
3.13 General. None of the representations or warranties made
by the Sellers or Athletes in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 4 -- REPRESENTATIONS, WARRANTIES, COVENANTS, AND
AGREEMENTS OF GUTKOWSKI, TSC AND MARQUEE
Gutkowski, TSC and Marquee jointly and severally represent
and warrant to, and covenant and agree with, Athletes and the Sellers that:
4.1 Organization and Good Standing. Marquee is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power to own its property and to carry on
its business as it is now being conducted. At the Closing Date Subsidiary will
be a corporation duly organized, validly existing and in good standing under
the laws of the State of New York and have corporate power to own its property
and to carry on its business as it is then being conducted. Copies of
Marquee's Certificate of Incorporation and Bylaws (certified to be correct by
the Secretary of Marquee) have been delivered to Athletes and are complete and
correct as of the date hereof. Marquee's minute books contain a complete and
accurate record of all meetings and other corporate action of its shareholders
and board of directors. On or prior to the Closing Date Marquee will deliver
to Athletes copies of Subsidiary's Certificate of Incorporation and Bylaws
(certified to be correct by an officer of Subsidiary), which shall be complete
and correct as of the date of such delivery. On the Closing Date Subsidiary's
minute books will contain a complete and accurate record of all meetings and
other corporate action of its shareholders and board of directors.
4.2 Capitalization. Marquee's authorized capital stock
consists of 1,000 shares of Common Stock, par value $.01 per share, all of
which are issued and outstanding. No shares are held in Marquee's treasury.
All of the outstanding shares of Common Stock of Marquee are validly issued,
fully paid, and nonassessable. All of the shares of capital stock of
Subsidiary to be issued will be validly issued, fully paid and nonassessable.
Other than Marquee's pending agreements regarding a private placement as
described in Marquee's Confidential Term Sheet dated July 30, 1996, and its
initial public offering, there are no outstanding options, agreements,
contracts, calls,
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or commitments of any character which would require the issuance by Marquee or
Subsidiary of any capital stock (it being understood that Marquee may, prior
to the Closing Date, issue stock, options or warrants to key employees of or
advisors to Marquee (other than Gutkowski, TSC or any of their affiliates)).
All of the issued and outstanding Common Stock of Marquee is owned by
Gutkowski, TSC and Martin Ehrlich. Their ownership of shares of Common Stock
of Marquee is as set forth below:
Name No. of Shares
---- -------------
Robert Gutkowski 333
The Sillerman Companies, Inc. 666
Martin Ehrlich 1
All of Subsidiary's outstanding shares of Common Stock will be owned by
Marquee.
4.3 Subsidiaries. Marquee has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association, or
other business entity (it being understood that prior to the Closing Date
Marquee (a) will form and own two wholly-owned subsidiaries, Subsidiary and a
wholly-owned subsidiary to be formed for the purpose of effecting the
acquisition of Sports Marketing & Television International, Inc., a
Connecticut corporation ("SMTI"), by Marquee by the merger of such subsidiary
with and into SMTI, and (b) may acquire all of the outstanding capital stock
of The Marquee Group, a Sports, News and Entertainment Company, Inc., a New
York corporation ("Marquee NY") for a purchase price not to exceed $1,000).
Subsidiary will not have any subsidiaries, nor will it have an ownership
interest in any partnership, corporation, association, or other business
entity. Marquee NY does not have any subsidiaries, nor does it have any
ownership interest in any partnership, corporation, association, or other
business entity.
4.4 Financial Statements. Marquee has delivered to Athletes
a copy of an unaudited operating income statement of Marquee as of December
31, 1995 (the "Marquee Balance Sheet") and an unaudited operating income
statement of Marquee NY as of December 31, 1995 (the "Marquee NY Balance
Sheet"), together with the related balance sheet, which present fairly as of
their date the financial condition of Marquee and Marquee NY and their results
of operations for the periods indicated. On or prior to the Closing Date
Marquee will deliver to Athletes a copy of a balance sheet of Subsidiary as of
a date no more than ninety (90) days prior thereto (the "Subsidiary Balance
Sheet"), together with the related statement of operations, which shall
present fairly as of their date the financial condition of Subsidiary and its
results of operations for the period indicated.
4.5 Absence of Undisclosed Liabilities. Marquee did not have
at the date of the Marquee Balance Sheet, Marquee NY did not have at the date
of the Marquee NY Balance Sheet, and Subsidiary will not have at the date of
the Subsidiary Balance Sheet, any liabilities or
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obligations, secured or unsecured (whether accrued, absolute, contingent, or
otherwise), of a nature that would be reflected or reserved against in a
corporate balance sheet or disclosed in the notes thereto prepared in
accordance with generally accepted accounting principles that are not
reflected or reserved against in such balance sheets or disclosed in the notes
thereto.
4.6 Absence of Certain Changes. There have not been since
the date of the Marquee Balance Sheet and the Marquee NY Balance Sheet, and at
the Closing Date there will not have been since the date of the Subsidiary
Balance Sheet, any changes of the following nature:
(1) Business, properties and financial
condition. Any material adverse change in Marquee's, Marquee NY's or
Subsidiary's properties, business, financial condition, or results of
operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Marquee, Marquee NY or Subsidiary; any granting of any stock option or right
to purchase shares of capital stock or any issuance of any security
convertible into shares of capital stock by Marquee, Marquee NY or Subsidiary
(except as contemplated by Section 4.6(4) hereof and as described on Schedule
A (as defined in Section 4.8(1) hereof)); any purchase, redemption,
retirement, or other acquisition of any shares of capital stock by Marquee,
Marquee NY or Subsidiary; other than Marquee's agreements regarding a private
placement as described in Marquee's Confidential Term Sheet dated July 30,
1996, and its initial public offering, any agreement to do any of the
foregoing; or any declaration, setting aside, of payment of any dividend or
other distribution in respect of the capital stock of Marquee, Marquee NY or
Subsidiary.
(3) Sales, leases, borrowings and so forth.
Any sale or lease of Marquee or Subsidiary's property or assets with an
original cost in excess of $10,000 for any single item or any mortgage or
pledge of any properties or assets of Marquee or Subsidiary, or any borrowing
incurred, assumed, or guaranteed by Marquee or Subsidiary.
(4) Employee benefit plans and certain
salaries. Except for Marquee's employment agreement, dated March 21, 1996,
with Gutkowski and Marquee's employment agreement, dated May 9, 1996, with
Martin Ehrlich, any employment contract in excess of $50,000 per year, bonus,
stock option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefit or similar arrangement or plan instituted,
agreed to, or amended (it being understood that Marquee may, prior to the
Closing Date, (a) issue stock, options or warrants to key employees of or
advisors to Marquee (other than Gutkowski, TSC or any of their affiliates) and
(b) to the extent it has not already done so obtain medical and dental
insurance of the type required by Section 6 of the employment agreements
contemplated by Section 8.6 and 9.6 hereof); nor any contributions or other
payments made (nor contributions or other obligations incurred) with respect
to existing arrangements and plans of the aforementioned types, except in
accordance with past practices (and no such plans have any unfunded
liability).
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4.7 Litigation and so forth. There is no litigation,
proceeding, or governmental investigation pending or, to the knowledge of
Marquee, threatened against or relating to Marquee or Marquee NY or any of
their properties or businesses or the transactions contemplated by this
Agreement; nor, to the knowledge of Marquee, is there any reasonable basis for
such actions or for any claims; and neither Marquee nor Marquee NY is a party
to or subject to the provisions of any judicial decree or judgment or any
order of any governmental agency.
4.8 List of Properties, Contracts and So Forth. Marquee has
delivered to Athletes lists or summary descriptions with respect to Marquee
and Marquee NY, and on or prior to the Closing Date Marquee will deliver to
Athletes lists or summary descriptions with respect to Subsidiary (in each
case certified as correct to the best of their knowledge by authorized
officers of the relevant entity), each of which is or will be complete and
correct in all material respects as of the date set out therein, of the
following:
(1) Certain leases and contracts. Each lease,
contract or other commitment of Marquee, Marquee NY or Subsidiary involving an
aggregate payment by any of them of more than $25,000 or to any of them of
more than $50,000 or extending beyond twelve (12) .months from the date of
delivery of such lists or summary descriptions (whether or not terminable at
the option of any party at an earlier date) other than leases, contracts, or
commitments furnished pursuant to other paragraphs of this Section 4.8
("Schedule A").
(2) Certain salaried employees. The names and
annual salary rates as of the date of this Agreement of Marquee's, Marquee
NY's and Subsidiary's directors, officers, employees, and agents whose annual
rate of compensation at such date was $50,000 or more ("Schedule B").
(3) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar agreements to which Marquee, Marquee NY or Subsidiary
is a party, and all amendments or modifications of any thereof ("Schedule C"),
with a statement of any as to which there is any existing default by Marquee,
Marquee NY or Subsidiary.
(4) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Marquee, Marquee or Subsidiary and, with respect to each, the date of grant or
issue, the expiration date, the number and class of shares subject thereto,
and the purchase price ("Schedule D").
(5) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Marquee, Marquee NY or Subsidiary is a
party (whether as plaintiff, defendant or otherwise), including the damages or
relief sought therein, the name of counsel for Marquee, Marquee NY or
Subsidiary in charge of such matter, and its current status ("Schedule E").
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(6) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Athletes
pursuant to this Section 4.8) that Marquee, Marquee NY or Subsidiary would be
required to file or describe in a Registration Statement on Form S-1 filed by
Marquee or Subsidiary under the Securities Act of 1933, as amended ("Schedule
F").
4.9 Tax Returns. Marquee and Marquee NY have, and prior to
the Closing Date Subsidiary will have, timely filed all tax returns required
to be filed by them and paid all taxes required to be paid for all fiscal
periods prior hereto (in the case of Marquee or Marquee NY) or prior to the
Closing Date (in the case of Subsidiary).
4.10 No Violation. Marquee's execution of this Agreement
does not and Subsidiary's execution of the Merger Agreement will not, and the
performance hereof and thereof will not, violate the provisions of Marquee's
or Subsidiary's Certificate of Incorporation, Bylaws or any indenture,
agreement, or other instrument to which Marquee is or Subsidiary will be a
party, except insofar as any such instrument may require consent by a lender,
mortgagee, lessor, or other party to such actions, whose consent Marquee or
Subsidiary agree to obtain before the Closing Date.
4.11 Authorization. The execution, delivery, and performance
of this Agreement have been duly authorized and approved by Marquee's board of
directors and by all of its shareholders and the Merger Agreement will be
approved by Subsidiary's board of directors and all of its shareholders; this
Agreement and the consummation of the transactions contemplated herein have
been duly and validly authorized by all necessary corporate action on the part
of Marquee; the Merger Agreement and the consummation of the transactions
contemplated therein will be duly and validly authorized by all necessary
corporate action on the part of Subsidiary; and this Agreement is, and, with
respect to Subsidiary, the Merger Agreement (upon execution and delivery as
provided herein) will be, binding upon and enforceable against Marquee or
Subsidiary, as the case may be, in accordance with their terms.
4.12 General. None of the representations or warranties made
by Marquee, Gutkowski or TSC in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 5 -- [INTENTIONALLY LEFT BLANK]
SECTION 6 -- CONDUCT OF ATHLETES PENDING THE CLOSING DATE
The Sellers and Athletes covenant and agree that between the
date of this Agreement and the Closing Date:
6.1 Certificate of Incorporation and Bylaws. Athletes will
not change its Certificate of Incorporation or Bylaws.
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6.2 Capitalization and so forth. Athletes will not make any
change in its authorized, issued, or outstanding capital stock; grant any
stock option or right to purchase shares of its capital stock; issue any
security convertible into shares of its capital stock; purchase, redeem,
retire, or otherwise acquire any shares of its capital stock; or agree to do
any of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
6.3 Business in Ordinary Course. Athletes will conduct its
business in its customary course and will (1) use its reasonable efforts to
preserve its business organization intact, to keep available to Marquee the
services of its present officers and employees, and to preserve the goodwill
of suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; (3) keep in force at
no less than their present limit all policies of insurance listed in Schedule
3; and (4) make no material change in the customary terms and conditions on
which it extends credit to customers; provided, however, that nothing in this
Section 6.3 shall prohibit compliance by Athletes with, or Athletes' borrowing
or repayment of funds pursuant to, any agreements or other commitments
disclosed by Athletes to Marquee on any Schedule furnished in accordance with
Section 3.8 hereof.
6.4 Employee Compensation. Athletes will pay Kaminsky a
salary at the rate of $300,000 per year and Oppenheim a salary at the rate of
$175,000 per year, plus any amounts distributable pursuant to Section 6.9
hereof. Other than the possible renewal of Michael Glantz's employment
agreement on terms reasonably acceptable to Marquee, Athletes will not
institute, agree to, or amend any employment contract requiring the payment by
Athletes of a salary or bonus in excess of $50,000 per year, or any bonus,
stock option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefit or similar arrangement or plan, except to
grant normal individual increases in compensation in accordance with
established agreements or procedures and except as may be necessary to comply
with Section 6.8 hereof.
6.5 Banking Arrangements; Powers of Attorney. Athletes will
not make any change in its banking and safe deposit arrangements and will not
grant any powers of attorney.
6.6 Accounting Practices. Except as required by generally
accepted accounting principles, Athletes will not make any changes in its
accounting methods or practices.
6.7 Merger. Athletes will not merge or consolidate with any
other corporation; sell or lease all or substantially all of its assets and
business; acquire all or substantially all of the stock of the business or
assets of any other person, corporation, or business organization; or agree to
do any of the foregoing.
6.8 Termination of Employee Benefit Plans. At Marquee's
option and on such date or dates (but in no event earlier than two (2)
business days prior to the Closing Date) and in such manner as Marquee shall
direct, Athletes will terminate some or all bonus, stock option, profit
sharing, pension, retirement, incentive, medical, health, disability and other
employee benefit plans
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or arrangements it maintains or sponsors or to which it is obligated to
contribute, including, without limitation, the Athletes and Artists Profit
Sharing Plan. Any such termination will be made in accordance with all
applicable laws, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as
amended.
6.9 Prosecution of Lawsuits. Athletes shall use reasonable
efforts to prosecute to a successful conclusion all of the lawsuits listed on
Schedule 13. Notwithstanding anything else herein contained, prior to the
Closing Date Kaminsky and Oppenheim may withdraw from Athletes, as a dividend
or salary or otherwise, an aggregate of up to $100,000 of the amounts
recovered by Athletes from the lawsuits listed on Schedule 13. In the event
that Kaminsky and Oppenheim have not withdrawn the sum of $100,000 from
Athletes prior to the Closing Date as provided above, then Kaminsky and
Oppenheim shall be entitled to withdraw from Athletes as salary the amounts
recovered from said lawsuits after the Closing Date, as received by Athletes,
until Kaminsky and Oppenheim have so withdrawn prior to and after Closing Date
the aggregate sum of $100,000.
6.10 Delivery of Certain Documents. Within sixty (60) days
of the date hereof, Athletes will deliver to Marquee a balance sheet of
Athletes as of December 31, 1995, together with the related statement of
operations, which shall present fairly the financial condition of Athletes and
its results of operations for the period indicated and which shall be audited
by independent certified public accountants. Within fourteen (14) days of the
date hereof, Athletes will deliver a list or summary description (certified as
correct to the best of their knowledge by authorized officers of Athletes),
which shall be complete and accurate in all material respects as of the date
thereof, of each existing lease, contract, or other commitment of Athletes
extending beyond twelve (12) months, from the date hereof (whether or not
terminable at the option of any party thereto at an earlier date) other than
leases, contracts or commitments furnished pursuant to Section 3.8 hereof.
SECTION 6A -- CONDUCT OF MARQUEE PENDING THE CLOSING DATE
Gutkowski, TSC and Marquee covenant and agree that between
the date of this Agreement and the Closing Date:
6A.1 Capitalization and so forth. Marquee will not purchase,
redeem, retire, or otherwise acquire any shares of its capital stock; issue to
Gutkowski or TSC or any of their affiliates any shares of its capital stock or
any option or right to purchase shares of its capital stock; or agree to do
any of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
6A.2 Business in Ordinary Course. Marquee will conduct its
business in its customary course (it being understood that, notwithstanding
anything else herein contained, Marquee may discharge the liabilities listed
on the Marquee NY Balance Sheet) and will (1) use its reasonable efforts to
preserve its business organization intact and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; and
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(3) make no material change in the customary terms and conditions on which it
extends credit to customers; provided, however, that nothing in this Section
6A.2 shall prohibit compliance by Marquee with, or Marquee's borrowing or
repayment of funds pursuant to, any agreements or other commitments disclosed
by Marquee to Athletes on any Schedule furnished in accordance with Section
4.8 hereof.
6A.3 Employee Compensation. Marquee will pay Gutkowski a
salary at the rate of $325,000 per year. Marquee will not amend or agree to
amend any employment contract, or any proposed employment contract, with
Gutkowski, Michael Trager ("Trager") or Michael Letis ("Letis").
6A.4 Banking Arrangements; Powers of Attorney. Marquee will
not make any change in its banking and safe deposit arrangements and will not
grant any powers of attorney.
6A.5 Accounting Practices. Except as required by generally
accepted accounting principles, Marquee will not make any changes in its
accounting methods or practices.
6A.6 Merger. Except as contemplated by this Agreement,
Marquee will not merge or consolidate with any other corporation; sell or
lease all or substantially all of its assets and business; acquire all or
substantially all of the stock of the business or assets of any other person,
corporation, or business organization; or agree to do any of the foregoing.
SECTION 7 -- ACCESS
From the date hereof to the Closing Date, Marquee and
Athletes shall provide each other with such information and permit each
other's officers and representatives such access to its properties and books
and records as the other may from time to time reasonably request. If the
transactions contemplated by this Agreement and the Merger Agreement are not
consummated, all documents furnished in connection with this Agreement shall
be returned to the party furnishing the same, and all information so received
shall be treated as confidential.
SECTION 8 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF MARQUEE
The obligation of Marquee to consummate the Merger and to
cause Subsidiary to consummate the Merger shall be subject to the fulfillment
on or before the Closing Date of each of the following conditions, unless
waived in writing by Marquee:
8.1 Representations and Warranties. The representations and
warranties of Athletes and the Sellers set forth in Section 3 hereof shall be
true and correct at the Closing Date as if made at and as of that date, except
as affected by the transactions contemplated hereby.
8.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of Athletes.
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8.3 Covenants. Athletes and the Sellers shall have performed
all covenants and agreements set forth in Sections 6 and 7 hereof to be
performed by them on or before the Closing Date.
8.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 (the "Financing") by December 31, 1996.
8.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
8.6 Employment Agreements. On the Closing Date, Kaminsky and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Oppenheim and Marquee shall execute an
employment agreement in the form attached hereto as Exhibit D.
8.7 Legal Opinion. On or before the Closing Date, Marquee
and Subsidiary shall have received an opinion of Baker & McKenzie that the
Merger should be considered a tax-free exchange to the extent of the receipt
of Marquee stock under Section 351 of the Code.
