<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21711
The Marquee Group, Inc.
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(Exact name of small business issues as specified in its charter)
Delaware 13-3878295
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(Sate of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
888 Seventh Avenue, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-977-0300
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At April 30, 1997, there were 8,769,162 shares outstanding of the registrant's
common stock, par value $.01 per share.
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THE MARQUEE GROUP, INC.
TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of Stockholders'
Equity for the Year Ended December 31, 1996 and
Three Months Ended March 31, 1997 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8-9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 DECEMBER 31, 1996
(UNAUDITED)
----------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,285,934 $ 7,230,526
Accounts receivable 1,344,426 1,295,894
Due from related parties 75,250 138,699
Due from Celebrity Golf
Championship, LLC -- 169,100
Prepaid expenses and other
current assets 691,750 250,363
---------- ------------
Total current assets 7,397,360 9,084,582
Property and equipment, net 506,109 218,604
Deferred Advisory Costs 400,000 --
Other assets 157,812 57,612
--------------- ---------------
Total assets $ 8,461,281 $ 9,360,798
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 1,035,668 $ 1,134,692
Distribution payable to
stockholders 382,311 382,311
Acquisition indebtedness -
current portion 332,500 332,500
--------------- ---------------
Total current liabilities 1,750,479 1,849,503
Loan payable to officer/stockholder 121,615 121,615
Acquisition indebtedness-stockholders 1,637,500 1,637,500
Other liabilities 427,750 343,000
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 87,692
Additional paid-in capital 7,664,071 7,795,199
Deferred compensation (39,586) (63,334)
Accumulated deficit (3,188,240) (2,410,377)
-------------- --------------
4,523,937 5,409,180
-------------- --------------
Total liabilities and stockholders'
equity $ 8,461,281 $ 9,360,798
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SEE ACCOMPANYING NOTES
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED MARCH, 31
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1997 1996
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REVENUE
Commissions and fee income $ 1,978,407 $ ---
Operating expenses 943,156 ---
General and administrative expenses 1,819,884 244,846
------------ ------------
Loss from operations (784,633) (244,846)
Interest income, net 6,770 ---
------------ -------------
Net loss (777,863) (244,846)
------------ -------------
Net loss per share $ (.09) $ (.03)
============ =============
Weighted average common stock and
common stock equivalents outstanding 8,811,662 7,494,162
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SEE ACCOMPANYING NOTES
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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<CAPTION>
NUMBER OF COMMON ADDITIONAL DEFERRED ACCUMULATED
SHARES STOCK PAID-IN CAPITAL COMPENSATION DEFICIT TOTAL
------ ------ --------------- ------------ ------- -----
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Balance - December 31, 1995 1,938,462 $19,385 $595 $ -- $ -- $ 19,980
Issuance of common stock:
Issuance to employee 50,000 500 118,750 (118,750) -- 500
Conversion of Debentures 666,662 6,667 1,993,333 -- -- 2,000,000
Public offering, net of offering costs 3,852,500 38,525 15,547,001 -- -- 15,585,526
Acquisition of Subsidiaries 2,261,538 22,615 1,487,831 -- -- 1,510,446
Distribution to acquired companies'
stockholders -- -- (10,970,000) -- -- (10,970,000)
S corporation dividend of subsidiary -- -- (382,311) -- -- (382,311)
Amortization of deferred compensation -- -- -- 55,416 -- 55,416
Net loss for the year ended
December 31, 1996 -- -- -- -- (2,410,377) (2,410,377)
---------- -------- ----------- -------- ------------ -----------
Balance - December 31, 1996 8,769,162 87,692 7,795,199 (63,334) (2,410,377) 5,409,180
Offering Costs -- -- (131,128) -- -- (131,128)
Amortization of deferred Compensation -- -- -- 23,748 -- 23,748
Net loss for the quarter ended
March 31, 1997 (777,863) (777,863)
---------- -------- ----------- -------- ------------ -----------
Balance March 31, 1997 8,769,162 $ 87,692 $ 7,664,071 $ (39,586) $(3,188,240) $ 4,523,937
---------- -------- ----------- -------- ------------ -----------
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SEE ACCOMPANYING NOTES
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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MARCH 31, 1997 MARCH 31, 1996
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Net cash used in operating activities $ (1,714,881) $ (194,027)
Net cash used in investing activities -
purchase of fixed assets (295,661) --
Financing activities
Proceeds of loans payable to related parties 65,950 225,000
Issuance of common stock -- 500
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Net cash provided from financing activities 65,950 245,480
------------------ -------------------
Increase (decrease) in cash and cash equivalents (1,944,592) 31,453
Cash and cash equivalents - beginning of period 7,230,526 --
Cash and cash equivalents - end of period $ 5,285,934 $ 31,453
================ ====================
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SEE ACCOMPANYING NOTES
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
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. Accordingly, the
accompanying consolidated financial statements include the accounts of
the Company and its Subsidiaries from and after December 12, 1996.
ACCOUNTING POLICIES:
The interim condensed consolidated financial statements of The Marquee
Group, Inc. are unaudited. It is the opinion of the Company's management
that all adjustments necessary for a fair statement of the interim
results presented have been reflected therein. All such adjustments were
of a normal recurring nature. Due to the seasonal nature of the business
activities of the Company operating revenues and net earnings for any
interim period are not necessarily indicative of results that may be
expected for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes, which appear in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
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, which are common stock
equivalents, have been excluded from the calculation of earnings per
share.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
statement No. 128, "Earnings Per Share", which is required to be adopted
in December 31, 1997. At that time the Company will be required to change
the method currently used to compute earnings per share and to restate
all prior periods. The impact of statement No. 128 on primary earnings
per share is not expected to be material. The Company has not yet
determined what the impact of Statement No. 128 will be on the
calculation of fully diluted earnings per share.
2. RELATED PARTY TRANSACTIONS:
In February 1997, the Company paid to Sillerman Communications Management
Corporation , a company controlled by Robert F.X. Sillerman, the Chairman
of the Company, the sum of $400,000 as an advance against investment
advisory services to be provided in connection with certain identified
acquisition opportunities.
3. CONTINGENCIES:
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.
4. INCOME TAXES:
The Company has not recognized the tax benefit of its net operating loss
as realization of this benefit is not reasonably assured.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS - PERIOD ENDED MARCH 31, 1997 COMPARED TO PERIOD ENDED
MARCH 31, 1996
The Marquee Group, Inc. (the "Company") commenced operations in January 1996
when its activities consisted principally of negotiating the agreements
relating to the acquisition of Athletes and Artists, Inc. ("A&A Acquisition")
and the acquisition of Sports Marketing and Television International Inc. (the
"SMTI Acquisition" and together with the A&A Acquisition, the "Acquisitions")
and engaging in limited sports marketing, production and consulting activities.
The Company's consolidated financial statements are not directly comparable
for the three months ended March 31, 1997 to the three months ended March 31,
1996 due to the occurrence of the Acquisitions in the fourth quarter of 1996.
For the period ended March 31, 1997, the Company generated revenue of
approximately $1,978,000. The principal sources of such revenue were fees
generated through the Company's consulting activities, production revenue for
the Breeder's Cup and commissions earned from talent representation. Revenues
were also derived from the Company's production of boxing programs broadcast on
ESPN.
The Company's operating expenses for the period ended March 31, 1997 were
approximately $943,000 and principally consisted of production expenses for
ESPN boxing and the Breeder's Cup, and salary and commissions attributable to
talent representation.
General and administrative expenses were approximately $1,820,000 in the 1997
quarter compared to $245,000 for the same period in 1996. This increase is
primarily the result of the Acquisitions which increased expenses by $898,000.
Also contributing to the higher costs were increased salary related and
occupancy costs required to support the substantial increase in business
operations in the 1997 period.
The Company's net loss for the period ended March 31, 1997 was approximately
$778,000 compared to a loss of $245,000 for the same period in 1996, due to the
factors discussed above. The Company did not recognize a tax benefit on this
loss, as realization of a benefit is not reasonably assured.
The following unaudited proforma condensed combined statement of operations for
the period ended March 31, 1996 presents the operations of the Company as
though the Acquisitions and the Company's initial public offering had occurred
on January 1, 1996.
Pro Forma for the Period Ended
March 31, 1996
-------------------------------
Revenue $1,520,433
Operating Expenses 953,967
General & Administrative Expenses 1,135,102
-----------
Operating income (loss) ( 568,636)
Interest income, net 3,025
------------
Income before taxes ( 565,611)
Income tax (provision) benefit ( 69,570)
-------------
Net income (loss) $( 635,181)
============
The Company had revenues of approximately $1,978,000 for the period ended
March 31, 1997 an increase of $458,000 or 30.1% over pro forma revenues for
the period ended March 31, 1996. The increase is principally related to
production revenue associated with the ESPN boxing contract, increased
Breeder's Cup production revenue, and other consulting revenues. This
increase is offset by reductions in consulting fees of $276,000 related to
the loss of a consulting agreement.
Total operating expenses for the period ended March 31, 1997 were approximately
$943,000 as compared to $954,000, a decrease of $11,000 on a pro forma basis
for the same period in 1996. The decrease is primarily due to reduced production
costs associated with the loss of a consulting agreement and decreased salary
and commission expenses directly attributable to media and athlete fee income
offset by expenses associated with ESPN boxing production of $312,000.
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RESULTS OF OPERATIONS - PERIOD ENDED MARCH 31, 1997 COMPARED TO PERIOD ENDED
MARCH 31, 1996
General and Administrative expenses increased from $1,135,000 for the
period ended March 31, 1996 (pro forma) to $1,820,000 for the same period in
1997, an increase of $5,647,000. The increase is principally attributable to
salary and occupancy related costs which are required to support the
substantial increase in business operations in 1997.