8.8 Certificate. On the Closing Date, Athletes and the
Sellers shall deliver a certificate to Marquee and Subsidiary, in form and
substance reasonably acceptable to Marquee and Subsidiary, to the effect that
all of the representations and warranties of Athletes and the Sellers set
forth in Section 3 hereof are true and correct at the Closing Date as if made
at and as of that date, except as affected by the transactions contemplated
hereby, and that all of the covenants and agreements of Athletes and the
Sellers set forth in Section 6 hereof have been performed.
SECTION 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF ATHLETES
The obligation of Athletes to consummate the Merger shall be
subject to the fulfillment on or before the Closing Date of each of the
following conditions, unless waived in writing by Athletes:
9.1 Representations and Warranties. The representations and
warranties of Gutkowski, TSC and Marquee set forth in Section 4 hereof shall
be true and correct at the Closing Date as if made at and as of that date,
except as affected by the transactions contemplated hereby.
9.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of Marquee and Subsidiary.
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9.3 Covenants. Marquee, Gutkowski, and TSC shall have
performed all covenants and agreements set forth in Sections 4, 6A and 7
hereof to be performed by them on or before the Closing Date.
9.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 by December 31, 1996.
9.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
9.6 Employment Agreements. On the Closing Date, Kaminsky and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Oppenheim and Marquee shall execute an
employment agreement in the form attached hereto as Exhibit D.
9.7 Legal Opinion. On or before the Closing Date, Athletes
shall have received an opinion of Baker & McKenzie, in form and substance
reasonably acceptable to Athletes, that the Merger should be considered a
tax-free exchange to the extent of the receipt of stock of Marquee under
Section 351 of the Code.
9.8 Certificate. On the Closing Date, Marquee, Gutkowski and
TSC shall deliver a certificate to Athletes and the Sellers, in form and
substance reasonably acceptable to Athletes and the Sellers, to the effect
that all of the representations and warranties of Marquee, Gutkowski and TSC
set forth in Section 4 hereof are true and correct at the Closing Date as if
made at and as of that date, except as affected by the transactions
contemplated hereby, and that all of the covenants and agreements of Marquee,
Gutkowski and TSC set forth in Sections 4 and 6A hereof have been performed.
SECTION 10 -- CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
10.1 Closing Date. The closing date of the transactions
contemplated by this Agreement (the "Closing Date") shall be the date of
consummation of the Financing.
10.2 Effective Date. On the Closing Date, an executed
counterpart of the Merger Agreement shall be filed with the Secretary of State
of the State of New York and the Merger shall become effective upon the
completion of such filing. The date of completion of such filing shall be the
"Effective Date."
10.3 Payment of Purchase Price. On the Closing Date, Marquee
shall pay to the Sellers an aggregate amount equal to $2,500,000 and on each
April 1 following the Closing Date,
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until and including April 1, 2001, Marquee shall pay $150,000 to Kaminsky and
$50,000 to Oppenheim.
SECTION 11 -- TERMINATION
11.1 Circumstances of Termination. This Agreement may be
terminated (notwithstanding approval by the shareholders of any party hereto):
(1) By the mutual consent in writing of the boards of
directors of Marquee and Athletes.
(2) By the board of directors of Marquee if any condition
provided in Section 8 hereof has not been satisfied or waived on or before the
Closing Date.
(3) By the board of directors of Athletes if any condition
provided in Section 9 hereof has not been satisfied or waived on or before the
Closing Date.
(4) By the board of directors of either Marquee or Athletes
if the Closing Date has not occurred by December 31, 1996, unless the closing
of the transactions contemplated hereby shall not have occurred by such date
due to the action or failure to act of such party.
(5) By the board of directors of either Marquee or Athletes
if that certain Acquisition Agreement, dated March 21, 1996, by and among
Marquee, SMTI, Trager, Letis, Gutkowski and TSC is terminated or the merger
contemplated thereby does not occur simultaneously with the Merger.
11.2 Effect of Termination. In the event of a termination of
this Agreement pursuant to Section 11.1 hereof, each party shall pay the costs
and expenses incurred by it in connection with this Agreement and, except only
as provided in the following sentence with respect to Athletes and Marquee, no
party (or any of its officers, directors or shareholders) shall be liable to
any other party for any costs, expenses, damage or loss of anticipated profits
resulting from such termination. In the event that the transactions
contemplated herein fail to be consummated as a result of a wilful breach by
Athletes or Marquee of this Agreement or the Merger Agreement, or the gross
negligence of Athletes or Marquee in performing their obligations hereunder or
thereunder, nothing herein contained shall be deemed to limit the rights and
remedies at law or equity available to Athletes or Marquee against each other
on account of such wilful breach or gross negligence.
11.3 Allocation of Business and Net Income Following
Termination. In the event that this Agreement is terminated in accordance with
the terms hereof, Marquee and Athletes agree (i) that any business of Athletes
or SMTI generated by such entity between the date hereof and the date of
termination of this Agreement and performed by such entity shall become the
client of and remain with the entity that generated such business, (ii) that
the parties hereto shall negotiate in good faith the disposition and treatment
of any business (and the related client) of SMTI or Athletes
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generated by Marquee, TSC, Gutkowski, Athletes (in the case of SMTI business)
or SMTI (in the case of Athletes business) between the date hereof and the
date of termination of this Agreement and performed by SMTI or Athletes and
with respect to which a timely Designation, as defined below, was delivered by
Marquee, TSC, Gutkowski, Athletes (in the case of SMTI business) or SMTI (in
the case of Athletes business), and (iii) that any business of Marquee
generated by Athletes, SMTI, Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement and performed by Marquee shall
become the client of and remain with Marquee, and that the net income from any
business described in this clause (iii) shall be allocated as follows:
(a) fifty percent of the net income of Marquee derived from
business generated by either Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement shall be retained by or paid to
Marquee, with the balance to be paid equally and on at least a quarterly basis
to Athletes and SMTI;
(b) fifty percent of the net income of Marquee derived from
business generated by Athletes between the date hereof and the date of
termination of this Agreement and with respect to which a timely Designation
was delivered by Athletes shall be retained by or paid to Athletes on at least
a quarterly basis, with the balance to be paid equally and on at least a
quarterly basis to Marquee and SMTI; and
(c) fifty percent of the net income of Marquee derived from
business generated by SMTI between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by SMTI shall be retained by or paid to SMTI on at least a quarterly basis,
with the balance to be paid equally and on at least a quarterly basis to
Marquee and Athletes.
For purposes of this Section 11.3, business shall be deemed to be business of
the entity (Marquee, Athletes or SMTI) that entered into a contract with the
third party client in connection with such business. Business shall be
presumed to be generated by the entity that entered into the contract with the
third party client unless another of such entities or Gutkowski or TSC
notifies in writing (a "Designation") the others within fifteen (15) days of
the date such contract was entered into that it is disputing such presumption.
Such Designation disputing such presumption shall be deemed accepted by such
other entities unless it is disputed by any such other entities within fifteen
(15) days thereafter, at which point the parties shall arrange a meeting to
resolve the dispute.
SECTION 12 -- GENERAL PROVISIONS
12.1 Further Assurances and Co-Operation. At any time, and
from time to time, after the Effective Date, each party will execute such
additional instruments and take such action as may be reasonably requested by
the other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this Agreement.
At any time, and from time to time, during the period commencing on the date
hereof and ending on the third (3rd) anniversary of the Effective Date,
Athletes agrees to use its best efforts to cause its independent
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certified public accountants to audit Athletes' financial statements in
accordance with generally accepted auditing standards and to furnish such
financial statements to Marquee in proper form to be included in a
Registration Statement filed under the Securities Act of 1933, as amended, and
to furnish all necessary reports and consents as may be required to be
included in such Registration Statement or offering memorandum.
12.2 Indemnity. (a) The Sellers hereby jointly and severally
agree to indemnify and hold each of Marquee and Subsidiary harmless from any
and all losses, claims and damages which Marquee and Subsidiary may suffer or
incur and which arise out of the breach by Athletes or the Sellers of any
representation, warranty, covenant or agreement set forth in Section 3 or 6
hereof, including, but not limited to, Section 6.8 hereof. The amount of
Kaminsky's indemnity hereunder shall be limited to $500,000 and the amount of
Oppenheim's indemnity hereunder shall be limited to $250,000.
(b) Gutkowski and TSC hereby jointly and severally agree to
indemnify and hold each of the Sellers and Athletes harmless from any and all
losses, claims and damages (including, but not limited to, reasonable
attorneys' fees) which the Sellers or Athletes may suffer or incur and which
arise out of the breach by Gutkowski, TSC or Marquee of any representation,
warranty, covenant or agreement set forth in Sections 4 or 6A hereof. The
amount of each of Gutkowski's and TSC's indemnity hereunder shall be limited
to $250,000.
12.3 Survival of Representations and Warranties. The parties
hereto agree that all representations and warranties made in this Agreement or
in any Schedule delivered pursuant to this Agreement shall survive the Closing
Date for a period of six (6) months and that any actions in respect of
breaches thereof, including any action under Section 12.2 hereof, must be
commenced within such period.
12.4 Waiver. Any failure on the part of either party hereto
to comply with any of its obligations, agreements, or conditions hereunder may
be waived in writing by the party to whom such compliance is owed.
12.5 Brokers. Each party represents to the other parties
that no broker or finder has acted for it in connection with this Agreement
and agrees to indemnify and hold harmless the other parties against any fee,
loss, or expense arising out of claims by brokers or finders employed or
alleged to have been employed by it.
12.6 Notices. All notices hereunder shall be in writing and
shall be delivered in person or given by registered or certified mail, postage
prepaid, and sent to the parties at the respective addresses above set forth.
Any party may designate any other address to which notice shall be given by
giving notice to the others of such change of address in the manner herein
provided.
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12.7 Entire Agreement. This Agreement and the Letter
Agreement constitute the entire agreement between the parties and supersede
and cancel any other agreement, representation, or communication, whether oral
or written, between the parties hereto relating to the transactions
contemplated herein or the subject matter hereof, including, but not limited
to, that previously executed Amended and Restated Acquisition Agreement, dated
as of March 21, 1996, among the parties hereto. In the event there is any
inconsistency between the terms of this Agreement and the terms of the Letter
Agreement, the terms of this Agreement shall govern.
12.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
12.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
12.10 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by any party of its rights under this
Agreement without the written consent of the other parties shall be void.
12.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.12 Amendment. This Agreement may only be amended by a
written instrument which is executed by the parties hereto and Trager and
Letis.
[The rest of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
-----------------------------------
Name: Robert Gutkowski
Title:
\
ATHLETES AND ARTISTS, INC.
By: /s/ Louis J. Oppenheim
-----------------------------------
Name: Louis J. Oppenheim
Title: V.P.
Arthur Kaminsky and Louis J. Oppenheim
hereby agree to the provisions of
Sections 3, 6, 8 and 12 hereof
/s/ Arthur Kaminsky
- -----------------------------
ARTHUR KAMINSKY
/s/ Louis J. Oppenheim
- -----------------------------
LOUIS J. OPPENHEIM
The undersigned hereby agree to the amendment and restatement of the foregoing
agreement.
/s/ Michael Trager
- -----------------------------
MICHAEL TRAGER
/s/ Michael Letis
- -----------------------------
MICHAEL LETIS
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Robert Gutkowski and The Sillerman
Companies, Inc. hereby agree to the
provisions of Sections 4, 6A, 9 and 12 hereof
/s/ Robert Gutkowski
- -------------------------------
ROBERT GUTKOWSKI
THE SILLERMAN COMPANIES, INC.
By: /s/ Robert F. X. Sillerman
----------------------------
Name:
Title:
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AMENDED AND RESTATED ACQUISITION AGREEMENT
AMENDED AND RESTATED ACQUISITION AGREEMENT, dated as of the
21st day of March, 1996, by and among The Marquee Group Inc., a Delaware
corporation, having an office at 150 East 58th Street, New York, New York
10155 ("Marquee"); Sports Marketing & Television International, Inc., a
Connecticut corporation, having an office at 410 Greenwich Avenue, Greenwich,
Connecticut 06830 ("SMTI"); Michael Trager ("Trager") and Michael Letis
("Letis"), individuals having an address at 410 Greenwich Avenue, Greenwich,
Connecticut 06830 (Trager and Letis are collectively referred to herein as the
"Sellers" and individually as a "Seller"); Robert Gutkowski ("Gutkowski"), an
individual having an address at 152 West 57th Street, New York, New York
10019; and The Sillerman Companies, Inc. ("TSC"), a corporation having an
address at 150 East 58th Street, New York, New York 10155.
WHEREAS, Marquee and SMTI have entered into a letter
agreement dated December 7, 1995 (the "Letter Agreement"), whereby Marquee has
agreed to acquire SMTI, and SMTI has agreed to be acquired by Marquee, on the
terms and conditions hereinafter set forth;
WHEREAS, the boards of directors and stockholders of Marquee
and SMTI each have adopted resolutions declaring advisable the acquisition of
SMTI by Marquee on the terms and conditions hereinafter set forth, whereby the
outstanding Common Stock of SMTI will be converted into Common Stock of
Marquee and cash in a transaction which, when considered with other related
transactions occurring on or about the same time, is intended to qualify as a
tax-free exchange to the extent of the receipt of stock of Marquee under
Section 351 of the United States Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the parties hereto have previously entered into an
Acquisition Agreement, dated as of March 21, 1996, and such parties deem it to
be in their respective best interests to amend and restate such agreement and,
to that end, hereby amend and restate such agreement.
NOW, THEREFORE, the parties to this Agreement agree as
follows:
SECTION 1 -- MERGER
1.1 Agreement to Merger. Subject to the terms and conditions
herein set forth, SMTI and Marquee agree to effect a merger (the "Merger") of
a wholly-owned subsidiary of Marquee to be formed for the purpose of effecting
the Merger (the "Subsidiary") with and into SMTI, with SMTI as the surviving
corporation, in accordance with the Agreement and Plan of Merger attached
hereto as Exhibit A (the "Merger Agreement").
1.2 Purchase Price. The aggregate purchase price for all of
the issued and outstanding shares of capital stock of SMTI shall be
$8,000,000, which shall be payable in accordance with the provisions set forth
in Section 10.3 hereof, and that number of shares of the Common Stock, par
value $.01 per share (the "Common Stock") of Marquee as is equal to
<PAGE>
four-thirteenths (4/13) of the total number of shares of Common Stock of
Marquee held by (i) the shareholders of SMTI, (ii) the shareholders of
Athletes (as defined in Section 4.3 hereof), (iii) Gutkowski and (iv) TSC in
the aggregate (collectively, the "Management Stock") immediately after the
Closing Date (as defined in Section 10.1 hereof). If necessary, on or prior to
the Closing Date, Marquee will make whatever adjustments in its issued and
outstanding shares of Common Stock as are required so that, immediately after
the Closing Date, the shareholders of SMTI will own, in the aggregate, that
number of shares of Common Stock of Marquee equal to four-thirteenths (4/13)
of the total number of shares of Management Stock.
1.3 Marquee Common Stock. Marquee will make available to
Subsidiary a sufficient number of shares of Common Stock of Marquee and a
sufficient amount of cash in order to effect the Merger pursuant to the Merger
Agreement.
1.4 Per Share Purchase Price. The number of shares of Common
Stock of Marquee to be received for each issued and outstanding share of
capital stock of SMTI, as set forth in Section 2.2 of the Merger Agreement,
shall be calculated on or prior to the Closing Date.
SECTION 2 -- CONVERSION OF STOCK OF SMTI
2.1 Conversion of Shares. The manner of converting the
shares of SMTI into shares of Common Stock of Marquee and cash shall be as set
forth in Section 2 of the Merger Agreement.
2.2 Issuance of Cash to Certain Individuals. On the Closing
Date, Marquee will distribute to designees of Trager and Letis an aggregate of
$325,000 and the amount paid to Trager and Letis will be reduced by such
amount. Such amount will be considered part of the purchase price for the
issued and outstanding shares of capital stock of SMTI.
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND SMTI
The Sellers and SMTI jointly and severally represent and
warrant to Marquee that:
3.1 Organization and Good Standing. SMTI is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Connecticut and has corporate power to own its property and to carry
on its business as it is now being conducted. SMTI is qualified to do business
in the State of New York. Copies of SMTI's Certificate of Incorporation and
Bylaws (certified to be correct by the Secretary of SMTI) have been delivered
to Marquee and are complete and correct as at the date hereof. SMTI's minute
books contain a complete and accurate record of all meetings and other
corporate action of its shareholders and board of directors.
3.2 Capitalization. SMTI's authorized capital stock consists
of 5,000 shares of Common Stock, no par value per share, 4,000 of which are
issued and outstanding. No shares are held in SMTI's treasury. All of the
outstanding shares of Common Stock of SMTI are validly issued, fully paid, and
nonassessable. There are no outstanding options, agreements, contracts, calls,
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or commitments of any character which would require the issuance by SMTI of
any capital stock. All of the issued and outstanding Common Stock of SMTI are
owned by Trager and Letis, free and clear of any liens, claims or charges of
any nature. Their ownership of shares of Common Stock of SMTI is as set forth
below:
NAME NO. OF SHARES
---- -------------
Michael Trager 2,000
Michael Letis 2,000
3.3 Subsidiaries. SMTI has no subsidiaries, nor does it have
an ownership interest in any partnership, corporation, association or other
business entity.
3.4 Financial Statements. SMTI has delivered to Marquee
copies of the following financial statements, all of which have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods indicated:
(1) 1995 Financial Statements. Balance sheet
of SMTI as of December 31, 1995 (the "SMTI Balance Sheet"), together with the
related statement of operations, which present fairly as of their date the
financial condition of SMTI and its results of operations for the period
indicated.
(2) 1993 and 1994 Financial Statements.
Balance sheet of SMTI as of December 31, 1993 and 1994, together with the
related statements of operations, which present fairly as of their date the
financial condition of SMTI and its results of operations for the periods
indicated.
3.5 Absence of Undisclosed Liabilities. SMTI did not have at
the date of the SMTI Balance Sheet any liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent, or otherwise), of a nature
that would be reflected or reserved against in a corporate balance sheet or
disclosed in the notes thereto prepared in accordance with generally accepted
accounting principles that are not reflected or reserved against in the SMTI
Balance Sheet or disclosed in the notes thereto.
3.6 Absence of Certain Changes. There have not been since
the date of the SMTI Balance Sheet any changes of the following nature:
(1) Business, properties and financial
condition. Any material adverse change in SMTI's properties, business,
financial condition, or results of operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
SMTI; any granting of any stock option or right to purchase shares of capital
stock or any issuance of any security convertible into shares of capital stock
of SMTI; any purchase, redemption, retirement, or other acquisition of any
shares of capital
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stock by SMTI; any agreement to do any of the foregoing; or any declaration,
setting aside, or payment of any dividend or other distribution in respect of
the capital stock of SMTI.
(3) Sales, leases, borrowings and so forth.
Any sale or lease of SMTI's property or assets with an original cost in excess
of $10,000 for any single item or any mortgage or pledge of any properties or
assets of SMTI, or any borrowing incurred, assumed, or guaranteed by SMTI.