For the period ended March 31, 1997 the Company's net loss was $778,000
compared to a pro forma net loss of $565,000 for the same period in 1996.
Certain existing stockholders deposited an aggregate of 1,275,000 shares of
common stock into escrow (the "Escrow Shares"). The Escrow Shares are not
assignable or transferable. The Company contemplates that the release of the
Escrow Shares to officers, directors, employees and consultants of the Company,
should it occur, will result in a substantial non-cash compensation charge to
operations, based on the then fair market value of the shares. Such charge
could substantially increase the Company's loss or reduce or eliminate the
Company's net income, if any, for financial reporting purposes for the period
during which such shares are or become probable of being released from escrow.
The amount of compensation expense recognized by the Company will not affect
the Company's total stockholders' equity or cash position.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been net proceeds of
approximately $1,363,000 from the private placement, which was completed in
August 1996, advances by shareholders aggregating $767,000 and net proceeds of
approximately $15,586,000 from the Company's initial public offering, which was
completed in December 1996. At March 31, 1997, the Company had working capital
of approximately $5,647,000. 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. On April 1, 1997, the Company made the first
installment payment of $500,000 to its shareholders. 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. It is contemplated that a distribution of
approximately $382,000 will be paid in the third quarter of 1997. In connection
with the conversion of the Debentures issued in the Company's private placement
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 February 1997, the Company advanced to SCMC the sum
of $400,000 as an advance against a special advisory fee. In March 1997, SCMC
assigned its rights, obligations and duties under the consulting agreement to
The Sillerman Companies, Inc.
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PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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3.1 Amended and Restated Certificate of Incorporation of The Marquee
Group, Inc. (incorporated by reference to Exhibit 3.1 to the
Annual Report on Form 10-KSB for the year ended December 31, 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 December 5, 1996, among The
Marquee Group, Inc., Continental Stock Transfer & Trust
Company, Royce Investment Group, Inc. and Continental
Broker-Dealer Corporation (incorporated by reference to
Exhibit 4.1 to the Annual Report on Form 10-KSB for the
year ended December 31, 1996).
4.2 Unit Purchase Option, dated December 11, 1996, issued by The Marquee
Group, Inc. to Royce Investment Group, Inc. (incorporated by
reference to Exhibit 4.2 to the Annual Report on Form 10-KSB for
the year ended December 31, 1996).
10.16 Agreement dated as of November 26, 1996 between The Marquee
Group, Inc. and Unlimited Paramount Network
27 Financial Data Schedule
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(b) The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Marquee Group, Inc.
/s/ Robert M. Gutkowski
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Robert M. Gutkowski May 15, 1997
President, Chief Executive Officer ---------------
and Director Date
/s/ Donna Coleman
- ------------------------ May 15, 1997
Donna Coleman ----------------
Chief Financial Officer Date
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<PAGE>
UPN LETTERHEAD
September 11, 1996
Revised October 4, 1996
Revised November 15, 1996
Revised November 25, 1996
Revised November 26, 1996
Janet Pawson
The Marquee Group
421 7th Ave., 14th Floor
New York, New York 10001
Re: ANNUAL "PROFESSIONAL SKATING ASSOCIATION'S U.S. OPEN TOURNAMENT"
FIVE (5) HOUR (TOTAL) BROADCAST TELEVISION SPECIAL ("SPECIAL(S)")
THE MARQUEE GROUP ("PACKAGER")
Dear Ms. Pawson:
The following memorandum of agreement ("Agreement") sets forth the terms of the
understanding between the United Paramount Network ("UPN") and Packager,
regarding the aforementioned Special(s).
1. Production and Delivery: (a) Subject to the conditions set forth below, UPN
has initially ordered for exhibition during the Term (defined in Paragraph 2
below) in the Exhibition Territory (defined in Paragraph 13 below) and Packager
has agreed to produce and deliver one annual Special in each year of the Term
hereunder, each of which will be approximately five (5) hours in length, at
least four (4) hours of which shall be delivered and exhibited live with
delayed exhibition in certain time zones to be designated by UPN, based upon
the location of the venue (or, upon joint consultation between the parties,
taped for initial delayed exhibition), the final hour of which shall consist of
either live competition finals or highlights tape, as mutually agreed by the
parties, to be exhibited on UPN over a three (3) day period (or as otherwise
specified by UPN), with the first Special to be produced and exhibited during
the last quarter of the calendar year 1997. It is anticipated that the annual
dates of all live exhibitions will be scheduled between November 1st and
December 10th in any calendar year.
(b) Each Special shall be of a nature and quality consistent with similar
specials or ice skating competitions which are produced for broadcast initially
on the three major networks--ABC, CBS and NBC--and the talent participating
shall be of a professional quality, in no event less well-known or having
lesser marquis-value than of those
<PAGE>
who participate in similar specials or ice skating competitions produced for
broadcast initially on the three major networks. In the event the 1997 Special
fails to meet either of the foregoing requirements, UPN will have the option,
exercisable by January 31, 1998, of terminating this Agreement.