(4) Employee benefit plans and certain
salaries. Any employment contract in excess of $50,000 per year, bonus, stock
option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefit or similar arrangement or plan instituted,
agreed to, or amended, nor any contributions or other payments made (nor
contribution or other obligations incurred) with respect to existing
arrangements and plans of the aforementioned types, except in accordance with
past practices (and no such plans have any unfunded liability).
3.7 Litigation and so forth. Except as set forth in Schedule
13 described in Section 3.8(13) hereof, there is no litigation, proceeding, or
governmental investigation pending or, to the knowledge of SMTI, threatened
against or relating to SMTI, its properties or business or the transactions
contemplated by this Agreement; nor, to the knowledge of SMTI, is there any
reasonable basis for any such actions or for any claims; and SMTI is not a
party to or subject to the provisions of any judicial decree or judgment or
any order of any governmental agency.
3.8 Lists of properties, contracts and so forth. SMTI has
delivered to Marquee lists or summary descriptions (certified as correct to
the best of their knowledge by authorized officers of SMTI), each of which is
complete and accurate in all material respects as of the date hereof, of the
following:
(1) Real property. All real property owned of
record or beneficially or leased by SMTI ("Schedule 1"), accompanied by copies
of the deeds, title insurance policies, and leases relating thereto.
(2) Other property. Inventories and tangible
fixed assets, as shown on SMTI's books, showing, with respect to inventories,
the amounts of raw materials, work-in-process, and finished goods, and with
respect to fixed assets, the total of each of the following categories:
leasehold improvements, machinery and equipment, furniture and fixtures, and
automotive equipment ("Schedule 2").
(3) Insurance policies. All policies of
insurance with respect to SMTI's properties, buildings, machinery, equipment,
furniture, fixtures, operations, and the lives of its directors, officers, and
employees ("Schedule 3").
(4) Certain leases and contracts. Each
existing lease, contract, or other commitment of SMTI involving an aggregate
payment by SMTI of more than $25,000 or to SMTI of more than $50,000 or
extending beyond twelve (12) months from the date hereof (whether or not
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terminable at the option of any party thereto at an earlier date) other than
leases, contracts, or commitments furnished pursuant to other paragraphs of
this Section 3.8 ("Schedule 4").
(5) Certain salaried employees. The names and
annual salary rates as of the SMTI Balance Sheet date of SMTI's directors,
officers, employees, and agents whose annual rate of compensation at such date
was $50,000 or more ("Schedule 5").
(6) Labor contracts. Each existing labor
contract to which SMTI is a party ("Schedule 6").
(7) Intellectual property. All of SMTI's
patents, trademarks, trade names, service marks, service names, copyrights,
and registrations and applications therefor; and all patent, trademark, trade
name, service mark, service name, or copyright licenses, assignments, or
royalty agreements to which SMTI is a party ("Schedule 7").
(8) Profit sharing plans and so forth. All
employment contracts, bonus, stock option, profit sharing, pension,
retirement, incentive, medical, health, disability or other employee benefit
plans or arrangements of SMTI ("Schedule 8").
(9) Banks. The name of each bank in which SMTI
has an account or safe deposit box, and the names of all persons authorized to
draw thereon or having access thereto ("Schedule 9").
(10) Powers of attorney. The names of all
persons, if any, holding powers of attorney from SMTI ("Schedule 10").
(11) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar instruments to which SMTI is a party, and all
amendments or modifications of any thereof ("Schedule 11"), with a statement
of any as to which there is any existing default by SMTI.
(12) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
SMTI and, with respect to each, the date of grant or issue, the expiration
date, the number and class of shares subject thereto, and the purchase price
("Schedule 12").
(13) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which SMTI is a party (whether as plaintiff,
defendant, or otherwise), including the damages or relief sought therein, the
name of counsel for SMTI in charge of such matter, and its current status
("Schedule 13").
(14) Material assets. A list of every material
asset used by SMTI in the conduct of its business that is not either owned by
SMTI or leased by or licensed to it under an agreement listed on Schedules 1
through 13 ("Schedule 14").
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(15) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to Marquee
pursuant to this Section 3.8) that SMTI would be required to file or describe
in a Registration Statement on Form S-1 filed by SMTI under the Securities Act
of 1933 Act, as amended ("Schedule 15").
3.9 Title. With respect to the property listed in Schedules
1 and 2, SMTI has good and marketable title to the real property stated to be
owned by it, has good title to the leasehold interests in real property stated
to be held by it, and good title to all of the tangible property stated to be
owned by it, in each case free and clear of all liens and encumbrances, except
for (1) liens and encumbrances disclosed in Schedules 1 and 2; (2) the lien of
current taxes not yet due and payable; and (3) such liens by operation of law
and such imperfections of title, and other liens and encumbrances, if any, as
are not substantial in character, amount, or extent and do not interfere with
the present or future use by SMTI of the properties subject thereto or
affected thereby.
SMTI has received no notice of violation of any applicable
zoning regulation, ordinance, or other law, order, regulation, or requirement
relating to its operations or its properties and, so far as is known to SMTI
(1) there is no such violation of a material nature and (2) all buildings and
structures used by SMTI substantially conform with all applicable ordinances,
codes, and regulations.
Except as stated in Schedule 7, SMTI (1) has clear record
title to the patents, trademarks, trade names, service marks, service names,
and copyrights, and registrations and applications therefor, and copyright
registrations listed in Schedule 7 as owned by it; (2) has not entered into
any agreements, contracts, or licenses that would impair free and unencumbered
use by Marquee of the patents, trademarks, trade names, service marks, service
names, or copyrights enumerated in Schedule 7; (3) does not know of any
asserted infringement by it of any patent, trademark, trade name, service
mark, service name, or copyright of another; and (4) does not believe that it
is infringing a patent, trademark, trade name, service mark, service name, or
copyright of another.
3.10 Tax Returns. Except for liabilities with respect to
taxes and interest thereon, to which reference is made in notes to the SMTI
Balance Sheet, the provision for taxes therein is sufficient for the payment
of all accrued and unpaid federal, state, county, and local taxes of SMTI
(including any penalties or interest payable in respect of such taxes),
whether or not disputed, for the period ended December 31, 1995, and for all
fiscal years prior thereto.
3.11 No Violation. The execution of this Agreement and the
Merger Agreement does not, and performance hereof and thereof will not,
violate the provisions of SMTI's Certificate of Incorporation, Bylaws, or any
indenture, agreement, or other instrument to which SMTI is a party, except
insofar as any such instrument may require consent by a lender, mortgagee,
lessor, or other party to such actions, whose consent SMTI agrees to obtain
before the Closing Date.
3.12 Authorization. The execution, delivery, and performance
of this Agreement and the Merger Agreement have been duly authorized and
approved by SMTI's board of directors
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and by all of SMTI's shareholders; this Agreement and the Merger Agreement and
the consummation of the transactions contemplated herein and therein have been
duly and validly authorized by all necessary corporate action on the part of
SMTI; and this Agreement is, and (upon execution and delivery as provided
herein) the Merger Agreement will be, binding upon and enforceable against
SMTI in accordance with their respective terms.
3.13 General. None of the representations or warranties made
by the Sellers or SMTI in this Agreement are false or misleading with respect
to any material fact or omit to state any material fact necessary in order to
make the statements therein contained not misleading.
SECTION 4 -- REPRESENTATIONS, WARRANTIES, COVENANTS, AND AGREEMENTS OF
GUTKOWSKI, TSC AND MARQUEE
Gutkowski, TSC, and Marquee jointly and severally represent
and warrant to, and covenant and agree with, SMTI and the Sellers that:
4.1 Organization and Good Standing. Marquee is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power to own its property and to carry on
its business as it is now being conducted. At the Closing Date Subsidiary will
be a corporation duly organized, validly existing and in good standing under
the laws of the State of Connecticut and have corporate power to own its
property and to carry on its business as it is then being conducted. Copies of
Marquee's Certificate of Incorporation and Bylaws (certified to be correct by
an officer of Marquee) have been delivered to SMTI and are complete and
correct as of the date hereof. Marquee's minute books contain a complete and
accurate record of all meetings and other corporate action of its shareholders
and board of directors. On or prior to the Closing Date Marquee will deliver
to SMTI copies of Subsidiary's Certificate of Incorporation and Bylaws
(certified to be correct by the Secretary of Subsidiary), which shall be
complete and correct as of the date of such delivery. On the Closing Date
Subsidiary's minute books will contain a complete and accurate record of all
meetings and other corporate action of its shareholders and board of
directors.
4.2 Capitalization. Marquee's authorized capital stock
consists of 1,000 shares of Common Stock, par value $.01 per share, all of
which are issued and outstanding. No shares are held in Marquee's treasury.
All of the outstanding shares of Common Stock of Marquee are validly issued,
fully paid, and nonassessable. All of the shares of capital stock of
Subsidiary to be issued will be validly issued, fully paid and nonassessable.
Other than Marquee's pending agreements regarding a private placement as
described in Marquee's Confidential Term Sheet dated July 30, 1996, and its
initial public offering, there are no outstanding options, agreements,
contracts, calls, or commitments of any character which would require the
issuance by Marquee or Subsidiary of any capital stock (it being understood
that Marquee may, prior to the Closing Date, issue stock, options or warrants
to key employees of or advisors to Marquee (other than Gutkowski, TSC or any
of their affiliates)). All of the issued and outstanding Common Stock of
Marquee is owned by Gutkowski, TSC and Martin Ehrlich. Their ownership of
shares of Common Stock of Marquee is as set forth below:
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Name No. of Shares
---- -------------
Robert Gutkowski 333
The Sillerman Companies, Inc. 666
Martin Ehrlich 1
All of Subsidiary's outstanding shares of Common Stock will be owned by
Marquee.
4.3 Subsidiaries. Marquee has no subsidiaries, nor does it
have an ownership interest in any partnership, corporation, association, or
other business entity (it being understood that prior to the Closing Date
Marquee (a) will form and own two wholly-owned subsidiaries, Subsidiary and a
wholly-owned subsidiary to be formed for the purpose of effecting the
acquisition of Athletes and Artists, Inc., a New York corporation ("A&A"), by
Marquee by the merger of such subsidiary with and into A&A, and (b) may
acquire all of the outstanding capital stock of The Marquee Group, a Sports,
News and Entertainment Company, Inc., a New York corporation ("Marquee NY")
for a purchase price not to exceed $1,000). Subsidiary will not have any
subsidiaries, nor will it have an ownership interest in any partnership,
corporation, association, or other business entity. Marquee NY does not have
any subsidiaries, nor does it have an ownership interest in any partnership,
corporation, association, or other business entity.
4.4 Financial Statements. Marquee has delivered to SMTI a
copy of an unaudited operating income statement of Marquee as of December 31,
1995 (the "Marquee Balance Sheet") and an unaudited operating income statement
of Marquee NY as of December 31, 1995 (the "Marquee NY Balance Sheet"),
together with the related balance sheets, which present fairly as of their
date the financial condition of Marquee and Marquee NY and their results of
operations for the periods indicated. On or prior to the Closing Date Marquee
will deliver to SMTI a copy of a balance sheet of Subsidiary as of a date no
more than ninety (90) days prior thereto (the "Subsidiary Balance Sheet"),
together with the related statement of operations, which shall present fairly
as of their date the financial condition of Subsidiary and its results of
operations for the period indicated.
4.5 Absence of Undisclosed Liabilities. Marquee did not have
at the date of the Marquee Balance Sheet, Marquee NY did not have at the date
of the Marquee NY Balance Sheet, and Subsidiary will not have at the date of
the Subsidiary Balance Sheet, any liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent or otherwise), of a nature
that would be reflected or reserved against in a corporate balance sheet or
disclosed in the notes thereto prepared in accordance with generally accepted
accounting principles that are not reflected or reserved against in such
balance sheets or disclosed in the notes thereto.
4.6 Absence of Certain Changes. There have not been since
the date of the Marquee Balance Sheet and the Marquee NY Balance Sheet, and at
the Closing Date there will not have been since the date of the Subsidiary
Balance Sheet, any changes of the following nature:
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(1) Business, properties and financial
condition. Any material adverse change in Marquee's, Marquee NY's or
Subsidiary's properties, business, financial condition, or results of
operations.
(2) Capital stock: options, dividends and so
forth. Any change in the authorized, issued, or outstanding capital stock of
Marquee, Marquee NY or Subsidiary; any granting of any stock option or right
to purchase shares of capital stock or any issuance of any security
convertible into shares of capital stock by Marquee, Marquee NY or Subsidiary
(except as contemplated by Section 4.6(4) hereof and as described on Schedule
A (as defined in Section 4.8(1) hereof)); any purchase, redemption,
retirement, or other acquisition of any shares of capital stock by Marquee,
Marquee NY or Subsidiary; other than Marquee's pending agreements regarding a
private placement as described in Marquee's Confidential Term Sheet dated July
30, 1996, and its initial public offering, any agreement to do any of the
foregoing; or any declaration, setting aside, of payment of any dividend or
other distribution in respect of the capital stock of Marquee, Marquee NY or
Subsidiary.
(3) Sales, leases, borrowings and so forth.
Any sale or lease of Marquee, Marquee NY's or Subsidiary's property or assets
with an original cost in excess of $10,000 for any single item or any mortgage
or pledge of any properties or assets of Marquee or Subsidiary, or any
borrowing incurred, assumed, or guaranteed by Marquee or Subsidiary.
(4) Employee benefit plans and certain
salaries. Except for Marquee's employment agreement, dated March 21, 1996,
with Gutkowski and Marquee's employment agreement, dated May 9, 1996, with
Martin Ehrlich, any employment contract in excess of $50,000 per year, bonus,
stock option, profit sharing, pension, retirement, incentive, medical, health,
disability, other employee benefit or similar arrangement or plan instituted,
agreed to, or amended (it being understood that Marquee may, prior to the
Closing Date, (a) issue stock, options or warrants to key employees of or
advisors to Marquee (other than Gutkowski, TSC or any of their affiliates) and
(b) to the extent it has not already done so, obtain medical and dental
insurance of the type required by Section 6 of the employment agreements
contemplated by Sections 8.6 and 9.6 hereof); nor any contributions or other
payments made (nor contributions or other obligations incurred) with respect
to existing arrangements and plans of the aforementioned types, except in
accordance with past practices (and no such plans have any unfunded
liability).
4.7 Litigation and so forth. There is no litigation,
proceeding, or governmental investigation pending or, to the knowledge of
Marquee, threatened against or relating to Marquee or Marquee NY or any of
their properties or businesses or the transactions contemplated by this
Agreement; nor, to the knowledge of Marquee, is there any reasonable basis for
such actions or for any claims; and neither Marquee nor Marquee NY is a party
to or subject to the provisions of any judicial decree or judgment or any
order of any governmental agency.
4.8 List of Properties, Contracts and So Forth. Marquee has
delivered to SMTI lists or summary descriptions with respect to Marquee and
Marquee NY, and on or prior to the Closing Date Marquee will deliver to SMTI
lists or summary descriptions with respect to Subsidiary
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(in each case certified as correct to the best of their knowledge by
authorized officers of the related entity), each of which is or will be
complete and correct in all material respects as of the date set out therein,
of the following:
(1) Certain leases and contracts. Each lease,
contract or other commitment of Marquee, Marquee NY or Subsidiary involving an
aggregate payment by any of them of more than $25,000 or to any of them of
more than $50,000 or extending beyond twelve months (12) from the date hereof
(whether or not terminable at the option of any party at an earlier date)
other than leases, contracts, or commitments furnished pursuant to other
paragraphs of this Section 4.8 ("Schedule A").
(2) Certain salaried employees. The names and
annual salary rates as of the date of this Agreement of Marquee's, Marquee
NY's and Subsidiary's directors, officers, employees, and agents whose annual
rate of compensation at such date was $50,000 or more ("Schedule B").
(3) Loan and credit agreements and so forth.
All mortgages, indentures, promissory notes, deeds of trust, loan or credit
agreements, or similar agreements to which Marquee, Marquee NY or Subsidiary
is a party, and all amendments or modifications of any thereof ("Schedule C"),
with a statement of any as to which there is any existing default by Marquee,
Marquee NY or Subsidiary.
(4) Employee stock options. The names of all
persons holding employee stock options to purchase shares of capital stock of
Marquee, Marquee NY or Subsidiary and, with respect to each, the date of grant
or issue, the expiration date, the number and class of shares subject thereto,
and the purchase price ("Schedule D").
(5) Litigation. Each lawsuit, administrative
proceeding, or arbitration to which Marquee, Marquee NY or Subsidiary is a
party (whether as plaintiff, defendant or otherwise), including the damages or
relief sought therein, the name of counsel for Marquee, Marquee NY or
Subsidiary in charge of such matter, and its current status ("Schedule E").
(6) Other contracts and commitments. Every
contract and commitment (not listed on other schedules delivered to SMTI
pursuant to this Section 4.8) that Marquee, Marquee NY or Subsidiary would be
required to file or describe in a Registration Statement on Form S-1 filed by
Marquee, Marquee NY or Subsidiary under the Securities Act of 1933, as amended
("Schedule F").
4.9 Tax Returns. Marquee and Marquee NY have, and prior to
the Closing Date Subsidiary will have, timely filed all tax returns required
to be filed by them and paid all taxes required to be paid for all fiscal
periods prior hereto (in the case of Marquee and Marquee NY) or prior to the
Closing Date (in the case of Subsidiary).
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4.10 No Violation. Marquee's execution of this Agreement
does not and Subsidiary's execution of the Merger Agreement will not, and the
performance hereof and thereof will not, violate the provisions of Marquee's
or Subsidiary's Certificate of Incorporation, Bylaws or any indenture,
agreement, or other instrument to which Marquee is or Subsidiary will be a
party, except insofar as any such instrument may require consent by a lender,
mortgagee, lessor, or other party to such actions, whose consent Marquee or
Subsidiary agree to obtain before the Closing Date.
4.11 Authorization. The execution, delivery, and performance
of this Agreement have been duly authorized and approved by Marquee's board of
directors and by all of its shareholders and the Merger Agreement will be
approved by Subsidiary's board of directors and shareholders; this Agreement
and the consummation of the transactions contemplated herein have been duly
and validly authorized by all necessary corporate action on the part of
Marquee; the Merger Agreement and the consummation of the transactions
contemplated therein will be duly and validly authorized by all necessary
corporate action on the part of Subsidiary; and this Agreement is, and, with
respect to Subsidiary, the Merger Agreement (upon execution and delivery as
provided herein) will be, binding upon and enforceable against Marquee or
Subsidiary, as the case may be, in accordance with their terms.
4.12 General. None of the representations or warranties made
by Marquee, Gutkowski or TSC in this Agreement are false or misleading with
respect to any material fact or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
SECTION 5 -- S CORPORATION MATTERS
Immediately prior to the Closing Date, SMTI will declare a
dividend to its shareholders equal to forty percent (40%) of the increase in
its accumulated adjustments account, as defined in Section 1368(e) of the
Code, for the period from the date hereof until the Closing Date, which
dividend shall be paid not later than the last day of SMTI's post-termination
period, as defined in Section 1377(b) of the Code.