(c) Provided UPN has not previously exercised its right of termination
pursuant to the foregoing Paragraph 1(b), UPN may order subsequent Specials for
exhibition after the second year of the Term, annually, in the event UPN
exercises the Options referenced in Paragraph 2 below.
(d) Notwithstanding the foregoing, upon payment of the License Fee
(defined in Paragraph 4 below), UPN shall have no obligation to actually
exhibit any of the Specials.
2. Term/Options: (a) The Term of this Agreement shall commence on the date
hereof and continue through January 31, 1999 (the "Term"), subject to UPN's
option to terminate, as set forth in Paragraph 1(b) above and its option to
extend, as set forth in Subparagraph (b) following.
(b) Additionally, UPN shall have three separate, successive, annual,
dependent options (the "Options"), each of which, if exercised, shall extend
the Term by an additional period of one year which may be accomplished by
sending written notification to be received by Packager no later than January
31 of the applicable year.
3. Exhibition: (a) Packager hereby grants to UPN the exclusive license to make
up to three (3) exhibitions of each Special and, at no additional cost to UPN,
to "double pump" (as defined below) each Special exhibition over the Term for a
total of six (6) exhibitions. For the purposes of this agreement, the term
"double pump" refers to the re-exhibition of a Special within a nine-day
period.
(b) UPN shall have a two-year period following the end of the Term to
complete any exhibitions licensed under subparagraph (a) above, provided
however, that UPN shall grant Packager blackout protection during the fourth
quarter of each calendar year in the event Packager has licensed subsequent
U.S. Open ice skating competitions for broadcast in the Exhibition Territory by
any third-party.
4. Consideration: (a) In consideration of the full performance of all of
Packager's obligations hereunder and for all rights granted to UPN (except
where additional payment is expressly specified), including without limitation
the right to make up to six (6) network exhibitions (as more particularly
described in Paragraph 3 above) of each Special during the Term, UPN shall pay
the Packager a license fee, inclusive of all actual, auditable, direct,
out-of-pocket, third-party production costs (the "License Fee"), as follows:
<PAGE>
(i) In connection with the Special based on the 1997 tournament,
UPN will pay Packager, a License Fee in the sum of up to One Million Three
Hundred Thousand Dollars ($1,300,000);
(ii) For each subsequent Special produced hereunder, the License
Fee shall be increased by Five Percent (5%) of the License Fee paid in
connection with the Special produced hereunder in the immediately preceding
year and, subject to good faith negotiation, UPN may increase such License Fee
by up to an additional Five Percent (5%), based upon estimated budget
increases;
(iii) The License Fee shall be a flat, all-in payment and UPN shall
not be responsible for any residual or other re-occurring payments which may be
triggered by UPN's re-exhibition of the Specials. Notwithstanding the
foregoing, in the event that UPN requires Packager to utilize UPN talent as
more particularly described in Paragraph 11 below, then, to the extent
inclusion of any such UPN talent results in total residual costs payable by
Packager that exceed the budgeted line item for such costs, UPN agrees to
reimburse Packager the difference between such budget line item and the expense
incurred as a result of the inclusion of such UPN talent; and
(iv) Provided Packager produces the Special itself (i.e., does not
hire a production company to provide all producing services), UPN agrees to
recognize in the budget for each Special, a Production Supervision Fee payable
to Packager, in the amount of Five Percent (5%) of the total direct,
out-of-pocket, third-party production costs (expressly excluding from such
costs any Executive Producer Fee(s) payable pursuant to the pre-approved
budget). The Production Supervision Fee shall comprise a portion of the maximum
License Fee payable in any year of this Agreement. To the extent payment of the
full 5% Production Supervision Fee would increase the License Fee beyond the
maximum payable in such year, then the Production Supervision Fee shall be
reduced by the amount of such overage.
(b) The payment schedule for the License Fee shall be as follows:
(i) An advance of one-fourth (1/4) (less any advances made
pursuant to Paragraph 1(b) above) payable upon start of
preproduction (which shall be no earlier than September 1 of
each year in which UPN has exercised its option to extend;
provided, however that UPN shall reimburse Packager for all
budgeted out-of-pocket preproduction costs incurred prior to
September 1, upon receipt of a paid invoice therefor);
(ii) An advance of one-fourth (1/4) payable three (3) days
prior to initial exhibition of the Special (if exhibited
live) or three (3) days prior to commencement of production
(if filmed for exhibition); and
(iii) the remainder ten (10) business days after the initial
exhibition date, provided, however, that UPN shall withhold
3
<PAGE>
fifteen percent (15%) of the License Fee, i.e. $195,000 in
year 1, pending completion of UPN's audit, which shall be
conducted pursuant to Paragraph 4(c) below.