SECTION 6 -- CONDUCT OF SMTI PENDING THE CLOSING DATE
The Sellers and SMTI covenant and agree that between the
date of this Agreement and the Closing Date:
6.1 Certificate of Incorporation and Bylaws. SMTI will not
change its Certificate of Incorporation or Bylaws.
6.2 Capitalization and so forth. SMTI will not make any
change in its authorized, issued, or outstanding capital stock; grant any
stock option or right to purchase shares of its capital stock; issue any
security convertible into shares of its capital stock; purchase, redeem,
retire, or otherwise acquire any shares of its capital stock; or agree to do
any of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
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6.3 Business in Ordinary Course. SMTI will conduct its
business in its customary course and will (1) use its reasonable efforts to
preserve its business organization intact, to keep available to Marquee the
services of its present officers and employees, and to preserve the goodwill
of suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; (3) keep in force at
no less than their present limit all policies of insurance listed in Schedule
3; and (4) make no material change in the customary terms and conditions on
which it extends credit to customers; provided, however, that nothing in this
Section 6.3 shall prohibit compliance by SMTI with, or SMTI's borrowing or
repayment of funds pursuant to, any agreements or other commitments disclosed
by SMTI to Marquee on any Schedule furnished in accordance with Section 3.8
hereof.
6.4 Employee Compensation. SMTI will pay Trager a salary at
the rate of $300,000 per year and Letis a salary at the rate of $300,000 per
year. SMTI will not institute, agree to, or amend any employment contract
requiring the payment by SMTI of a salary or bonus in excess of $50,000 per
year, or any bonus, stock option, profit sharing, pension, retirement,
incentive, medical, health, disability, other employee benefit or similar
arrangement or plan, except to grant normal individual increases in
compensation in accordance with established agreements or procedures and
except as may be necessary to comply with Section 6.8 hereof.
6.5 Banking Arrangements; Powers of Attorney. SMTI will not
make any change in its banking and safe deposit arrangements and will not
grant any powers of attorney.
6.6 Accounting Practices. Except as required by generally
accepted accounting principles, SMTI will not make any changes in its
accounting methods or practices.
6.7 Merger. SMTI will not merge or consolidate with any
other corporation; sell or lease all or substantially all of its assets and
business; acquire all or substantially all of the stock of the business or
assets of any other person, corporation, or business organization; or agree to
do any of the foregoing.
6.8 Termination of Employee Benefit Plans. At Marquee's
option and on such date or dates (but in no event earlier than two (2)
business days prior to the Closing Date) and in such manner as Marquee shall
direct, SMTI will terminate some or all bonus, stock option, profit sharing,
pension, retirement, incentive, medical, health, disability and other employee
benefit plans or arrangements it maintains or sponsors or to which it is
obligated to contribute, including, without limitation, the Sports Marketing
and Television, Inc. Target Plan. Any such termination will be made in
accordance with all applicable laws, including, without limitation, the
Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code of 1986, as amended.
6.9 Delivery of Financial Statements. Within sixty (60) days
of the date hereof, SMTI will deliver to Marquee a balance sheet of SMTI as of
December 31, 1995, together with the related statement of operations, which
shall present fairly the financial condition of SMTI and its
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results of operations for the period indicated and which shall be audited by
independent certified public accountants.
SECTION 6A -- CONDUCT OF MARQUEE PENDING THE CLOSING DATE
Gutkowski, TSC and Marquee covenant and agree that between
the date of this Agreement and the Closing Date:
6A.1 Capitalization and so forth. Marquee will not purchase,
redeem, retire, or otherwise acquire any shares of its capital stock; issue to
Gutkowski or TSC or any of their affiliates any shares of its capital stock or
any option or right to purchase shares of its capital stock; or agree to do
any of the foregoing; or declare, set aside, or pay any dividend or other
distribution in respect of its capital stock.
6A.2 Business in Ordinary Course. Marquee will conduct its
business in its customary course (it being understood that, notwithstanding
anything else herein contained, Marquee may discharge the liabilities listed
on the Marquee NY Balance Sheet) and will (1) use its reasonable efforts to
preserve its business organization intact and to preserve the goodwill of
suppliers, customers, and others having business relations with it; (2)
maintain its properties in customary repair, working order, and condition,
reasonable wear and tear and damage by casualty excepted; and (3) make no
material change in the customary terms and conditions on which it extends
credit to customers; provided, however, that nothing in this Section 6A.2
shall prohibit compliance by Marquee with, or Marquee's borrowing or repayment
of funds pursuant to, any agreements or other commitments disclosed by Marquee
to SMTI on any Schedule furnished in accordance with Section 4.8 hereof.
6A.3 Employee Compensation. Marquee will pay Gutkowski a
salary at the rate of $325,000 per year. Marquee will not amend or agree to
amend any employment contract, or any proposed employment contract, with
Gutkowski, Arthur Kaminsky ("Kaminsky") or Louis Oppenheim ("Oppenheim").
6A.4 Banking Arrangements; Powers of Attorney. Marquee will
not make any change in its banking and safe deposit arrangements and will not
grant any powers of attorney.
6A.5 Accounting Practices. Except as required by generally
accepted accounting principles, Marquee will not make any changes in its
accounting methods or practices.
6A.6 Merger. Except as contemplated by this Agreement,
Marquee will not merge or consolidate with any other corporation; sell or
lease all or substantially all of its assets and business; acquire all or
substantially all of the stock of the business or assets of any other person,
corporation, or business organization; or agree to do any of the foregoing.
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SECTION 7 -- ACCESS
From the date hereof to the Closing Date, Marquee and SMTI
shall provide each other with such information and permit each other's
officers and representatives such access to its properties and books and
records as the other may from time to time reasonably request. If the
transactions contemplated by this Agreement and the Merger Agreement are not
consummated, all documents furnished in connection with this Agreement shall
be returned to the party furnishing the same, and all information so received
shall be treated as confidential.
SECTION 8 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF MARQUEE
The obligation of Marquee to consummate the Merger and to
cause Subsidiary to consummate the Merger shall be subject to the fulfillment
on or before the Closing Date of each of the following conditions, unless
waived in writing by Marquee:
8.1 Representations and Warranties. The representations and
warranties of SMTI and the Sellers set forth in Section 3 hereof shall be true
and correct at the Closing Date as if made at and as of that date, except as
affected by the transactions contemplated hereby.
8.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of SMTI.
8.3 Covenants. SMTI and the Sellers shall have performed all
covenants and agreements set forth in Sections 6 and 7 hereof to be performed
by them on or before the Closing Date.
8.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 (the "Financing") by December 31, 1996.
8.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
8.6 Employment Agreements. On the Closing Date, Trager and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Letis and Marquee shall execute an employment
agreement in the form attached hereto as Exhibit D.
8.7 Legal Opinion. On or before the Closing Date, Marquee
and Subsidiary shall have received an opinion of Baker & McKenzie that the
Merger should be considered a tax-free exchange to the extent of the receipt
of stock of Marquee under Section 351 of the Code.
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8.8 Certificate. On the Closing Date, SMTI and the Sellers
shall deliver a certificate to Marquee and Subsidiary, in form and substance
reasonably acceptable to Marquee and Subsidiary, to the effect that all of the
representations and warranties of SMTI and the Sellers set forth in Section 3
hereof are true and correct at the Closing Date as if made at and as of that
date, except as affected by the transactions contemplated hereby, and that all
of the covenants and agreements of SMTI and the Sellers set forth in Section 6
hereof have been performed.
SECTION 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF SMTI
The obligation of SMTI to consummate the Merger shall be
subject to the fulfillment on or before the Closing Date of each of the
following conditions, unless waived in writing by SMTI:
9.1 Representations and Warranties. The representations and
warranties of Gutkowski, TSC and Marquee set forth in Section 4 hereof shall
be true and correct at the Closing Date as if made at and as of that date,
except as affected by the transactions contemplated hereby.
9.2 Shareholder Approval. This Agreement shall have been
unanimously adopted by the shareholders of Marquee and Subsidiary.
9.3 Covenants. Marquee, Gutkowski, and TSC shall have
performed all covenants and agreements set forth in Sections 4, 6A and 7
hereof to be performed by them on or before the Closing Date.
9.4 Financing. Marquee shall have previously or
simultaneously effected an initial public offering of its capital stock or
completed a similar private financing where the gross proceeds from such
offering are at least $13,800,000 by December 31, 1996.
9.5 Shareholders' Agreement. The Shareholders' Agreement,
dated as of March 21, 1996, by and among TSC, Gutkowski, Kaminsky, Oppenheim,
Trager, Letis and Marquee shall be in full force and effect.
9.6 Employment Agreements. On the Closing Date, Trager and
Marquee shall execute an employment agreement in the form attached hereto as
Exhibit C. On the Closing Date, Letis and Marquee shall execute an employment
agreement in the form attached hereto as Exhibit D.
9.7 Legal Opinion. On or before the Closing Date, SMTI shall
have received an opinion of Baker & McKenzie, in form and substance reasonably
acceptable to SMTI, that the Merger should be considered a tax-free exchange
to the extent of the receipt of stock of Marquee under Section 351 of the
Code.
9.8 Certificate. On the Closing Date, Marquee, Gutkowski and
TSC shall deliver a certificate to SMTI and the Sellers, in form and substance
reasonably acceptable to SMTI and the
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Sellers, that all of the representations and warranties of Marquee, Gutkowski
and TSC set forth in Section 4 hereof are true and correct at the Closing Date
as if made at and as of that date, except as affected by the transactions
contemplated hereby, and that all of the covenants and agreements of Marquee,
Gutkowski and TSC set forth in Sections 4 and 6A hereof have been performed.
SECTION 10 -- CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
10.1 Closing Date. The closing date of the transactions
contemplated by this Agreement (the "Closing Date") shall be the date of
consummation of the Financing.
10.2 Effective Date. On the Closing Date, an executed
counterpart of the Merger Agreement shall be filed with the Secretary of State
of the State of Connecticut and the Merger shall become effective upon the
completion of such filing. The date of completion of such filing shall be the
"Effective Date."
10.3 Payment of Purchase Price. On the Closing Date, Marquee
shall pay to the Sellers an aggregate amount equal to $6,500,000 and on each
April 1 following the Closing Date, until and including April 1, 2001, Marquee
shall pay $150,000 to each of Letis and Trager.
SECTION 11 -- TERMINATION
11.1 Circumstances of Termination. This Agreement may be
terminated (notwithstanding approval by the shareholders of any party hereto):
(1) By the mutual consent in writing of the boards of
directors of Marquee and SMTI.
(2) By the board of directors of Marquee if any condition
provided in Section 8 hereof has not been satisfied or waived on or before the
Closing Date.
(3) By the board of directors of SMTI if any condition
provided in Section 9 hereof has not been satisfied or waived on or before the
Closing Date.
(4) By the board of directors of either Marquee or SMTI if
the Closing Date has not occurred by December 31, 1996, unless the closing of
the transactions contemplated hereby shall not have occurred by such date due
to the action or failure to act of such party.
(5) By the board of directors of either Marquee or SMTI if
that certain Acquisition Agreement, dated March 21, 1996, by and among
Marquee, A&A, Kaminsky, Oppenheim, Gutkowski and TSC is terminated or the
merger contemplated thereby does not occur simultaneously with the Merger.
11.2 Effect of Termination. In the event of a termination of
this Agreement pursuant to Section 11.1 hereof, each party shall pay the costs
and expenses incurred by it in
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connection with this Agreement and, except only as provided in the following
sentence, no party (or any of its officers, directors or shareholders) shall
be liable to any other party for any costs, expenses, damage or loss of
anticipated profits resulting from such termination. In the event that the
transactions contemplated herein fail to be consummated as a result of a
wilful breach by SMTI or Marquee of this Agreement or the Merger Agreement, or
the gross negligence of SMTI or Marquee in performing their obligations
hereunder or thereunder, nothing herein contained shall be deemed to limit the
rights and remedies at law or equity available to SMTI or Marquee against each
other on account of such wilful breach or gross negligence.
11.3 Allocation of Business and Net Income Following
Termination. In the event that this Agreement is terminated in accordance with
the terms hereof, Marquee and SMTI agree (i) that any business of SMTI or A&A
generated by such entity between the date hereof and the date of termination
of this Agreement and performed by such entity shall become the client of and
remain with the entity that generated such business, (ii) that the parties
hereto shall negotiate in good faith the disposition and treatment of any
business (and the related client) of SMTI or A&A generated by Marquee, TSC,
Gutkowski, A&A (in the case of SMTI business) or SMTI (in the case of A&A
business) between the date hereof and the date of termination of this
Agreement and performed by SMTI or A&A and with respect to which a timely
Designation, as defined below, was delivered by Marquee, TSC, Gutkowski, A&A
(in the case of SMTI business) or SMTI (in the case of A&A business), and
(iii) that any business of Marquee generated by SMTI, A&A, Marquee, TSC or
Gutkowski between the date hereof and the date of termination of this
Agreement and performed by Marquee shall become the client of and remain with
Marquee, and that the net income from any business described in this clause
(iii) shall be allocated as follows:
(a) fifty percent of the net income of Marquee derived from
business generated by either Marquee, TSC or Gutkowski between the date hereof
and the date of termination of this Agreement shall be retained by or paid to
Marquee, with the balance to be paid equally and on at least a quarterly basis
to A&A and SMTI;
(b) fifty percent of the net income of Marquee derived from
business generated by A&A between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by A&A shall be retained by or paid to A&A on at least a quarterly basis, with
the balance to be paid equally and on at least a quarterly basis to Marquee
and SMTI; and
(c) fifty percent of the net income of Marquee derived from
business generated by SMTI between the date hereof and the date of termination
of this Agreement and with respect to which a timely Designation was delivered
by SMTI shall be retained by or paid to SMTI on at least a quarterly basis,
with the balance to be paid equally and on at least a quarterly basis to
Marquee and A&A.
For purposes of this Section 11.3, business shall be deemed to be business of
the entity (Marquee, A&A or SMTI) that entered into a contract with the third
party client in connection with such business. Business shall be presumed to
be generated by the entity that entered into the contract with
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the third party client unless another of such entities or Gutkowski or TSC
notifies in writing (a "Designation") the others within fifteen (15) days of
the date such contract was entered into that it is disputing such presumption.
Such Designation disputing such presumption shall be deemed accepted by such
other entities unless it is disputed by any such other entities within fifteen
(15) days thereafter, at which point the parties shall arrange a meeting to
resolve the dispute.
SECTION 12 -- GENERAL PROVISIONS
12.1 Further Assurances and Co-Operation. At any time, and
from time to time, after the Effective Date, each party will execute such
additional instruments and take such action as may be reasonably requested by
the other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this Agreement.
At any time, and from time to time, the period commencing on the date hereof
and ending on the third (3rd) anniversary of the Effective Date, SMTI agrees
to use its best efforts to cause its independent certified public accountants
to audit SMTI's financial statements in accordance with generally accepted
auditing standards and to furnish such financial statements to Marquee in
proper form to be included in a Registration Statement filed under the
Securities Act of 1933, as amended, and to furnish all necessary reports and
consents as may be required to be included in such Registration Statement or
offering memorandum.
12.2 Indemnity. (a) The Sellers hereby jointly and severally
agree to indemnify and hold each of Marquee and Subsidiary harmless from any
and all losses, claims and damages which Marquee and Subsidiary may suffer or
incur and which arise out of the breach by SMTI or the Sellers of any
representation, warranty, covenant or agreement set forth in Section 3 or 6
hereof, including, but not limited to Section 6.8 hereof. The amount of each
Seller's indemnity hereunder shall be limited to $1,000,000.
(b) Gutkowski and TSC hereby jointly and severally agree to
indemnify and hold each of the Sellers and SMTI harmless from any and all
losses, claims and damages (including, but not limited to, reasonable
attorneys' fees) which the Sellers or SMTI may suffer or incur and which arise
out of the breach by Gutkowski, TSC or Marquee of any representation,
warranty, covenant or agreement set forth in Sections 4 or 6A hereof. The
amount of each of Gutkowski's and TSC's indemnity hereunder shall be limited
to $250,000.
12.3 Survival of Representations and Warranties. The parties
hereto agree that all representations and warranties made in this Agreement or
in any Schedule delivered pursuant to this Agreement shall survive the Closing
Date for a period of six (6) months and that any action in respect of breaches
thereof, including any action under Section 12.2 hereof, must be commenced
within such period.
12.4 Waiver. Any failure on the part of either party hereto
to comply with any of its obligations, agreements, or conditions hereunder may
be waived in writing by the party to whom such compliance is owed.
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12.5 Brokers. Each party represents to the other parties
that no broker or finder has acted for it in connection with this Agreement
and agrees to indemnify and hold harmless the other parties against any fee,
loss, or expense arising out of claims by brokers or finders employed or
alleged to have been employed by it.
12.6 Notices. All notices hereunder shall be in writing and
shall be delivered in person or given by registered or certified mail, postage
prepaid, and sent to the parties at the respective addresses above set forth.
Any party may designate any other address to which notice shall be given by
giving notice to the others of such change of address in the manner herein
provided.
12.7 Entire Agreement. This Agreement and the Letter
Agreement constitute the entire agreement between the parties and supersede
and cancel any other agreement, representation, or communication, whether oral
or written, between the parties hereto relating to the transactions
contemplated herein or the subject matter hereof, including, but not limited
to, that previously executed Amended and Restated Acquisition Agreement, dated
as of March 21, 1996, among the parties hereto. In the event there is any
inconsistency between the terms of this Agreement and the terms of the Letter
Agreement, the terms of this Agreement shall govern.
12.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
12.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Connecticut.
12.10 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by any party of its rights under this
Agreement without the written consent of the other parties shall be void.
12.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.12 Amendment. This Agreement may only be amended by a
written instrument which is executed by the parties hereto and Kaminsky and
Oppenheim.
[The rest of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
THE MARQUEE GROUP INC.
By: /s/ Robert Gutkowski
---------------------------------
Name: Robert M. Gutkowski
Title: President
SPORTS MARKETING & TELEVISION
INTERNATIONAL, INC.
By: /s/ Michael Trager
---------------------------------
Name: Michael Trager
Title: Chairman/Secretary/Treasurer
Michael Trager and Michael Letis
hereby agree to the provisions of
Sections 3, 6, 8 and 12 hereof
/s/ Michael Trager
- -----------------------------
MICHAEL TRAGER
/s/ Michael Letis
- -----------------------------
MICHAEL LETIS
The undersigned hereby agree to the amendment and restatement of the foregoing
agreement.
/s/ Arthur C. Kaminsky
- -----------------------------
ARTHUR C. KAMINSKY
/s/ Louis J. Oppenheim
- -----------------------------
LOUIS J. OPPENHEIM
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Robert Gutkowski and The Sillerman
Companies, Inc. hereby agree to the
provisions of Sections 4, 6A, 9 and 12 hereof
/s/ Robert Gutkowski
- -----------------------------
ROBERT GUTKOWSKI
THE SILLERMAN COMPANIES, INC.