(c) Subsequent to the delivery of each Special produced hereunder and as
soon as it is practical to do so, Packager shall deliver to UPN an accounting
of all expenses incurred in connection with the production of such Special
accompanied by notice that Packager has compiled all necessary materials for
audit. UPN shall have five (5) business days from receipt of said accounting
and notice to notify Packager that (i) UPN intends to audit such expenses at
Packager's place of business, in which event, the parties agree that an audit
shall be scheduled at such time as shall be mutually and reasonably agreed
upon, but in no event shall such audit commence any later than two (2) weeks
subsequent to the date of UPN's notice hereunder, or (ii) desires that Packager
forward to UPN, at the address provided herein, copies of all materials
required for UPN to properly conduct its audit, which UPN shall commence within
fifteen (15) days from receipt of all such materials. Any audit conducted in
accordance with this provision shall be completed within forty-five (45) days
of commencement thereof.
(d) The provisions of this paragraph 4 shall survive the expiration or
earlier termination of this Agreement.
5. Off-Network Revenue: UPN shall be entitled to receive from all of the
Off-Network Gross Receipts (hereafter defined) paid to Packager, an amount
equal to seventeen and one-half percent (17.5%) of one hundred percent (100%),
calculated at the source. "Off-Network Gross Receipts" shall include all
revenue of any kind derived from the distribution or exploitation fo the
Special(s) from any source other than UPN's network exhibition and attendance
ticket sales (the proceeds of such ticket sales shall be retained by Packager
100%). Specifically included in this definition, without limitation, are
revenues from merchandising and licensing, music (to the extent Packager is
entitled to and receives revenues), home video sales or rentals and foreign or
domestic distribution and any and all ancillary uses. No distribution fees,
overhead fees, interest or other charges by Packager may be deducted prior to
calculating UPNOs 17.5% share of such Off-Network Gross Receipts. This
provision shall survive expiration or earlier termination of this Agreement.
6. Audits. Packager shall maintain accurate and up-to-date books and records
with respect to matters discussed in Paragraphs 4 and 5 hereinabove. UPN shall
have the right, once during each year of the Term and upon reasonable notice to
Packager, to audit, or cause its designee to audit, the books and records of
Packager with respect to all matters referenced in Paragraph 5 above. Any audit
so conducted shall occur during regular business hours and at the offices of
Packager and shall be scheduled at the convenience of Packager but in no event
later than sixty (60) days after receipt of a notice of intent to audit. UPN
shall bear its own expenses in connection with any audit hereunder unless the
results of the audit shall reveal an error in favor of Packager in excess of
ten percent (10%) of sums actually owed pursuant to Paragraphs 4
4
<PAGE>
and/or 5 hereinabove. In such event, Packager shall assume all costs incurred
by UPN in connection with the audit. The rights hereunder shall survive the
expiration or earlier termination of this Agreement.
7. Commercial Inventory: UPN shall control all commercial inventory and
enhancements, including without limitation, on-site signage and any event title
sponsor, and shall receive all revenue therefrom.
8. Insurance: (a) Packager shall maintain liability insurance covering Packager
and UPN, respectively, with minimum bodily injury limits of Three Million
Dollars ($3,000,000) for any single party's claim arising out of a single
occurrence and Three Million Dollars ($3,000,000) for all claims arising out of
a single occurrence; and with minimum property damage limits of One Hundred
Thousand Dollars ($100,000) for all claims arising out of a single occurrence.
(b) Packager shall secure and maintain standard "Errors and
Omissions" insurance covering the Specials. Such insurance shall have limits of
Three Million Dollars ($3,000,000) for any single party's claim arising out of
a single occurrence and Three Million Dollars ($3,000,000) for all claims
arising out of a single occurrence, and shall have no unusual exclusions or
exceptions.
(c) Such insurance shall include coverage of UPN, its subsidiary
and affiliated companies, its licensees, the stations over which the Specials
shall be exhibited, the sponsors of the Specials, advertising agencies, their
successors and assigns and the officers, directors, agents and employees of all
the same. UPN shall be named as additional insured and such insurance shall be
primary. Prior to commencement of production, Packager shall furnish UPN with a
certificate of such insurance evidencing such coverage.
9. Cancellation/Reimbursement of License Fee: If the production of any of the
Specials is canceled or terminated because of the Packager's inability to
comply with its obligations or commitments hereunder, any portion of the
License Fee previously paid by UPN for such year in which cancellation or
termination shall occur, shall be promptly returned to UPN by Packager.
10. Approvals: (a) UPN shall have its customary creative approvals, a copy
of which is attached hereto as EXHIBIT "A" and made a part hereof. UPN shall
exercise its creative approvals in a reasonable manner and in a way which is
not calculated to hamper, frustrate or delay production.
(b) During the first year of the term, UPN shall have prior written
approval over any financial commitments made by Packager to talent or
competitors participating in the Specials that require reimbursement by UPN as
part of the budget of the second or subsequent Specials.