By: /s/ Robert F. X. Sillerman
----------------------------
Name:
Title:
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THE MARQUEE GROUP, INC.
SUBSCRIPTION AGREEMENT made as of this 15th day of August,
1996 between The Marquee Group, Inc., a Delaware corporation with its principal
offices at 150 East 58th Street, New York, New York 10155 (the "Company") and
the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue a minimum of
twenty-five (25) and a maximum of forty (40) units ("Units") in a private
placement, each Unit consisting of $50,000 principal amount 6% convertible
debentures of the Company due and payable on June 30, 1999, subject to earlier
conversion in certain circumstances (the "Debentures") in the form attached
hereto as Exhibit A, on the terms and conditions hereinafter set forth and the
Subscriber desires to acquire the number of Units set forth on the signature
page hereof;
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND
COVENANTS OF SUBSCRIBER
1.1 Subject to the terms and conditions set forth
herein and in the Confidential Term Sheet dated July 30, 1996 (the "Term
Sheet"), the Subscriber hereby subscribes for and agrees to purchase from the
Company such number of Units as is set forth upon the signature page hereof at
a price equal to $50,000 per Unit, and the Company agrees to sell such Units to
the Subscriber for said purchase price subject to the Company's right to sell
to the Subscriber such lesser number of Units as it may, in its sole
discretion, deem necessary or desirable. The purchase price is payable by
certified or bank check made payable to Continental Stock Transfer & Trust
Company, as Escrow Agent, contemporaneously with the execution and delivery of
this Subscription Agreement. The Debentures will be delivered by the Company
within ten (10) days following the consummation of this offering as set forth
in Article III hereof. The Subscriber understands however, that this purchase
of Units is contingent upon the Company making sales of a minimum of
twenty-five (25) Units ($1,250,000 principal amount of Debentures) (the
"Minimum Offering") prior to the Termination Date as defined in Article III
hereof.
1.2 The Subscriber recognizes that the purchase of
Units involves a high degree of risk in that (i) the Company has commenced only
minimal operations and its planned business requires the consummation of
acquisitions which are subject to the Company's receipt of financing in
addition to the proceeds of this private placement and other conditions and
there can be no assurance such financing or acquisitions will be consummated;
(ii) the Company requires substantial funds in addition to the proceeds of this
private placement; (iii) an investment in the Company is highly speculative and
only investors who can afford the loss of their entire investment should
consider investing in the Company and the Units; (iv) he may not be able
<PAGE>
to liquidate his investment; (v) transferability of the securities comprising
the Units is extremely limited; and (vi) in the event of a disposition, an
investor could sustain the loss of his entire investment, as well as other risk
factors as more fully set forth in the Term Sheet.
1.3 The Subscriber represents that he is an
"accredited investor" as such term in defined in Rule 501 of Regulation D
promulgated under the United States Securities Act of 1933, as amended (the
"Act"), as indicated by his responses to the Confidential Purchaser
Questionnaire, and that he is able to bear the economic risk of an investment
in the Units.
1.4 The Subscriber acknowledges that he has prior
investment experience, including investment in non-listed and non-registered
securities, or he has employed the services of an investment advisor, attorney
or accountant to read all of the documents furnished or made available by the
Company both to him and to all other prospective investors in the Units and to
evaluate the merits and risks of such an investment on his behalf, and that he
recognizes the highly speculative nature of this investment.
1.5 The Subscriber acknowledges receipt and careful
review of the Term Sheet and the attachments thereto (the "Offering Documents")
and hereby represents that he has been furnished by the Company during the
course of this transaction with all information regarding the Company which he
had requested or desired to know; that all documents which could be reasonably
provided have been made available for his inspection and review; and that such
information and documents have, in his opinion, afforded the Subscriber with
all of the same information that would be provided him in a registration
statement filed under the Act; that he has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or other
representatives of the Company concerning the terms and conditions of the
offering, and any additional information which he had requested.
1.6 The Subscriber acknowledges that this offering
of Units may involve tax consequences, including but not limited to the
possible need to recognize interest income and that the contents of the
Offering Documents do not contain tax advice or information. The Subscriber
acknowledges that he must retain his own professional advisors to evaluate the
tax and other consequences of an investment in the Units.
1.7 The Subscriber acknowledges that this offering
of Units has not been reviewed by the United States Securities and Exchange
Commission ("SEC") because of the Company's representations that this is
intended to be a nonpublic offering pursuant to Sections 4(2) or 3(b) of the
Act. The Subscriber represents that the Debentures comprising his Units, and
the securities issuable upon conversion of the Debentures, are being purchased
for his own account, for investment and not for distribution or resale to
others. The Subscriber agrees that he will not sell or otherwise transfer such
securities unless they are registered under the Act or unless an exemption from
such registration is available.
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1.8 The Subscriber understands that the Debentures
comprising the Units, and the securities issuable upon conversion of the
Debentures, have not been registered under the Act by reason of a claimed
exemption under the provisions of the Act which depends, in part, upon his
investment intention. In this connection, the Subscriber understands that it is
the position of the SEC that the statutory basis for such exemption would not
be present if his representation merely meant that his present intention was to
hold such securities for a short period, such as the capital gains period of
tax statutes, for a deferred sale, for a market rise, assuming that a market
develops, or for any other fixed period. The Subscriber realizes that, in the
view of the SEC, a purchase now with an intent to resell would represent a
purchase with an intent inconsistent with his representation to the Company,
and the SEC might regard such a sale or disposition as a deferred sale to which
such exemptions are not available.
1.9 The Subscriber understands that there is no
public market for the securities comprising the Units. The Debentures provide
that, in the event the Company completes an initial public offering ("IPO") of
its securities, the Debentures will automatically convert into units (the
"Debenture Units") of the Company, on the terms and conditions set forth in the
form of Debenture attached hereto as Exhibit A, identical in all respects to
the units offered in the IPO, subject to the provisions of Section 1.10 hereof,
and expected to be comprised of one share of the Company's common stock, $.01
par value (the "Common Stock") and one warrant (the "Public Warrants"). The
Subscriber understands that, if the Debentures have not been converted pursuant
to the preceding sentence, commencing nine months from the initial closing of
the private placement contemplated herein, on the terms and conditions set
forth in the Debentures, the Subscriber may elect to convert the Debentures
into shares of Common Stock and warrants (the "Bridge Warrants"). The
Subscriber understands that even if a public market develops for the Common
Stock, the Public Warrants or the Bridge Warrants, Rule 144 (the "Rule")
promulgated under the Act requires, among other conditions, a two year holding
period prior to the resale (in limited amounts) of securities acquired in a
non-public offering without having to satisfy the registration requirements
under the Act. The Subscriber understands that the Company makes no
representation or warranty regarding its fulfillment in the future of any
reporting requirements under the Securities Exchange Act of 1934, as amended,
or its dissemination to the public of any current financial or other
information concerning the Company, as is required by the Rule as one of the
conditions of its availability. The Subscriber understands and hereby
acknowledges that the Company is under no obligation to register the securities
comprising the Units under the Act, except as set forth in Article IV herein.
The Subscriber consents that the Company may, if it desires, permit the
transfer of the securities comprising the Units or issuable upon conversion
thereof out of his name only when his request for transfer is accompanied by an
opinion of counsel reasonably satisfactory to the Company that neither the sale
nor the proposed transfer results in a violation of the Act or any applicable
state "blue sky" laws (collectively "Securities Laws") and subject to the
provisions of Section 1.10 hereof. The Subscriber agrees to hold the Company
and its directors, officers and controlling persons and their respective heirs,
representatives, successors and assigns harmless and to indemnify them against
all liabilities, costs and expenses incurred by them as a result of any
misrepresentation made by
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him contained herein or in the Confidential Purchaser Questionnaire or any sale
or distribution by the undersigned Subscriber in violation of any Securities
Laws.
1.10 In the event that the Subscriber is a Company
Designee (as defined herein), or is (or, following the Acquisitions, as defined
herein, will be) an officer or director of the Company, the Subscriber agrees
not to publicly sell, assign, transfer or otherwise dispose the Debentures or
the securities issuable upon conversion of the Debentures, without the prior
written consent of Royce Investment Group, Inc. (the "Placement Agent"), for a
period of two years from the effective date ("Effective Date") of the
registration statement relating to the Company's IPO. In the event that the
Subscriber is neither an officer or director of the Company, or a Company
Designee, the Subscriber agrees, if so requested by the Company after the
Company and the Placement Agent shall have determined it necessary for
regulatory reasons, not to sell, transfer or otherwise dispose publicly the
securities issuable upon conversion of the Debentures for a period of one year
after the Effective Date. Each Subscriber also agrees not to exercise the
Public Warrants for a period of one year after the Effective Date.
1.11 The Subscriber consents to the placement of a
legend on any certificate or other document evidencing the Debentures
comprising his Units and the securities issuable upon conversion of the
Debentures stating that they have not been registered under the Act and setting
forth or referring to the restrictions on transferability and sale thereof.
1.12 The Subscriber understands that the Company
will review this Subscription Agreement and the Confidential Purchaser
Questionnaire and the Company is hereby given authority by the undersigned to
call his bank or place of employment or otherwise review the financial standing
of the Subscriber; and it is further agreed that the Company reserves the
unrestricted right to reject or limit any subscription and to close the offer
at any time.
1.13 The Subscriber hereby represents that the
address of Subscriber furnished by him at the end of this Subscription
Agreement is the undersigned's principal residence if he is an individual or
its principal business address if it is a corporation or other entity.
1.14 The Subscriber acknowledges that if he is a
Registered Representative of an NASD member firm, he must give such firm the
notice required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm on the signature page hereof.
1.15 The Subscriber hereby represents that, except
as set forth in the Offering Documents, no representations or warranties have
been made to the Subscriber by the Company or any agent, employee or affiliate
of the Company and in entering into this transaction, the Subscriber is not
relying on any information, other than that contained in the Offering Documents
and the results of independent investigation by the Subscriber.
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1.16 The Subscriber acknowledges that at such time,
if ever, as the securities issuable upon conversion of the Debentures are
registered, sales of such securities will be subject to state securities laws,
including those of New Jersey which require any securities sold in New Jersey
to be sold through a registered broker-dealer or in reliance upon an exemption
from registration.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the
Subscriber that prior to the consummation of this offering and at the closing
date, except with regard to the provisions of paragraph II(d) herein for which
the Company represents and warrants to the Subscriber that at the closing date:
(a) The Company is a corporation duly organized,
existing and in good standing under the laws of the State of Delaware and has
the corporate power to conduct the business which it conducts and proposes to
conduct and is qualified to do business in New York.
(b) The execution, delivery and performance of this
Subscription Agreement by the Company will have been duly approved by the Board
of Directors of the Company and all other actions required to authorize and
effect the offer and sale of the Units and the securities contained therein
will have been duly taken and approved.
(c) The Debentures comprising the Units have been
duly and validly authorized and when issued and paid for in accordance with the
terms hereof, will be valid and binding obligations of the Company enforceable
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights,
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefore may be brought.
(d) The Company will at all times during the term of
the Debentures (including the debentures issuable upon exercise of the Agent's
Warrants, as defined herein) have authorized and reserved a sufficient number
of shares of Common Stock to provide for conversion of the Debentures as well
as exercise of the warrants issuable upon such conversion. The warrants have
been duly authorized and, when issued and delivered upon conversion of the
Debentures (including the debentures issuable upon exercise of the Agent's
Warrants), will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms. The shares of Common Stock issuable upon exercise
of the warrants issuable upon conversion of the Debentures (including the
debentures issuable upon exercise of the Agent's Warrants) have been reserved
for issuance upon the exercise of the Warrants and when issued in accordance
with the terms of the Warrants will
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be duly and validly authorized, validly issued, fully paid and non-assessable
and free of preemptive rights and no personal liability will attach to the
ownership thereof.
(e) The Company has obtained, or is in the process
of obtaining, all material licenses, permits and other governmental
authorizations necessary to the conduct of its business; such licenses, permits
and other governmental authorizations obtained are in full force and effect;
and the Company is in all material respects complying therewith.
(f) The Company knows of no pending or threatened
legal or governmental proceedings to which the Company is a party which could
materially adversely affect the business, property, financial condition or
operations of the Company.
(g) The Company is not in violation of or default
under, nor will the execution and delivery of this Subscription Agreement, the
issuance of the Debentures, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or therein
contemplated, result in a violation of, or constitute a default under, the
certificate of incorporation or by-laws, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound or in
violation of any material order, rule, regulation, writ, injunction, or decree
of any government, governmental instrumentality or court, domestic or foreign.
(h) The Company has entered into acquisition
agreements, each of which are in full force and effect, with each of Athletes
and Artists, Inc. and Sports Management & Television International, Inc.
pursuant to which, among other things, simultaneously with the closing of
financings aggregating at least $13,800,000 in gross proceeds to the Company,
each of such entities has agreed to merge with a separate wholly-owned
subsidiary to be formed by the Company (the "Acquisitions"), subject to the
fulfillment or satisfaction of closing conditions contained in the agreements
for such acquisitions.
III. TERMS OF SUBSCRIPTION
3.1 The subscription period will begin as of July
30, 1996 and will terminate at 11:59 PM Eastern time on August 30,1996, unless
extended by the Company and the Placement Agent for up to an additional sixty
(60) days (the "Termination Date"). Of the Units, 25 will be offered on a "best
efforts-all-or-none" basis, and the remaining 15 Units will be offered on a
"best-efforts" basis, as more particularly set forth in the Term Sheet. The
minimum subscription per Subscriber shall be one Unit ($50,000), provided,
however, that smaller investments may be accepted at the discretion of the
Placement Agent and the Company. A maximum of 15 Units may be subscribed to by
designees of the Company, provided that such Subscribers (the "Company
Designees") are accredited investors and otherwise meet applicable regulatory
requirements and are reasonably satisfactory to the Placement Agent, and
provided the
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Company notifies the Placement Agent in writing as to those subscribers who are
Company Designees prior to the Initial Closing.
3.2 Placement of the Units will be made by the
Placement Agent, which will receive (i) a placement fee in the amount of 10% of
the purchase price of the Units placed (4% with respect to Units sold to
Company Designees); (ii) a non-accountable expense allowance of 3% of the
purchase price of the Units (except Units sold to Company Designees); (iii)
warrants (the "Agent's Warrants) to purchase 10% of the Debentures sold in the
private placement; and (iv) other compensation as summarized in the Term Sheet.
3.3 Pending the sale of the Minimum Offering, all
funds paid hereunder shall be deposited by the Company in escrow with
Continental Stock Transfer & Trust Company, Two Broadway, New York, NY 10004.
If the Company shall not have obtained subscriptions (including this
subscription) for purchases of twenty-five (25) Units ($1,250,000 principal
amount of Debentures) for an aggregate purchase price of $1,250,000 on or
before the Termination Date, then this subscription shall be void and all funds
paid hereunder by the Subscriber, without interest, shall be promptly returned
to the Subscriber, subject to paragraph 3.5 hereof. If twenty-five (25) Units
are sold at or prior to the Termination Date, then all subscription proceeds
shall be paid over to the Company at a closing ( the "Initial Closing") to be
held within ten days thereafter. In such event, placements of additional Units
may continue until the Termination Date, with subsequent releases of funds to
be at the mutual consent of the Company and the Placement Agent. The date of
the final release of funds is referred to herein as the "Final Closing Date".
3.4 The Subscriber hereby authorizes and directs the
Company to deliver the securities to be issued to such Subscriber pursuant to
this Subscription Agreement either (a) to the residential or business address
indicated in the Confidential Purchaser Questionnaire or (b) directly to the
Subscriber's account maintained by the Placement Agent, if any. (If the
Subscriber does not desire the securities to be delivered to such account, the
Subscriber should delete subsection (b) of this Section 3.4.)
3.5 The Subscriber hereby authorizes and directs the
Company to return any funds for unaccepted subscriptions to the same account
from which the funds were drawn, including any customer account maintained with
the Placement Agent.
3.6 The Subscriber hereby authorizes and directs the
Company to deliver the securities issuable upon conversion of the Debentures by
delivering such securities directly to the Subscriber's account maintained by
the Placement Agent, if any, or to the Subscriber's residential or business
address indicated in the Confidential Purchaser Questionnaire, if no account is
maintained by the Subscriber with the Placement Agent.
IV. REGISTRATION RIGHTS
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4.1 The Company hereby agrees with the holders of
the Units or their transferees (collectively, the "Holders") to use its best
efforts to ensure that the securities comprising the Debenture Units, including
the shares of Common Stock issuable upon exercise of the Public Warrants (the
"Registrable Securities"), shall be registered for resale under the Act,
subject to the lock-up provisions of Section 1.10 hereof, as part of the
Company's registration of securities in the IPO. In the event that Holders
holding 51% of the principal amount of Debentures sold in the private placement
contemplated hereby shall exercise their Alternative Conversion Rights (as
defined in the Debenture), pursuant to the terms set forth in the Debenture,
the Company hereby agrees with such Holders to use its best efforts to ensure
that the securities then issuable upon conversion of the Debentures (the
"Debenture Securities"), shall be registered for resale under the Act (the
"Alternative Registration") as set forth below.
4.2 Alternative Registration Rights. In the event
the IPO is not consummated within one year from the Final Closing Date, if the
Company shall determine to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed offer and
sale of any of its securities by it or any of its security holders (other than
a registration statement on Form S-4, S-8 or other limited purpose form), the
Company will give written notice of its determination to all record holders of
the Debenture Securities. Upon the written request from any record holder or
holders of an aggregate of more than 50% of the Units (the "Requesting
Holders"), within twenty (20) days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause all such Debenture
Securities to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Debenture Securities to be so registered; provided, further,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any registration. If any registration pursuant to this Section 4.2
shall be underwritten in whole or in part, the Company may require that the
Debenture Securities requested for inclusion pursuant to this Section 4.2 be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. In the event that the Debenture
Securities requested for inclusion pursuant to this Section 4.2 together with
any other shares which have similar piggyback registration rights (such shares
and the Debenture Securities being collectively referred to as the "Requested
Stock") would constitute more than 15% of the total number of shares to be
included in a proposed underwritten public offering, and if in the good faith
judgment of the managing underwriter of such public offering the inclusion of
all of the Requested Stock originally covered by a request for registration
would reduce the number of shares to be offered by the Company or interfere
with the successful marketing of the shares of stock offered by the Company,
the number of shares of Requested Stock otherwise to be included in the
underwritten public offering may be reduced pro rata (by number of shares)
among the holders thereof requesting such registration or excluded in their
entirety if so required by the underwriter. To the extent only a portion of the
Requested Stock is included in the underwritten public offering, those shares
of Requested Stock which are thus excluded from the underwritten public
offering shall be withheld from the market by the holders thereof for a period,
not to exceed 120 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering.
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The obligation of the Company under this Section 4.2
shall be limited to two registration statements.