(c) UPN shall have meaningful consultation rights with respect to all
elements that comprise each annual budget.
5
<PAGE>
11. UPN Talent: With respect to the entertainers, Packager and UPN agree that
the Packager will consider utilizing UPN talent where appropriate, including,
without limitation, as entertainers, presenters, announcers or performers in
some manner; however, the final decision for talent utilized will be in
Packager's sole discretion. To the extent inclusion of any UPN talent results
in total fees payable by Packager that exceed the budgeted line item for such
talent, UPN agrees to reimburse Packager the difference between such budget
line item and the expense incurred as a result of such UPN talent.
12. Credits: Credits for the Specials shall be in accordance with UPN's
on-air credit policy therefor with the understanding that the Executive
Producer credit is only to appear at the beginning of the Specials and not at
the end thereof.
13. Trade-Outs: In the event Packager intends to enter into airline and hotel
or other "trade-out" agreements for the Specials, Packager shall obtain the
prior consent of UPN's Department of Broadcast Standards and shall comply with
all of UPN's Special Compliance Guidelines as set forth in EXHIBIT "B" annexed
hereto and made a part hereof.
14. Exhibition Territory: (a) The "Exhibition Territory" is the United
States, its territories, commonwealths and possessions (including Saipan and
Puerto Rico) and Bermuda.
(b) During the Term, Packager shall not license the Special to be
exhibited over any television station having a transmitter or main studio
located in Windsor, Canada or in Tijuana, Mexico. Additionally, UPN shall be
entitled to blackout protection with regard to any area of the United States,
including but not limited to San Diego and Detroit, which receives signals from
outside the Exhibition Territory by over-the-air transmission or cable
retransmission.
15. Delivery Requirements: The Specials are to be delivered in accordance
with UPN's delivery requirements for specials. (A copy of the delivery
requirements is attached as EXHIBIT "C".)
16. Exclusivity: The Specials and all non-generic elements thereof shall be
exclusive to UPN in the licensed territories during the term hereof. Packager
shall use its reasonable efforts to obtain from the performers, competitors,
hosts and spokespersons appearing in the Specials, a provision in each of their
contracts which provides that such persons shall not make any other starring or
guest appearance on television within 21 days prior to and 8 days following the
initial designated broadcast date.
17. Warranties and Representations: Packager warrants and represents that:
(a) Packager has full rights and authority necessary to produce, deliver
and license the Specials, is free to enter into this agreement and fully
perform all of its obligations hereunder;
6
<PAGE>
(b) Packager has entered into this agreement with the full consent and
cooperation of the Professional Skating Association (the "PSA") and shall
maintain such consent and cooperation throughout the term. In the event any
dispute that materially affects UPN's broadcast rights hereunder arises between
Packager and the PSA, UPN shall have the absolute right to suspend its
performance hereunder until such dispute is satisfactorily resolved or, if such
dispute shall continue unresolved for a significant period, UPN may terminate
this agreement in whole or elect to reject any one or more Specials affected
thereby.
(b) The Specials shall conform with UPN's Broadcast Special practices,
standards and policies and with all applicable F.C.C. rules, including without
limitation, F.C.C. Section 507 requirements;
(c) Packager has secured and/or will secure prior to production of the
Specials all rights necessary for the exhibition of the Specials as
contemplated hereunder including, without limitation, all literary, artistic,
performers, competitors, spokespersons, hosts, corporate or professional
sponsors (including the PSA) and/or intellectual property rights, music
performing and synchronization rights and privacy rights;
(d) Neither the Specials, nor the existence, production or any use
permitted hereunder of the Specials or of any visual or aural element thereof,
will infringe on any trademark or trade name of, violate any right of privacy
of, constitute a libel or slander against or violate any copyright or literary,
artistic, intellectual, dramatic or other right of any person or entity
whatsoever; and
(e) Packager has not granted or attempted to grant, and shall not grant,
to any person or entity whatsoever any right that would derogate from or
interfere with any right granted to UPN herein or the performance of Packager's
obligations hereunder.
18. UPN Use of Elements: Subject to the provisions of all applicable collective
bargaining agreements, all materials (elements) in the Specials (both audio and
visual) may be used by UPN for print, billboard, radio and on-air promotion and
advertising, including without limitation clips, still photography, music and
all the images and likenesses of all actors, competitors, spokespersons or
hosts appearing therein and the logos, and registered marks of the PSA or the
U.S. Open Figure Skating Competition.
19. Indemnity: (a) Packager hereby indemnifies and agrees to hold UPN at all
times harmless from any and all claims, damages, liabilities, costs, and
expenses, including reasonable counsel fees, arising out of any material or
element contained in the Specials broadcast by UPN in accordance with the grant
of rights hereunder and of any rights, services, or materials furnished or
delivered by Packager, any act or omission by Packager, or any breach by
Packager of any warranty contained in this Agreement.
7
<PAGE>
(b) UPN, in turn, shall indemnify Packager from any and all claims,
damages, liabilities, costs and expenses, including reasonable counsel fees
arising out of any material which UPN may furnish for the Specials hereunder or
any breach by UPN of any of its representations or obligations hereunder.
20. First Negotiation/First Refusal: (a) In the event UPN has exercised all of
its Options pursuant to Paragraph 2 herein, and UPN wishes to negotiate an
extension of this Agreement, UPN shall tender notice to Packager to be received
no later than six (6) months prior to the expiration hereof. Packager shall
thereafter negotiate exclusively with UPN for a period of sixty (60) days
("Exclusive Negotiation Period"), however, if the parties are unable to
conclude a new agreement by the end of the Exclusive Negotiation Period, then
Packager shall be free to negotiate with third parties subject to the
provisions of the following sub-paragraph 20(b).
(b) For the full duration of the Term and for a period of one year
following the expiration of the Term ("First Refusal Period"), Packager shall
not enter into an agreement with any third party in connection with future
Specials (provided Packager has exercised all of its Options pursuant to
Paragraph 2 herein) or any other television special based on the Professional
Skater's Association U.S. Open Tournament or any other similar, qualifying,
skating competition following a format similar to the Specials (collectively,
the "Property"), without first offering to enter into an agreement with UPN on
those terms and conditions offered by any such third party. In the event that
Packager shall receive a third party offer in connection with the Property at
any time during the First Refusal Period, Packager shall promptly notify UPN of
the terms and conditions thereof and UPN shall have five (5) business days to
enter into an agreement with Packager on terms and conditions no less favorable
to Packager than those contained in the third party offer. In the event that
UPN does not agree as set forth above, Packager shall be free to accept such
third party offer on terms and conditions no less favorable to Packager than
those contained in the third party offer.
21. Complimentary Tickets: Packager will provide UPN with up to 250
complimentary attendance tickets for attendance at each Special by UPN
executives, affiliates and/or their designees in an amount to be agreed to by
the parties. Packager shall give UPN first opportunity to purchase additional
tickets.
22. Notices:
(a) Except as otherwise expressly specified herein, any notice required
herein shall be given in writing by overnight express mail, registered or
certified mail or by facsimile, to the respective address of the recipient
thereof set forth herein, or as may subsequently be designated in writing by
such recipient. Delivery shall be deemed to have occurred on the date set forth
in the signed and dated receipt (if by overnight express or registered or
certified mail) customarily issued by the delivery service or in any mechanical
receipt (if by facsimile) issued by the facsimile machine.
8
<PAGE>
(b) In the case of notices given to Packager, UPN will send notices The
Marquee Group, 888 Seventh Avenue, 37th Floor, New York, NY 10019, c/o Robert
Gutkowski and, in the case of notices given to UPN, Packager will send notices
to United Paramount Network, 11800 Wilshire Boulevard, Los Angeles, California
90025, Attention Sr. V.P. Legal and Business Affairs.
(c) If the last day on which a notice that this Agreement requires or
permits to be given shall fall on a Saturday, Sunday or day on which the
department of the sending party that is responsible for sending such notice
shall not be open for business ("Closed Day"), then (notwithstanding any other
provision hereof) such last day shall be deemed postponed until the first day
that shall not be a Saturday, Sunday or Closed Day.
23. Governing Law: This agreement shall be governed by the laws of the
State of California applicable to those agreements to be wholly performed
within the State.
24. Incorporation of Customary UPN Terms: To the extent that they are not
inconsistent with the terms set forth above, those customary provisions which
are normally included in more formal contracts of this type with UPN, including
without limitation provisions with respect to Remedies, Pay or Play,
Compliance, Force Majeure, Preemptions, Assignment, etc., are deemed
incorporated herein, subject to good faith negotiations within the customary
industry parameters for Specials of this type.
Hereafter, a more formal agreement may be prepared by the Packager and UPN, but
the parties' failure to prepare such agreement shall not alter the binding
effect of this agreement, which supersedes all prior understandings and
communications between Packager and UPN regarding the subject matter hereof.
Please have each of the enclosed copies of this letter signed where provided
below and return it to me. I will obtain proper signatures and forward to you a
9
<PAGE>
fully executed counterpart for your files.
Best regards,
Valerie Cavanaugh
Agreed to and Accepted:
THE UNITED PARAMOUNT NETWORK
By: /s/
------------------------------------
Its:
------------------------------------
THE MARQUEE GROUP
By: /s/
------------------------------------
Its President/CEO
------------------------------------
<PAGE>
EXHIBIT "A"
CREATIVE APPROVALS
Any other provision of this Agreement notwithstanding, UPN shall have the
following rights of prior creative approval with respect to each Special
ordered hereunder:
A. All key creative elements in each Special, including, but not limited
to, the venue where each Special shall be filmed or taped, the executive
producer(s), producer(s), writer(s), director(s), concept, format, outlines,
scripts, opening and closing titles, music (with the exception of music
selected by the competitors, which shall be limited to approval for broadcast
standards purposes only) and hosts, and each proposal to replace, and the
replacement for, any of the foregoing, shall be subject to UPN's prior
discretionary approval. UPN will cooperate in responding to approval requests
as soon as practicable in cases where Packager advises that scheduled
production progress may be in jeopardy as the result of delays in such
approval. Packager will cooperate in requesting approvals as early as possible,
in order to avoid such emergencies.