4.3 Registration Procedures. If and whenever the
Company is required by the provisions of Section 4.1 or 4.2 to effect the
registration of Registrable Securities or Debenture Securities under the Act,
the Company will:
(a) prepare and file with the SEC a
registration statement with respect to such securities, and use its best
efforts to cause such registration statement to become and remain effective
until the earlier of the disposition of all of the Registrable Securities or
Debenture Securities, as applicable, in accordance with the intended method of
distribution set forth in such registration statement or until they are freely
salable without the volume limitations of Rule 144;
(b) prepare and file with the SEC such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective until the earlier of the disposition of all of the Registrable
Securities in accordance with the intended method of distribution set forth in
such amendments to such registration statement and supplements to the
prospectus contained therein or until they are freely salable without the
volume limitations of Rule 144;
(c) furnish to the security holders
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or
qualify the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating holders
may reasonably request in writing within twenty (20) days following the
original filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(e) notify the security holders
participating in such registration, promptly after it shall receive notice
thereof, of the time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed;
(f) notify such holders promptly of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
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(g) prepare and file with the SEC, promptly
upon the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders (and concurred in by counsel for the Company), is required under the
Act or the rules and regulations thereunder in connection with the distribution
of Common Stock by such holder;
(h) prepare and promptly file with the SEC
and promptly notify such holders of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; and
(i) advise such holders, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
4.4 Expenses.
(a) With respect to each registration
requested pursuant to Section 4.1 hereof, and with respect to each inclusion of
Registrable Securities or Debenture Securities in a registration statement
pursuant to Section 4.2 hereof, all fees, costs and expenses of and incidental
to such registration, inclusion and public offering (as specified in paragraph
(b) below) in connection therewith shall be borne by the Company, provided,
however, that any security holders participating in such registration shall
bear their pro rata share of the underwriting discount and commissions and
transfer taxes.
(b) The fees, costs and expenses of
registration to be borne by the Company as provided in paragraph (a) above
shall include, without limitation, all registration, filing, and NASD fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, and all legal fees and disbursements and other expenses of complying
with state securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered and qualified (except as provided
in 4.4(a) above). Fees and disbursements of counsel and accountants for the
selling security holders and any other expenses incurred by the selling
security holders not expressly included above shall be borne by the selling
security holders.
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4.5 Indemnification.
(a) The Company will indemnify and hold
harmless each holder of Registrable Securities or Debenture Securities, as
applicable, which are included in a registration statement pursuant to the
provisions of Sections 4.1 or 4.2 hereof, its directors and officers, and any
underwriter (as defined in the Act) for such holder and each person, if any,
who controls such holder or such underwriter within the meaning of the Act,
from and against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such holder or any such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information
furnished by such holder, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
(b) Each holder of Registrable Securities
or Debenture Securities, as applicable, included in a registration pursuant to
the provisions of Sections 4.1 or 4.2 hereof will indemnify and hold harmless
the Company, its directors and officers, any controlling person and any
underwriter from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter with respect to, any and
all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an
indemnified party pursuant to the provisions of paragraph (a) or (b) of this
Section 4.5 of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the indemnifying party
of the commencement thereof;
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<PAGE>
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party,
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or in addition to those
available to the indemnified party, or if there is a conflict of interest which
would prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties have the right to select
separate counsel to participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
V. MISCELLANEOUS
5.1 Any notice or other communication given
hereunder shall be deemed sufficient if in writing and sent by registered or
certified mail, return receipt requested, addressed to the Company, at its
registered office, 150 East 58th Street, New York, New York 10155, Attention:
Robert M. Gutkowski, President and Chief Executive Officer and to the
Subscriber at his address indicated on the last page of this Subscription
Agreement. Notices shall be deemed to have been given on the date of mailing,
except notices of change of address, which shall be deemed to have been given
when received.
5.2 This Subscription Agreement shall not be
changed, modified or amended except by a writing signed by the parties to be
charged, and this Subscription Agreement may not be discharged except by
performance in accordance with its terms or by a writing signed by the party to
be charged.
5.3 This Subscription Agreement shall be binding
upon and inure to the benefit of the parties hereto and to their respective
heirs, legal representatives, successors and assigns. This Subscription
Agreement, together with the Term Sheet dated July 30, 1996, sets forth the
entire agreement and understanding between the parties as to the subject matter
thereof
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<PAGE>
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
5.4 Notwithstanding the place where this
Subscription Agreement may be executed by any of the parties hereto, the
parties expressly agree that all the terms and provisions hereof shall be
construed in accordance with and governed by the laws of the State of New York.
The parties hereby agree that any dispute which may arise between them arising
out of or in connection with this Subscription Agreement shall be adjudicated
before a court located in New York City and they hereby submit to the exclusive
jurisdiction of the courts of the State of New York located in New York, New
York and of the federal courts in the Southern District of New York with
respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting
the fact that such court is an inconvenient forum, relating to or arising out
of this Subscription Agreement or any acts or omissions relating to the sale of
the securities hereunder, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, in care of the address set forth below or such other address
as the undersigned shall furnish in writing to the other.
5.5 This Subscription Agreement may be executed in
counterparts. Upon the execution and delivery of this Subscription Agreement by
the Subscriber, this Subscription Agreement shall become a binding obligation
of the Subscriber with respect to the purchase of Units as herein provided;
subject, however, to the right hereby reserved to the Company to enter into the
same agreements with other subscribers and to add and/or to delete other
persons as subscribers.
5.6 The holding of any provision of this
Subscription Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Subscription
Agreement, which shall remain in full force and effect.
5.7 It is agreed that a waiver by either party of a
breach of any provision of this Subscription Agreement shall not operate, or be
construed, as a waiver of any subsequent breach by that same party.
5.8 The parties agree to execute and deliver all
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Subscription Agreement.
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VI. BLUE SKY LEGENDS
Connecticut
The undersigned acknowledges that the Securities
have not been registered under the Connecticut Uniform Securities Act, as
amended (the "Act") and are subject to restrictions on transferability and sale
of securities as set forth herein. The undersigned hereby agrees that such
Securities will not be transferred or sold without registration under the Act
or exemption therefrom.
Maine
These securities are being sold pursuant to an
exemption from registration with the bank superintendent of the State of Maine
under Section 10502(2)(r) of Title 32 of the Maine revised statutes. These
securities may be deemed restricted securities and as such the holder may not
be able to resell the securities unless pursuant to registration under state or
federal securities laws or unless an exemption under such laws exists.
Missouri
The undersigned acknowledges that the Securities
have not been registered under the Missouri Uniform Securities Act, as amended
(the "Act") and are subject to restrictions on transferability and sale of
securities as set forth herein. The undersigned hereby acknowledges that such
Securities may be disposed of only through a licensed broker-dealer. It is a
felony to sell securities in violation of the Missouri Securities Act.
Pennsylvania
The undersigned hereby acknowledges that the Issuer
is relying upon the exemption from registration of securities set forth in
Section 203(d) of the Pennsylvania Securities Act of 1972, as amended (the
"Pennsylvania Act") in connection with the sale of the Securities to the
undersigned.
In accordance with the requirements of Section
203(d) of the Pennsylvania Act, the undersigned hereby agrees not to sell his
Securities within twelve (12) months from the date of purchase except pursuant
to Section 204.01 of the Blue Sky Regulations of the Pennsylvania Securities
Act of 1972. Additionally, the undersigned is aware of the right of withdrawal
under Section 207(m) of the Act described in the cover pages of the Memorandum.
Texas
The undersigned hereby acknowledges that the
Securities cannot be sold unless they are subsequently registered under the
Securities Act of 1933, as amended, and the
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Texas Securities Act, or an exemption from registration is available. The
undersigned further acknowledges that because the Securities are not readily
transferable, he must bear the economic risk of his investment for an
indefinite period of time.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
/s/ Robert Gutkowski
- ------------------------------- ---------------------------------
Signature of Subscriber(s)
Robert Gutkowski
- ------------------------------- ----------------------------------
Name of Subscriber(s)
[please print]
- - ------------------------------ ----------------------------------
Address of Subscriber(s)
- - ------------------------------ ----------------------------------
Social Security or Taxpayer
Identification Number of Subscriber(s)
- - ------------------------------
Subscriber's Account Number
at Royce Investment Group, Inc., if any.
$115,385
- - ------------------------------
Number of Units Subscribed For
*IF SUBSCRIBER IS A REGISTERED REPRESENTATIVE
WITH AN NASD MEMBER FIRM, HAVE THE FOLLOWING
ACKNOWLEDGEMENT SIGNED BY THE APPROPRIATE PARTY:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Article 3, Sections 28(a) Subscription Accepted:
and (b) of the Rules of Fair Practice.
THE MARQUEE GROUP, INC.
- - ------------------------------
Name of NASD Member Firm By: /s/ Robert Gutkowski
------------------------------
Robert M. Gutkowski, President and
Chief Executive Officer
By ______________________________
Authorized Officer Date: August 15, 1996
-------------------------
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<PAGE>
3,350,000 Units
(each Unit consisting of one share of Common Stock, par
value $.01 per share, and one redeemable warrant to purchase
one share of Common Stock)
THE MARQUEE GROUP, INC.
UNDERWRITING AGREEMENT
Royce Investment Group, Inc. December 5, 1996
As Representative of the Several Underwriters
199 Crossways Park Drive
Woodbury, New York 11797
The Marquee Group, Inc., a Delaware corporation ( "Marquee" or the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") of this Underwriting Agreement (this
"Agreement"), for whom you are acting as representative (the "Representative"),
an aggregate of 3,350,000 Units, each unit being hereinafter referred to as a
"Unit" and consisting of one share of Common Stock, par value $.01 per share
("Shares"), and one redeemable warrant ("Warrants") to purchase one share of
the Company's Common Stock at a price of $7.50 at any time from the Separation
Date (as defined in the Warrant Agreement) until December 5, 2001. The Warrants
are subject to redemption, in certain instances commencing one year from the
date of this Agreement. In addition, Marquee proposes to grant to the
Underwriters the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 502,500 additional Units. Unless the context otherwise
indicates, the term "Units" shall include the 502,500 additional Units referred
to above.
The aggregate of 3,350,000 Units to be sold by Marquee, together with
all or any part of the 502,500 Units which the Underwriters have the option to
purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Common Stock of Marquee to be outstanding after giving
effect to the sale of the Shares is herein called the "Common Stock." The
Shares and Warrants included in the Units (including the Units which the
Underwriters have the option to purchase) are herein collectively called the
"Securities."
You have advised Marquee that you and the other Underwriters desire to
purchase, severally, the Units, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. Marquee confirms the
agreements made by it with respect to the purchase of the Units by the several
Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
<PAGE>
(a) A registration statement (File No. 333-11287) on Form
SB-2 relating to the public offering of the Units, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared by Marquee in conformity with the
applicable requirements of the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, and has been filed with
the Commission under the Act and one or more amendments to such registration
statement may have been so filed. After the execution of this Agreement,
Marquee will file with the Commission either (i) if such registration
statement, as it may have been amended, has been declared by the Commission to
be effective under the Act, either (A) if Marquee relies on Rule 434 under the
Act, a Term Sheet (as hereinafter defined) relating to the Units that shall
identify the Preliminary Prospectus (as hereinafter defined) that it
supplements containing such information as is required or permitted by Rules
434, 430A and 424(b) under the Act or (B) if Marquee does not rely on Rule 434
under the Act, a prospectus in the form most recently included in an amendment
to such registration statement (or, if no such amendment shall have been filed,
in such registration statement), with such changes or insertions as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the Act
and in the case of either clause (i)(A) or (i)(B) of this sentence, as have
been provided to and approved by the Representative prior to the execution of
this Agreement, or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been furnished to and approved by the
Representative prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if Marquee relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein that
such Term Sheet supplements; (B) if Marquee does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if Marquee does not rely on Rule 434 under the Act and if
no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the
prospectus as so supplemented, or both, as the case may be; and the term "Term
Sheet" means any term sheet that satisfies the requirements
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<PAGE>
of Rule 434 under the Act. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on
the Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that Marquee makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to Marquee by or on behalf of the Underwriters
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization,
under "Risk Factors-Possible Restrictions on Market-Making Activities in
Company's Securities," under the heading "Underwriting" and the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in the Registration Statement and Prospectus, as the
case may be.
(c) Each of Marquee and the Merger Subsidiaries (as herein
defined) has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
full power and authority (corporate and other) to own its properties and
conduct its respective business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in
all other jurisdictions in which the nature of its respective business or the
character or location of its properties requires such qualification, except
where failure to so qualify would not materially affect the business,
properties or financial condition of Marquee and the Merger Subsidiaries, taken
as a whole.
(d) The authorized, issued and outstanding capital stock of
Marquee as of September 30, 1996 is as set forth in the Prospectus under
"Capitalization;" the shares of issued and outstanding capital stock of Marquee
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations to
issue, or agreements or other rights to convert any obligation into, any shares
of capital stock of Marquee have been granted or entered into by Marquee; and
the capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of Marquee. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or
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<PAGE>
relating to the registration of any shares of Common Stock, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of Marquee
enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of Marquee enforceable in accordance with
its terms. The Warrants and the Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants underlying the Unit Purchase Option have
been duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of Marquee enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option and the Warrant Agreement. The Shares included in the Unit
Purchase Option (and the shares of Common Stock issuable upon exercise of such
Warrants) when issued and sold in accordance with the terms of the Unit
Purchase Option, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights and no personal liability will
attach to the ownership thereof.
(f) This Agreement, the Unit Purchase Option and the Warrant
Agreement have been duly and validly authorized, executed and delivered by
Marquee. Marquee has full power and lawful authority to authorize, issue and
sell the Units to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the Units
or the Unit Purchase Option, except such as may be required for the
registration of the Units under the Act or by the National Association of
Securities Dealers, Inc. (the "NASD") or state securities laws.
(g) Marquee does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity
other than the subsidiaries (the "Merger Subsidiaries") which will merge into
each of Athletes and Artists, Inc., a New York corporation ("A&A") and Sports
Management & Television International, Inc., a Connecticut corporation ("SMTI")
simultaneously on the First Closing Date (as hereinafter defined) and A&A
Acquisition Corp. Each of the Merger Subsidiaries is a corporation duly
organized and validly existing under the
-4-
<PAGE>
laws of the state of the jurisdiction
of its incorporation. Marquee owns all of the capital stock of each of the
Merger Subsidiaries free and clear of all liens, security interests and
encumbrances. Marquee has entered into amended and restated acquisition
agreements (the "Acquisition Agreements") with each of A&A and SMTI, among
other parties, pursuant to which, upon completion of financings aggregating
at least $13,800,000 in gross proceeds to Marquee, A&A and SMTI have each agreed
to merge with one of the Merger Subsidiaries. Each of the Acquisition
Agreements is in full force and effect and neither the Company nor the other
parties thereto are in breach of or default under either of such agreements.
(h) Except as described in the Prospectus, neither the
Company nor any of the Merger Subsidiaries is in violation, breach or default
of or under, any indenture, mortgage, deed of trust, loan agreement or other
agreement (including the Acquisition Agreements) or instrument to which the
Company or any of the Merger Subsidiaries is a party or by which the Company or
any of the Merger Subsidiaries may be bound or to which any of the property or
assets of the Company or any of the Merger Subsidiaries is subject, including
the Acquisition Agreements, which violation, breach or default would have a
material adverse effect on either the Company or the Merger Subsidiaries; and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or any of the Merger Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any Merger Subsidiary
is a party or by which the assets of the Company or any of the Merger
Subsidiaries is subject, nor will such action result in any violation of the
provisions of the certificate of incorporation or the by-laws of the Company or
any of the Merger Subsidiaries, as amended, or any statute or any order, rule
or regulation applicable to the Company or any of the Merger Subsidiaries of
any court or of any regulatory authority or other governmental body having
jurisdiction over the Company or any of the Merger Subsidiaries.
(i) Subject to the qualifications stated in the Prospectus,
each of Marquee and the Merger Subsidiaries has good and marketable title to
all properties and assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its business; all of the
material leases and subleases under which Marquee or any of the Merger
Subsidiaries is the lessor or sublessor of properties or assets or under which
Marquee or any of the Merger Subsidiaries hold properties or assets as lessee
or sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, neither Marquee nor any of the Merger
Subsidiaries is in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to rights of Marquee or any of the Merger
Subsidiaries as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of Marquee
or any of the Merger Subsidiaries to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and each of
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<PAGE>
Marquee and the Merger Subsidiaries owns or leases all such properties described
in the Prospectus as are necessary to their respective operations as now
conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(j) Each of Ernst & Young LLP and Scott Gildea CPA, who have
given their respective reports on certain financial statements filed and to be
filed with the Commission as a part of the Registration Statement, which are
incorporated in the Prospectus, are with respect to the Company, independent
public accountants as required by the Act and the Rules and Regulations.
(k) The financial statements, together with related notes,
set forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) present fairly the financial position and
results of operations and changes in cash flow of Marquee and A&A and SMTI on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply (subject in the case of financial
statements for interim periods, to normal and recurring year end adjustments).
Said statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. No other financial statements or schedules are
required to be included in the Registration Statement. The information set
forth under the captions "Dilution," "Capitalization," and "Selected Financial
Data" in the Prospectus fairly present, on the basis stated in the Prospectus,
the information included therein. The pro forma financial information included
in the Prospectus (or the Preliminary Prospectus) has been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements, and, in the opinion of the Company, includes all
adjustments necessary to present fairly the pro forma financial condition and
results of operations at the respective dates and for the respective periods
indicated and, in the opinion of the Company, all assumptions used in preparing
such pro forma financial statements are reasonable.
(l) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
neither Marquee nor any of the Merger Subsidiaries has incurred any liabilities
or obligations, direct or contingent, not in the ordinary course of business,
or entered into any transaction not in the ordinary course of business, in
either case which are material to the business of Marquee or any of the Merger
Subsidiaries, and there has not been any change in the capital stock of, or any
incurrence of short-term or long-term debt by, the Company or any issuance of
options, warrants or other rights to purchase the capital stock of the Company
or any adverse change or any development involving, so far as the Company can
now reasonably foresee, a prospective adverse change in the condition
(financial or other), net worth, results of operations, business, key personnel
or properties of it which would be material to the business or financial
condition of Marquee or any of the Merger Subsidiaries and neither Marquee nor
any of the Merger Subsidiaries has become a party to, and neither the business
nor the property of Marquee or any of the Merger Subsidiaries has become the
subject of, any material litigation whether or not in the ordinary course of
business.
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(m) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which Marquee or any of the Merger Subsidiaries is a party before
or by any court or governmental agency or body, nor are there any actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race, in either case which
might result in any material adverse change in the condition (financial or
other), business prospects, net worth, or properties of Marquee or any the
Merger Subsidiaries, and no labor disputes involving the employees of Marquee
or any of the Merger Subsidiaries exist or are imminent which might be expected
to materially adversely affect the conduct of the business, property or
operations or the financial condition or results of operations of Marquee or
any of the Merger Subsidiaries.
(n) Except as disclosed in the Prospectus, Marquee and each
of the Merger Subsidiaries have filed, or have duly obtained extension for the
time for filing of, all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against Marquee or any of the Merger Subsidiaries.