B. After UPN has approved any creative element, such element shall not be
changed or eliminated without UPN's prior discretionary consent.
Notwithstanding UPN's approval of any creative element, UPN may subsequently
require Packager to replace or remove such element.
C. UPN shall have a reasonable opportunity to consult with Packager
concerning the Special and any production element prior to commencement of
principal photography. Packager shall deliver the script to UPN as soon as
Packager receives such script. Packager represents, warrants and agrees that
all Specials shall conform to UPN's Department of Broadcast Standards and
Practices' then-current Special and operating policies and with the business
and advertising policies of all major sponsors of any Special. Packager
expressly acknowledges that UPN has the right to direct Packager to make such
changes in any script for any Special as UPN deems necessary for such Special
to so conform.
D. Representatives of UPN as UPN may designate may be present during all
stages of production of each Special. If applicable, the daily footage
("dailies") shall be made available to UPN (on film or tape at UPN's election)
at such screening facilities as UPN may designate. Within ten (10) days after
the completion of principal photography and prior to dubbing of any Special,
Packager will make available to UPN, at screening facilities as UPN may
designate, a rough cut. Packager shall, at UPN's request from time to time,
promptly furnish UPN with rough cut materials for UPN's use in testing any or
all of the Specials and for Broadcast Standards and Practices review.
<PAGE>
EXHIBIT "B"
UPN SPECIAL COMPLIANCE GUIDELINES
1. Performer's 507 Clause
Attached is a copy of Section 507 language for use in standard talent
contracts which contain the necessary 507 payola language in compliance
with F.C.C. dictates. This language must be included in all performers'
agreements.
2. Political Candidates
Neither the picture nor voice or likeness of any individual who is a
political candidate may be included in the Special without the prior
approval of UPN.
3. Agent/Manager of Performers
UPN must be advised in writing if any member of the production company
acts as an agent for or manages any cast member. In such cases, agent's
or manager's fees may have to be waived for this Special.
4. Commercial Exposure
UPN policy limits the amount of readable or identifiable commercial
exposure within its programming. Therefore, when constructing and
dressing a set or shooting on location, care must be exercised to avoid
the readable exposure of names and/or logos of commercial entities. No
clothing bearing the names or logos of commercial entities shall be worn.
Particular caution is necessary with respect to athletic clothing,
T-shires and sporting equipment.
No readable identification of any commercial products or establishments
may be included in the Special's opening or closing titles or in bumpers.
All persons supplying props, set dressings, locations or other services
to the Special for free or for less than full consideration must sign
UPN's 507 Payola Form. UPN must be advised of all such deals and will
provide the relevant 507 Form(s). No identifiable names or logos on
props, set dressings or locations are permitted in the Special without
UPN's express prior written approval.
All featured props must be generic, "N.D.," or otherwise free of
commercial identification. "Look-a-like" labels or "Greeked" labels which
can still be identified as recognizable brand packaging are not
permitted. "N.D." or fictitious product labels must be obtained from
prop/printing houses as needed.
5. Dialogue
Audio commercial mentions, i.e. brand name identification and names of
commercial entities, must be kept to an absolute minimum in the dialogue
and should be introduced only where essential to the Special content.
12
<PAGE>
6. Production Assistance Deals
No deal may be made by the production company whereby property and/or
service are received free or at less than full consideration in exchange
for in-Special identification of a commercial name or logo. No deal may
be made in exchange for an end credit without first securing UPN's
permission.
Under UPN policy, in no case may cash or its equivalent be accepted by
the production company, or anyone associated with the Special, in
exchange for including any matter in the Special.
7. Wardrobe Deal
Any such arrangement must be coordinated with UPN.
8. 800/900 Telephone Numbers
UPN policy does not permit the use of 800/900 telephone number Special
elements without the express prior approval of UPN's Special Standards
and Broadcast Practices Department.
<PAGE>
PERFORMERS' SECTION 507 LANGUAGE
(This language must be included in performers' agreements.)
"Federal Communications Act: Player understands that it is a Federal offense,
unless disclosed to his or her employer or to UPN prior to broadcast, to:
1. Give or agree to give any member of the production staff, anyone
associated in any manner with the Special, or any representative of UPN
any portion of his or her compensation or anything else of value for
arranging his or her appearance on the Special.
2. Accept or agree to accept anything of value, other than his or her
regular compensation for services on the Special to promote any product,
service or venture on the air, or use any prepared material containing
such a promotion where player knows the writer received consideration for
it."
14
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0
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<SALES> 1,978,407
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