(o) Marquee and each of the Merger Subsidiaries have
sufficient licenses, permits and other governmental authorizations currently
required for the conduct of their business or the ownership of their properties
as described in the Prospectus and are in all material respects complying
therewith and own or possess adequate rights to use all material trademarks,
service marks, trade-names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of such
business and have not received any notice of conflict with the asserted rights
of others in respect thereof. To the best knowledge of the Company, none of the
activities or business of Marquee or any of the Merger Subsidiaries are in
violation of, or cause Marquee or any of the Merger Subsidiaries to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the violation of which would have a material adverse impact upon
the condition (financial or otherwise), business, property, prospective results
of operations, or net worth of Marquee and the Merger Subsidiaries, taken as a
whole.
(p) Neither Marquee nor any of the Merger Subsidiaries has,
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(q) On the Closing Dates (hereinafter defined), all transfer
or other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the
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Units to the several Underwriters hereunder will have been fully paid or
provided for by Marquee and all laws imposing such taxes will have been
fully complied with.
(r) All contracts and other documents of Marquee or any of
the Merger Subsidiaries which are, under the Rules and Regulations, required to
be filed as exhibits to the Registration Statement have been so filed.
(s) Neither Marquee nor any of the Merger Subsidiaries has
taken nor will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Units hereby.
(t) Neither Marquee nor any of the Merger Subsidiaries has
entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from Marquee for services as a finder in
connection with the proposed public offering.
(u) Except as previously disclosed in writing by Marquee to
the Representative, no officer, director or 5% stockholder of Marquee or any of
the Merger Subsidiaries has any affiliation or association with any member of
the NASD.
(v) Neither Marquee nor any of the Merger Subsidiaries is,
nor upon receipt of the proceeds from the sale of the Units will be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(w) Neither Marquee nor any of the Merger Subsidiaries has
distributed, nor will it distribute prior to the First Closing Date, any
offering material in connection with the offering and sale of the Units other
than the Preliminary Prospectus, the Prospectus, the Registration Statement or
the other materials permitted by the Act, if any.
(x) Marquee and each of the Merger Subsidiaries have complied
with all provisions of Section 517.075 Florida Statutes relating to doing
business with the government of Cuba or with any person or affiliate located in
Cuba.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties, and agreements herein
contained, Marquee agrees to issue and sell to the Underwriters, and each such
Underwriter agrees, severally and not jointly, to buy from Marquee at $5.00 per
Unit, at the place and time hereinafter specified, the respective number of
Units set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "First Units") plus any additional Units which such Underwriters
may become obligated to purchase pursuant to the provisions of Section 9
hereof. The First Units shall consist of 3,350,000 Units to be purchased from
Marquee.
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Delivery of the First Units against payment therefor shall
take place at the offices of Royce Investment Group, Inc., 199 Crossways Park
Drive, Woodbury, N.Y. 11797 (or at such other place as may be designated by
agreement between you and Marquee) at 10:00 a.m., New York time, on, December
11, 1996, or at such later time and date as you may designate, such time and
date of payment and delivery for the First Units being herein called the
"First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, Marquee hereby grants an option to the several Underwriters
to purchase all or any part of an aggregate of an additional 502,500 Units at
the same price per Unit as the Underwriters shall pay for the First Units being
sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Units being referred to herein as the "Option Units"). This option
may be exercised within 45 days after the effective date of the Registration
Statement upon notice by the Representative to Marquee advising as to the
amount of Option Units as to which the option is being exercised, the names and
denominations in which the certificates for such Option Units are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Representative but shall not be
earlier than four nor later than ten full business days after the exercise of
said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Units against payment therefor shall take place at the offices of Royce
Investment Group, Inc., 199 Crossways Park Drive, Woodbury, N.Y. 11797 (or at
such other place as may be designated by agreement between you and Marquee).
The number of Option Units to be purchased by each Underwriter, if any, shall
bear the same percentage to the total number of Option Units being purchased by
the several Underwriters pursuant to this subsection (b) as the number of Units
such Underwriter is purchasing bears to the total number of the First Units
being purchased pursuant to subsection (a) of this Section 2, as adjusted, in
each case by the Representative in such manner as the Representative may deem
appropriate. The option granted hereunder may be exercised only to cover
overallotments in the sale by the Underwriters of First Units referred to in
subsection (a) above. In the event Marquee declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of Common
Stock or any other consideration, prior to the Option Closing Date, such
dividend or distribution shall also be paid on the Option Units on the Option
Closing Date.
(c) Marquee will make the certificates for the securities
comprising the Units to be purchased by the Underwriters hereunder available to
you for checking at least two full business days prior to the First Closing
Date or the Option Closing Date (which are collectively referred to herein as
the "Closing Dates"). The certificates shall be in such names and denominations
as you may request, at least two full business days prior to the Closing Dates.
Time shall be of the essence and delivery at the time and place specified in
this Agreement is a further condition to the obligations of each Underwriter.
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Definitive certificates in negotiable form for the Units to
be purchased by the Underwriters hereunder will be delivered by Marquee to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of Marquee.
In addition, in the event the Underwriters exercise the
option to purchase from Marquee all or any portion of the Option Units pursuant
to the provisions of subsection (b) above, payment for such Units shall be made
to or upon the order of Marquee by certified or bank cashier's checks payable
in New York Clearing House funds at the offices of Royce Investment Group,
Inc., 199 Crossways Park Drive, Woodbury, N.Y. 11797 (or at such other place as
may be designated by agreement between you and Marquee) at the time and date of
delivery of such Units as required by the provisions of subsection (b) above,
against receipt of the certificates for such Units by the Representative for
the respective accounts of the several Underwriters registered in such names
and in such denominations as the Representative may request.
It is understood that you, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Units to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or underwriters of any of its or their obligations hereunder. It is
also understood that you individually, rather than all of the Underwriters, may
(but shall not be obligated to) purchase the Option Units referred to in
subsection (b) of this Section 2, but only to cover overallotments.
It is understood that the several Underwriters propose to
offer the Units to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) Marquee will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If
required, Marquee will file the Prospectus or any Term Sheet that constitutes a
part thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. Upon notification from the Commission that the Registration Statement has
become effective, Marquee will so advise you and will not at any time, whether
before or after the effective date, file the Prospectus, Term Sheet or any
amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously have been advised and furnished with a copy or
to which you or your counsel shall have objected in writing or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (A) the completion by all of the Underwriters of the distribution of
the Units contemplated hereby (but in
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no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, Marquee will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
Prospectus which, in your opinion, may be necessary or advisable in connection
with the distribution of the Units.
As soon as Marquee is advised thereof, Marquee will advise
you, and confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission for amendment of
the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop order or other order or threat
thereof suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
Marquee has caused to be delivered to you copies of each
Preliminary Prospectus, and Marquee has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. Marquee authorizes
the Underwriters and dealers to use the Prospectus in connection with the sale
of the Units for such period as in the opinion of counsel to the several
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer of any event of
which Marquee has knowledge and which materially affects the Company or the
securities of Marquee, or which in the opinion of counsel for the Company or
counsel for the Underwriters should be set forth in an amendment to the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Units or in case it shall be necessary to amend or supplement the Prospectus to
comply with law or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case any Underwriter is required, in connection with the sale of
the Units to deliver a Prospectus nine months or more after the effective date
of the Registration Statement, Marquee will upon request of and at the expense
of the Underwriter, amend or
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<PAGE>
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder in connection with the offering
and issuance of the Units.
(b) Marquee will use its best efforts to qualify to register
the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Representative may designate and will make such
applications and furnish such information as may be required for that purpose
and to comply with such laws, provided Marquee shall not be required to qualify
as a foreign corporation or a dealer in securities or to execute a general
consent of service of process in any jurisdiction in any action other than one
arising out of the offering or sale of the Units. Marquee will, from time to
time, prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the Underwriters
may reasonably request.
(c) If the sale of the Units provided for herein is not
consummated for any reason caused by the Company, Marquee shall pay all costs
and expenses incident to the performance of Marquee's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable out-of-pocket expenses of the Representative.
(d) Marquee will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify the
Representative in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Representative, to obtain
a listing on the Pacific Stock Exchange and to obtain and keep current a
listing in the Standard & Poors or Moody's Industrial OTC Manual.
(e) For so long as Marquee is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, Marquee, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, a balance sheet of Marquee and any of its subsidiaries as at the end of
such fiscal year, together with statements of income, surplus and cash flow of
Marquee and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of Marquee for such quarter in reasonable detail; (iii) as soon as
they are available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with
the Commission or any securities exchange or automated quotation
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system on which any class of securities of Marquee is listed; and (v) such
other information as you may from time to time reasonably request.
(f) In the event Marquee has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of Marquee and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) Marquee will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the several Underwriters such number of conformed
copies of the Registration Statement, including such financial statements but
without exhibits, and of all amendments thereto, as the several Underwriters
may reasonably request. Marquee will deliver to or upon the order of the
several Underwriters, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus filed with
the Commission prior to the effective date of the Registration Statement as the
Underwriters may reasonably request. Marquee will deliver to the Underwriters
on the effective date of the Registration Statement and thereafter for so long
as a Prospectus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriters may from time to time reasonably request.
Marquee, not later than (i) 5:00 p.m., New York City time, on the date of
determination of the public offering price, if such determination occurred at
or prior to 12:00 noon, New York City time, on such date or (ii) 6:00 p.m., New
York City time, on the business day following the date of determination of the
public offering price, if such determination occurred after 12:00 noon, New
York City time, on such date, will deliver to the Underwriters, without charge,
as many copies of the Prospectus and any amendment or supplement thereto as the
Underwriters may reasonably request for purposes of confirming orders that are
expected to settle on the First Closing Date.
(h) Marquee will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as
soon as it is practicable to do so but in no event later than 90 days after the
end of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) Marquee will apply the net proceeds from the sale of the
Units for the purposes set forth under "Use of Proceeds" in the Prospectus, and
will file such reports with the Commission with respect to the sale of the
Units and the application of the proceeds therefrom as may be required pursuant
to Rule 463 under the Act.
(j) Marquee will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary
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Prospectus or Prospectus and take any other action, which in the reasonable
opinion of Bachner, Tally, Polevoy & Misher LLP, counsel to the several
Underwriters, may be reasonably necessary or advisable in connection with the
distribution of the Units, and will use its best efforts to cause the same
to become effective as promptly as possible.
(k) Marquee will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Warrants and the Unit Purchase Option outstanding from time to
time.
(l) The Company will deliver to the Representative agreements
to the effect that for a period of 24 months from the First Closing Date, no
officer, director or stockholder of Marquee (other than "Outside Stockholders"
(as herein defined)) (such officers, directors and stockholders being herein
referred to as the "Principal Stockholders"), will directly or indirectly,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any securities of
Marquee provided, however, that (i) the restrictions shall only apply to those
securities owned by the Principal Stockholders at the effective date of the
Prospectus, those securities to be received by the Principal Stockholders in
connection with the conversion of debentures issued in the Private Placement
(as such term is defined in the Prospectus) and those securities to be received
by the Principal Stockholders in connection with the Acquisitions (as such is
defined in the Prospectus), and (ii) with respect to any securities which were
not acquired or issued upon conversion of securities acquired in connection
with the Private Placement, the restrictions shall not apply to transfers to
affiliates of the Principal Stockholders after receipt of the written consent
of the Representative on behalf of the Underwriters (which consent shall not be
unreasonably withheld). In order to enforce this covenant, Marquee shall impose
stop-transfer instructions with respect to the securities owned by the
Principal Stockholders until the end of such period. And for a period of twelve
months from the First Closing Date, stockholders of Marquee who were not
designees of Marquee in the private placement in which the Representative acted
as placement agent (the "Outside Stockholders") will not directly or
indirectly, offer, sell (including any short sale), grant any option for the
sale of, acquire any option to dispose of, or otherwise dispose of any
securities of Marquee. In order to enforce this covenant, Marquee shall impose
stop-transfer instructions with respect to the securities owned by the Outside
Stockholders until the end of such period.
(m) Prior to completion of this offering, Marquee will make
all filings required, including registration under the Exchange Act, to obtain
the listing of the Units, Common Stock, and Warrants on the Nasdaq Small Cap
Market (or a listing on such other market or exchange as the Underwriters
consent to), and will effect and maintain such listing for at least five years
from the date of this Agreement.
(n) Each of Marquee and the Principal Stockholders represents
that it or he has not taken and agrees that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization
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or manipulation of the price of the Units, Shares or the Warrants or to
facilitate the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery
of the Units, Marquee shall execute and deliver to you, individually and not as
Representative of the Underwriters, the Unit Purchase Option. The Unit Purchase
Option will be substantially in the form of the Representative's Unit Purchase
Option filed as an Exhibit to the Registration Statement.
(p) During the 18 month period commencing on the date of this
Agreement, Marquee will not, without the prior written consent of the
Representative, grant options to purchase shares of Common Stock at an exercise
price less than the greater of (i) the initial public offering price of the
Units (without allocating any value to the Warrants) or (ii) the fair market
value of the Common Stock on the date of grant. During the six month period
commencing on the date of this Agreement, Marquee will not grant options to
any current officer of Marquee, or to any individual who will become an
officer of Marquee upon the First Closing Date. During the three year period
from the First Closing Date, Marquee will not offer or sell any of its
securities pursuant to Regulation S under the Act, without the prior written
consent of the Representative, which consent shall not be unreasonably
withheld.
(q) Marquee will not, without the prior written consent of
the Representative, grant registration rights to any person which are
exercisable sooner than 13 months from the First Closing Date.
(r) Robert Gutkowski shall be President of Marquee on the
Closing Dates. Marquee has obtained key person life insurance in an amount of
not less than $2 million on the life of Robert M. Gutkowski, and will use its
best efforts to maintain such insurance during the three year period commencing
with the First Closing Date. In the event that Robert Gutkowski's employment
with Marquee is terminated prior to three years following the First Closing
Date, Marquee will use its best efforts to obtain a comparable policy on the
life of his successor for the balance of the three year period. For a period of
thirteen months from the First Closing Date, the compensation of the executive
officers of Marquee shall not be increased from the compensation levels
disclosed in the Prospectus.
(s) So long as any Warrants are outstanding, Marquee shall
use its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each
holder of record of a Warrant and to furnish to each Underwriter and dealer as
many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. Marquee shall not call for redemption any of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least
until the date fixed for redemption.
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(t) Upon the exercise of any Warrant or Warrants after
December 5, 1997, Marquee will pay to Royce Investment Group, Inc., in its
individual capacity and not as Representative of the Underwriters, a fee (the
"Solicitation Fee") of 5% of the aggregate exercise price of the Warrants, of
which % may be reallowed to the dealer who solicited the exercise (which may
also be Royce Investment Group, Inc.) if (i) the market price of Marquee's
Common Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrant was solicited by a member ("Member")
of the NASD, (iii) the Warrant is not held in a discretionary account; (iv) the
disclosure of compensation arrangements has been made in documents provided to
customers, both as part of the original offering and at the time of exercise,
and (v) the solicitation of the Warrant was not in violation of Rule 10b-6
promulgated under the Exchange Act. Marquee agrees not to solicit the exercise
of any Warrants other than through Royce Investment Group, Inc., without the
prior written consent of Royce, and will not authorize any other dealer to
engage in such solicitation, without the prior written consent of Royce
Investment Group, Inc. The Solicitation Fee shall only be payable to the extent
that the Representative (or Member) who solicited the exercise of any warrant
is designated in writing by the holder of the warrant as having solicited the
exercise of such warrant.
(u) For a period of five (5) years from the Effective Date
Marquee (i) at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) Marquee's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of Marquee's 10-Q
quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Representative, which
consent shall not be unreasonably withheld.
(v) As promptly as practicable after the Closing Date,
Marquee will prepare, at its own expense, hard cover "bound volumes" relating
to the offering, and will distribute at least four of such volumes to the
individuals designated by the Representative or counsel to the Underwriters.
(w) For a period of five years from the First Closing Date
(i) the Representative shall have the right, but not the obligation, to
designate an advisor to the Board of Directors of Marquee and (ii) Marquee
shall engage a public relations firm acceptable to the Representative.
(x) Marquee shall, for a period of six years after the date
of this Agreement, submit such reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for Marquee to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in Marquee.
(y) On the Closing Date, Marquee shall cause and take no
action to prevent each of the merger of A&A and a Merger Subsidiary of Marquee
and the merger of SMTI and a Merger Subsidiary of Marquee, substantially on the
terms and conditions set forth in the
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Acquisition Agreements and the Prospectus, subject to such changes therein as
are not material and are agreed to by the Representative.
4. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Units which they have
respectively agreed to purchase hereunder, are subject to the accuracy (as of
the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective
and you shall have received notice thereof not later than 10:00 A.M., New York
time, on the date on which the amendment to the registration statement
originally filed with respect to the Units or to the Registration Statement, as
the case may be, containing information regarding the initial public offering
price of the Units has been filed with the Commission, or at such later time
and date as shall have been agreed to by the Representative; if required, the
Prospectus or any Term Sheet that constitutes a part thereof and any amendment
or supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 434 and 424(b) under the Act; on or
prior to the Closing Dates no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that or a
similar purpose shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of Marquee, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters;
(b) At the First Closing Date, you shall have received the
opinion, addressed to the Underwriters, dated as of the First Closing Date, of
Baker & McKenzie, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, to the effect that:
(i) Each of Marquee and the Merger Subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the state of jurisdiction of its incorporation, with full
corporate power and authority to own its respective properties and conduct its
respective business as described in the Registration Statement and Prospectus
and is duly qualified or licensed to do business as a foreign corporation and
is in good standing in each jurisdiction in which the ownership or leasing of
its respective properties or conduct of its respective requires such
qualification except where the failure to so qualify, or be so licensed would
not have a material adverse affect on the business, properties or financial
condition of the Company and each of the Merger Subsidiaries;
(ii) to the best knowledge of such counsel, (a) Marquee and
each of the Merger Subsidiaries have obtained, or are in the process of
obtaining, all licenses, permits and other governmental authorizations
necessary to the conduct of their respective businesses as described in the
Prospectus, (b) such licenses, permits and other governmental authorizations
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obtained are in full force and effect, and (c) Marquee and each of the Merger
Subsidiaries are in all material respects complying therewith;
(iii) the authorized capitalization of Marquee as of
September 30,1996 is as set forth under "Capitalization" in the Prospectus; all
shares of Marquee's outstanding stock requiring authorization for issuance by
Marquee's board of directors have been duly authorized and are non-assessable
and conform to the description thereof contained in the Prospectus and, to the
best of such counsel's knowledge, after due inquiry, such shares were validly
issued and are fully paid; the outstanding shares of Common Stock of Marquee
have not been issued in violation of any statutory preemptive rights or, to the
best knowledge of such counsel, any other preemptive rights, of any shareholder
and the shareholders of Marquee do not have any preemptive rights or other
rights to subscribe for or to purchase, nor are there any restrictions upon the
voting or transfer of any of the Common Stock (except as described in the
Registration Statement and Prospectus), the Warrants, the Unit Purchase Option
and the Warrant Agreement conform to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the shares of Common
Stock to be issued upon exercise of the Warrants and the Unit Purchase Option,
upon issuance in accordance with the terms of such Warrants, the Warrant
Agreement and Unit Purchase Option have been duly authorized and, when issued
and delivered, will be duly and validly issued, fully paid, non-assessable,
free of any statutory preemptive rights and no personal liability will attach
to the ownership thereof; to the best of such counsel's knowledge, after due
inquiry, all prior sales by Marquee of Marquee's securities have been made in
compliance with or under an exemption from registration under the Act and
applicable state securities laws and no shareholders of Marquee have any
rescission rights with respect to the Company's securities; a sufficient
number of shares of Common Stock has been reserved for issuance upon exercise
of the Warrants and Unit Purchase Option; and to the best of such counsel's
knowledge, neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been waived or
satisfied for or relating to the registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option and the
Warrant Agreement have been duly and validly authorized, executed and delivered
by Marquee and, assuming due execution by each other party hereto or thereto,
each constitutes a legal, valid and binding obligation of Marquee enforceable
against Marquee in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law);
(v) the certificates evidencing the shares of Common Stock
are in valid and proper legal form; the Warrants will be exercisable for shares
of Common Stock of Marquee in accordance with the terms of the Warrants and at
the prices therein provided for; as of the date hereof the shares of Common
Stock of Marquee issuable upon exercise of the Warrants have been
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duly authorized and reserved for issuance upon such exercise and such shares,
when issued upon such exercise in accordance with the terms of the Warrants and
at the price provided for, will be duly and validly issued, fully paid and
non-assessable;
(vi) such counsel knows of no pending or threatened legal
or governmental proceedings to which either Marquee or any of the Merger
Subsidiaries is a party which could materially adversely affect the business,
property, financial condition or operations of Marquee and the Merger
Subsidiaries taken as a whole; or which question the validity of the
Securities, this Agreement, the Warrant Agreement, the Unit Purchase Option or
the Acquisition Agreements, or of any action taken or to be taken by either
Marquee or any of the Merger Subsidiaries pursuant to this Agreement, the
Warrant Agreement, the Unit Purchase Option or the Acquisition Agreements; and
no such proceedings are known to such counsel to be contemplated against either
Marquee or any of the Merger Subsidiaries; there are no governmental
proceedings or regulations required to be described or referred to in the
Registration Statement which are not so described or referred to;
(vii) to the best of such counsel's knowledge, neither the
Company nor any of the Merger Subsidiaries is in violation of or default under
any indenture, mortgage, deed of trust, loan agreement or other agreement
(including the Acquisition Agreements) or instrument to which the Company or
any of the Merger Subsidiaries is a party or by which the Company or any of the
Merger Subsidiaries may be bound or to which any of the property or assets of
the Company or any of the Merger Subsidiaries is subject, which violation,
breach or default would have a material adverse effect on either the Company or
the Merger Subsidiaries; nor will the execution and delivery of this Agreement,
the Unit Purchase Option, the Warrant Agreement, or the Acquisition Agreements,
and the incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, with or
without the giving of notice or the lapse of time, or both, result in a breach
or violation of, or constitute a default under the certificate of incorporation
or by-laws, in the performance or observance of any material obligation,
agreement, covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company or any of the Merger Subsidiaries is a party or by which it or any of
their respective properties may be bound or in violation of any material order,
rule, regulation, writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign, in each case which breach,
violation or default would have a material adverse effect on either the Company
or the Merger Subsidiaries;
(viii) the Registration Statement has become effective
under the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements, notes thereto and other financial,
numerical, statistical and accounting data contained therein, or omitted
therefrom, as to which such counsel
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<PAGE>
need express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(ix) such counsel has participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, the representatives of the
Underwriters and counsel to the Underwriters at which the contents of the
Registration Statement and Prospectus and related matters were discussed and,
although counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise expressly set forth
in its opinion), on the basis of the foregoing no facts have come to the
attention of such counsel that caused it to believe that the Registration
Statement (other than the financial statements and notes thereto and other
financial, numerical, statistical and accounting data included therein, or
omitted therefrom, as to which it expresses no opinion), as amended or
supplemented, at the time such Registration Statement became effective and as
of the Closing Dates, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus (other than
the financial statements and notes thereto and other financial, numerical,
statistical and accounting data included therein, or omitted therefrom as to
which it expresses no opinion), as amended or supplemented, as of its date and
the Closing Dates, contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown, and such counsel is familiar with all
contracts and other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized, described or filed;
(xi) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units by
Marquee, in connection with the execution, delivery and performance of this
Agreement by Marquee or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase Option or the
Securities underlying the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or
Blue Sky laws and registration under the Act; and
(xii) based upon a letter received by the Company from the
Nasdaq Stock Market, the Units, the Common Stock and the Warrants have been
duly authorized for quotation on the Nasdaq SmallCap Market.
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<PAGE>
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Representative or counsel for the
Underwriters shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have no
reason to believe that you and they are not entitled to so rely.
(b) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus and
other related matters shall be reasonably satisfactory to or approved by
Bachner, Tally, Polevoy & Misher LLP, counsel to the several Underwriters, and
you shall have received from such counsel a signed opinion, dated as of the
First Closing Date, together with copies thereof for each of the other
Underwriters, with respect to the validity of the issuance of the Units, the
form of the Registration Statement and Prospectus (other than the financial
statements and other financial data contained therein), the execution of this
Agreement and other related matters as you may reasonably require. Marquee
and each of the Merger Subsidiaries shall have furnished to counsel for the
several Underwriters such documents as it may reasonably request for the
purpose of enabling it to render such opinion.
(c) You shall have received a letter prior to the effective
date of the Registration Statement and again on and as of the First Closing
Date from Ernst & Young LLP, independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending October 31,
1996 and results of the comparable period during the prior fiscal year.
(d) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and Marquee
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change,
or any development involving a prospective material adverse change, in the
business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
Marquee and the Merger Subsidiaries taken as a whole from that set forth in the
Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the effective
date of the Registration Statement, and Marquee and each of the Merger
Subsidiaries shall not have incurred any material liabilities or entered into
any agreement not in the ordinary course of business other than as
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referred to in the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity shall
be pending or threatened against Marquee or any of the Merger Subsidiaries which
would be required to be set forth in the Registration Statement, and no
proceedings shall be pending or threatened against Marquee or any of the Merger
Subsidiaries before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of Marquee
and the Merger Subsidiaries taken as a whole, and (v) you shall have received,
at the First Closing Date, a certificate signed by each of the Chairman of the
Board or the President and the principal financial or accounting officer of
Marquee, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e).
(e) Upon exercise of the option provided for in Section
2(b) hereof, the obligations of the several Underwriters (or, at its option,
the Representative, individually) to purchase and pay for the Option Units
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions: (i) the Registration
Statement shall remain effective at the Option Closing Date, and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been instituted or shall be pending, or, to your
knowledge or the knowledge of Marquee, shall be contemplated by the Commission,
and any reasonable request on the part of the Commission for additional
information shall have been complied with to the satisfaction of Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters.
(i) At the Option Closing Date there shall have been
delivered to you as Representative the signed opinion of Baker & McKenzie,
counsel for the Company, dated as of the Option Closing Date, in form and
substance satisfactory to Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters, together with copies of such opinion for each of the
other several Underwriters, which opinion shall be substantially the same in
scope and substance as the opinion furnished to you at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinion, where appropriate,
shall cover the Option Units.
(ii) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Ernst
& Young LLP, dated the Option Closing Date and addressed to the Underwriters
confirming the information in their letter referred to in Section 4(d) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the Chairman of the Board or the President
and the principal financial or accounting officer of Marquee, dated the Option
Closing Date, in form and substance satisfactory to Bachner, Tally, Polevoy &
Misher LLP, counsel to the several Underwriters, substantially the same in
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scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Units shall
be satisfactory in form and substance to you, and you and Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of Marquee or its compliance with any of the covenants or conditions
contained herein.
(f) No action shall have been taken by the Commission or the
NASD, the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Representative or Marquee, shall be contemplated by the
Commission or the NASD. Marquee represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD.
(g) Marquee shall have caused and taken no action to prevent
each of the merger of A&A and a Merger Subsidiary of Marquee and the merger of
SMTI and a Merger Subsidiary of Marquee, substantially on the terms and
conditions set forth in the Acquisition Agreements and the Prospectus, subject
to such changes therein as are not material and are agreed to by the
Representative.
(h) If any of the conditions herein provided for in this
Section shall not have been fulfilled as of the date indicated, this Agreement
and all obligations of the several Underwriters under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by the Representative
notifying the Company of such cancellation in writing or by telegram at or
prior to the applicable Closing Date. Any such cancellation shall be without
liability of the Underwriters to the Company.
5. Conditions of the Obligations of Marquee. The obligation of Marquee
to sell and deliver the Units is subject to the following conditions:
(a) The Registration Statement shall have become effective
not later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Representative may
agree in writing; and
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
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<PAGE>
If the conditions to the obligations of Marquee provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only
the obligation of Marquee to sell and deliver the Units on exercise of the
option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) Marquee agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and will reimburse, as incurred,
such Underwriters and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Units under the securities laws thereof
(any such application, document or information being hereinafter called a "Blue
Sky Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that Marquee will not
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such Preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which Marquee may otherwise have.
(b) Each Underwriter severally, but not jointly, will
indemnify and hold harmless Marquee, each of its directors, each nominee (if
any) for director named in the Prospectus, each of its officers who have signed
the Registration Statement, and each person, if any, who controls Marquee
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which Marquee or any such director, nominee, officer or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
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upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to Marquee by you or by any
Underwriter through you specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all such Underwriters and controlling persons,
which firm shall be designated in writing by you). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying party.
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7. Contribution.
In order to provide for just and equitable contribution under the Act
in any case in which (i) any Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then Marquee and each person who controls Marquee, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that all
such Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and Marquee shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of
Marquee and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by
the Company or any of the Merger Subsidiaries, or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. Marquee and the
Underwriters agree that it would not be just and equitable if the respective
obligations of Marquee and the Underwriters to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriters in the aggregate were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the first
sentence of this Section 7 and (b) that the contribution of each contributing
Underwriter shall not be in excess of its proportionate share (based on the
ratio of the number of Units purchased by such Underwriter to the number of
Units purchased by all contributing Underwriters) of the portion of such
losses, claims, damages or liabilities for which the Underwriters are
responsible. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls Marquee within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then any Underwriter and each person who controls any Underwriter shall be
entitled to contribution from Marquee, its officers, directors and controlling
persons to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other
-26-
<PAGE>
than Marquee and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to
the settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Units to the Underwriters is consummated, Marquee will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented, or the Term Sheet, the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Units
contemplated hereby; all expenses, including reasonable fees and disbursements
of counsel to the Underwriters, in connection with the qualification of the
Units under the state securities or blue sky laws which the Representative
shall designate; the cost of printing and furnishing to the several Underwriters
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, this Agreement, the Agreement Among Underwriters, Selling
Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney and
the Blue Sky Memorandum, any fees relating to the listing of the Units, Common
Stock and Warrants on the Nasdaq SmallCap Market or any other securities
exchange, the cost of printing the certificates representing the securities
comprising the Units, the fees of the transfer agent and warrant agent the cost
of publication of at least three "tombstones" of the offering (at least one of
which shall be in national business newspaper and one of which shall be in a
major New York newspaper) and the cost of preparing at least four hard cover
"bound volumes" relating to the offering, in accordance with the Underwriters'
request; provided that the Company shall only be required to pay for the
tombstones and bound volumes in the event that the Offering is consummated.
Marquee shall pay any and all taxes (including any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales to the Underwriters
hereunder. Marquee will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses Marquee shall at
the First Closing Date pay to The Underwriters a non-accountable expense
allowance of $376,875, of which $50,000 has been paid. In the event the
overallotment option is exercised, Marquee shall pay to The Underwriters at the
Option Closing Date an additional amount equal to 2.25% of the gross proceeds
received upon exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action by
the Underwriters (except if such prevention is based upon a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations
-27-
<PAGE>
hereunder required to be fulfilled by the Company or any of the Merger
Subsidiaries is not fulfilled) Marquee shall be liable for the accountable
out-of-pocket expenses of the Underwriters, including legal fees up to a
maximum of $50,000. In the event the transactions contemplated hereby are not
consummated by reason of any action of the Company or because of a breach
by the Company of any covenant, representation or warranty herein, Marquee
shall be liable for the accountable expenses of the Underwriters, including
legal fees, up to a maximum of $150,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Representative or from any other person
for services as a finder in connection with the proposed offering, and Marquee
agrees to indemnify and hold harmless the Representative and the other
Underwriters, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Representative or such other Underwriter or person may become subject
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is entitled
to a finder's fee in connection with the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. Substitution of Underwriters.
If any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase the First Units hereunder, or
shall fail to take up and pay for the number of First Units set forth opposite
their respective names in Schedule A hereto upon tender of such First Units in
accordance with the terms hereof, then:
(a) If the aggregate number of First Units which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the total number of First Units, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the First Units which such defaulting Underwriter or Underwriters agreed but
failed to purchase. In the event the Offering is not consummated for any
reason, any portion of the non-accountable expense allowance previously paid to
the Underwriter which is not accounted for shall be returned to the Company.
(b) If any Underwriter or Underwriters so default and the
agreed number of First Units with respect to which such default or defaults
occurs is more than 10% of the total number of First Units, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the First Units which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters
do not, at the First Closing Date, take up and pay for the First Units which
the defaulting Underwriter or Underwriters agreed but failed to purchase, the
time for delivery of the First Units shall be extended to the next business day
to allow such remaining Underwriters the privilege of substituting within
twenty-four hours (including nonbusiness hours) another underwriter or
-28-
<PAGE>
underwriters satisfactory to Marquee. If no such underwriter or underwriters
shall have been substituted as aforesaid, within such twenty-four hour period,
the time of delivery of the First Units may, at the option of Marquee, be again
extended to the next following business day, if necessary, to allow Marquee the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the First Units of the defaulting Underwriter or Underwriters as
provided in this Section, (i) Marquee or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and Marquee agrees promptly to file any amendments
to the Registration Statement or supplements to the Prospectus which may
thereby be made necessary, and (ii) the respective numbers of First Units to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the First Units agreed
to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, Marquee shall not find or shall not
elect to seek another underwriter or underwriters for such First Units as
aforesaid, then this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Units at the Option Closing Date,
or shall fail to take up and pay for the number of Option Units, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Units in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriter or Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all such Option Units, the Underwriters shall be
entitled to purchase the number of Option Units for which there is no default
or, at their election, the option shall terminate, and the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to
Marquee, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to Marquee arising out of
such default.
10. Effective Date.
The Agreement shall become effective upon its execution except that
you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day
-29-
<PAGE>
following the effective date of the Registration Statement, or at such earlier
time after the effective date of the Registration Statement as you in your
discretion shall first commence the initial public offering by the Underwriters
of any of the Units. The time of the initial public offering shall mean the time
of release by you of the first newspaper advertisement with respect to the
Units, or the time when the Units are first generally offered by you to dealers
by letter or telegram, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that Sections 3(c), 6, 7, 8, 13, 14, 15 and 16 shall remain in effect
notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13,
14, 15 and 16 hereof, may be terminated at any time prior to the First Closing
Date, and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Units agreed to be purchased hereunder
by reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to Marquee's or any of the Merger
Subsidiaries' business, or a notification having been received by either
Marquee or any of the Merger Subsidiaries of the threat of any such proceeding
or action, which could materially adversely affect Marquee and the Merger
Subsidiaries taken as a whole; (vii) except as contemplated by the Prospectus,
Marquee is merged or consolidated into or acquired by another company or group
or there exists a binding legal commitment for the foregoing or any other
material change of ownership or control occurs; (viii) the passage by the
Congress of the United States or by any state legislative body or federal or
state agency or other authority of any act, rule or regulation, measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
impact on the business, financial condition or financial statements of the
Company or the market for the securities offered pursuant to the Prospectus;
(ix) any adverse change in the financial or securities markets beyond normal
market fluctuations having occurred since the date of this Agreement, or (x)
any material adverse change having occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of Marquee and the Merger
Subsidiaries taken as a whole, financial or otherwise, whether or not arising
in the ordinary course of business.
-30-
<PAGE>
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11 or in
Section 10, Marquee shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. Unit Purchase Option.
At or before the First Closing Date, Marquee will sell to The
Underwriters or their designees, as permitted by the NASD, for a consideration
of $335, and upon the terms and conditions set forth in the form of Unit
Purchase Option annexed as an exhibit to the Registration Statement, a Unit
Purchase Option to purchase an aggregate of 335,000 Units. In the event of
conflict in the terms of this Agreement and the Unit Purchase Option, the
language of the Unit Purchase Option shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or its Principal Stockholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in writing,
if sent to the Underwriters, will be mailed, delivered and confirmed to them at
Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York
11797, with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017, attention: Jill M. Cohen, Esq., or if sent to
Marquee, will be mailed, delivered and confirmed to it at 888 Seventh Avenue,
40th Floor, New York, New York 10019, with a copy sent to Baker & McKenzie, 805
Third Avenue, New York, New York 10022, attention: John J. Hentrich, Esq.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or any of the several
Underwriters, and directors of Marquee, nominees for directors (if any) named
in the Prospectus, its officers who have signed the Registration Statement, and
their respective executors, administrators, successors, assigns and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include any purchaser, as such
purchaser, from any of the several Underwriters of the Units. All of the
obligations of the Underwriters hereunder are several and not joint.
-31-
<PAGE>
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between Marquee and the several Underwriters in accordance
with its terms.
Very truly yours,
THE MARQUEE GROUP, INC.
By: /s/ Robert Gutkowski
------------------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
ROYCE INVESTMENT GROUP, INC.
By: /s/ Anthony Sarkis
------------------------------------
For itself and as Representative of
the several Underwriters
-32-
<PAGE>
SCHEDULE A
Underwriter Number of Units to be Purchased
--------------------------- ---------------------------------
Royce Investment Group, Inc. 1,675,000
Continental Broker-Dealer Corporation 1,675,000
Total Units: 3,350,000
-33-
<PAGE>
LIST OF SUBSIDIARIES
1. Athletes and Artists, Inc. (a New York Corporation)
2. Sports Marketing & Television, Inc. (a Connecticut corporation)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $7,231,000
<SECURITIES> 0
<RECEIVABLES> 1,296,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,085,000
<PP&E> 224,000
<DEPRECIATION> 5,000
<TOTAL-ASSETS> 9,361,000
<CURRENT-LIABILITIES> 1,850,000
<BONDS> 0
0
0
<COMMON> 88,000
<OTHER-SE> 5,321,000
<TOTAL-LIABILITY-AND-EQUITY> 9,361,000
<SALES> 2,869,000
<TOTAL-REVENUES> 2,869,000
<CGS> 0
<TOTAL-COSTS> 4,823,000
<OTHER-EXPENSES> 192,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,000
<INCOME-PRETAX> (2,430,000)
<INCOME-TAX> (20,000)
<INCOME-CONTINUING> (2,410,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,410,000)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
